On Friday, the Eno Center issued a white paper entitled “Rising Construction Costs: Analyzing the Contributors to Cost Escalations and the Impact on Federal Transportation and Infrastructure Investments.” Since the passage of the Infrastructure Investment and Jobs Act (IIJA) in 2021, there has been significant growth in highway construction costs. This whitepaper explores measurements of cost escalations, potential contributing factors, longer-term construction cost trends, the impact on federal infrastructure investments, and future implications.  

Whitepaper Preview  

Potential factors for cost escalations explored in this paper include supply chain disruptions, materials and inputs costs, labor market shortages, demand side increases, number of bidders on projects, state capacity and reliance on consultants, borrowing costs, regulatory costs, and higher quality projects. While some of these factors are unique to the post-pandemic inflationary period, others are part of longer-term cost trends in infrastructure.  

The highway cost increases in the 2022 to 2024 period outran historic averages for the past two decades, however they exist within larger shifts in public infrastructure spending and cost shifts. To more fully understand the short and long term factors contributing to construction costs escalations, the paper explores increases in the cost of construction and shifts in public infrastructure spending over past decades, including shifts in the share of infrastructure funding covered by states and localities, the share of infrastructure funding dedicated to operations and maintenance, and federal infrastructure funding as a share of GDP.  

It is beyond question that construction costs greatly increased during the post-pandemic period but the extent to which this occurred varies depending on the inflation index utilized. This paper compares data from the Federal Highway Administration’s National Highway Construction Cost Index (NHCCI) and the US Bureau of Labor Statistics’ Producer Price Index (PPI) for construction along with other measures of construction and infrastructure cost and activity. Differences in these data points resulting from differences in their inputs helps provide insights into the factors contributing to cost escalation.  

This paper also examines the impacts of deflation of federal infrastructure dollars on states and localities. Changes in project planning and adaptations to adjust to the higher cost environment are explored. The paper also examines how the industry along with state and local agencies are preparing for potential future risks.  

Significance 

Understanding the highway construction cost escalations during the initial implementation of the IIJA is essential to understanding the impact of federal infrastructure investment in comparison to its initial intentions. Stakeholders involved in surface transportation reauthorization must have open conversations on the benefits and shortcomings of the IIJA, particularly within the context of escalating construction costs, to ensure public trust in taxpayer funded infrastructure spending. Clear analysis also contributes to informed future policy making and potential policy improvements, including examination of the contributing cost factors, long and short-term shifts in public infrastructure spending, and the impact on states and localities.

The Government Accountability Office recently released a report, “Infrastructure Investment and Jobs Act: DOT Should Better Communicate Funding Status and Assess Risk,” identifying challenges experienced by grant awardees and calling for greater communication on funding status and risk assessment for IIJA dollars from USDOT (you can see analysis of the report in this week’s ETW here). Identification of challenges in deployment of federal infrastructure funds, in particular due to a high-cost environment, and the impact of these challenges on national and local infrastructure goals is essential to future transportation infrastructure policy.