The impact of a bill could have far reaching implications, some of which are not currently being discussed so we wondered what kind of impact this might have on Arizona at a local level. 

Matt Waller, CPA

At this point, it seems likely that some sort of federal infrastructure proposal will be passed in 2021; the size and scope of which we will let Washington sort out although the most current bipartisan plan includes nearly $400 billion in new spending (approximately $110B for roads and bridges, $65B for railways, $50B for public transport, $25B for airports, $75B for power grid improvements and $65B to expand broadband internet access). The impact of a bill could have far reaching implications, some of which are not currently being discussed so we wondered what kind of impact this might have on Arizona at a local level.

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Here are a couple things to consider.

  • Timing – Assuming something is passed this year, it will still likely be 12-18 months before we see any dirt being moved. We imagine it will be a mix between direct federal contracting (e.g. the Army Corp of Engineers) and funds dispersed to the state to be overseen by local agencies (e.g. ADOT). Either way, we should expect these projects will take shape over time and not have an immediate impact in the community. This is probably a good thing because anecdotally, we are seeing contractors of all shapes and sizes having significant backlogs that we expect will still take about that long to work through.
  • Shortages and Inflation – The United States, and particularly Arizona, is experiencing shortages of all kinds. Labor, material, equipment and just about anything else used in construction is both hard to get, and seemingly more expensive every day. The labor shortage we have been experiencing is not confined to boots on the ground but includes everything from project managers to engineers to governmental agencies. The contracts awarded may contain project labor agreements requiring higher wages or subject to Davis Bacon wages. That could drive wages even higher and harken a return to the era of construction crews being picked off your job site for higher wages next door. The raw materials that would be needed for these types of projects are already in short supply and prices are skyrocketing. Equipment prices are following suit. Navigating these challenges will be daunting for the contractor and the question that has not been asked is should taxpayers be buying at inflated prices? Previous infrastructure bills have been passed to help kickstart the construction industry but never has a bill been passed when the construction industry is on fire.
  • Minority Owned Businesses – It is all but certain that a federal infrastructure bill will include requirements for certain levels of minority owned and disadvantaged business to participate. These are already in short supply and those who are out there are generally at maximum capacity. Hopefully, this level of money will encourage new businesses to be created, but will the experience be available to meet those requirements in such a short time frame?
  • Contracting Methods – Direct contracts with the federal government are generally awarded through design-bid-build methods and awarded to the lowest bidder. ADOT or local municipalities may award contracts through other methods including construction management at risk which consider best value and best qualifications (not necessarily lowest bid). In either case it is important to understand the project delivery method and bid your contracts accordingly.

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It is widely acknowledged that the United States’ infrastructure is reaching a critical point and an investment is needed and perhaps long overdue. However, this major influx of money and projects will create winners…and losers. We recommend you prepare yourself.

Matt Waller, CPA, Partner, specializes in providing audit, review, compilation and agreed upon procedures services to construction, real estate, manufacturing and distribution clients. You can reach Matt at (480) 839-4900 or MattW@hhcpa.com.