Increasing Costs Impacting DOT ProjectsIncreasing Costs Impacting DOT Projects
Projects like Phase II of the $463 million LA1 Project in Louisiana will elevate 8.3 miles of highway would cost up to $100 million more if they were awarded today.
August 3, 2022
Increasing costs for materials and labor are causing multiple transportation departments across the United States to reduce the number of projects they are awarding.
Projects like Phase II of the $463 million LA1 Project in Louisiana will elevate 8.3 miles of highway would cost $100 million more if they were awarded today. That's according to estimates from the Louisiana Department of Transportation and Development.
That project's contract was awarded in late 2021.
DOT costs are increasing
"The consumer price index is going up and we're seeing our costs increasing significantly over the last year," said Chad Winchester, Deputy Chief Engineer for the Louisiana Department of Transportation and Development. "Generally, we've seen a 30% increase in construction cost prices. We're trying to create an index for the projects we take bids on. This includes concrete, steel, earthwork, piles and asphalt. Contractors have a more acute understanding of these costs. We're doing our best to assess what the inflation rate does in regards to our projects and how we budget and prepare to move forward."
Inflation has also taken a bite out of the benefits of additional funds being provided by the federal infrastructure legislation.
"There's no doubt about that," said Winchester." The funding increased our budget by 20% per year and we had additional funds placed in our bridge program. Our budget is only so big, and the number of projects that we can construct are reduced."
Priority projects are being done and if a bridge is deemed unsafe, it is closed.
"We can reject bids and say 'they are too high' or hold off bidding projects in hopes that prices will go down, but I don't think that's a reality," said Winchester. "We are having discussions with industry experts who are also having discussions with economists to make predictions. However, it's just predictions. We just hope that the rate of inflation tapers off. But you can't delay projects hoping that prices will come down. We still have needs and we will address them as best we can. When the money runs out, we're out of money."
Potential consequences of new economic challenges
Fewer DOT projects could impact contractors, subcontractors, engineering firms and those associated with the concrete construction industry.
"We don't have figures on labor costs, but we know they are increasing, and this factors into bid prices we receive," said Winchester, who noted that his department tracks the numbers of bidders per project. "The number of bidders has gone down in the last number of years. That means less competition, which also means higher prices. We assume part of the reason is because the workforce is reduced and strained."
The Louisiana Department of Transportation and Development spends approximately $1 billion annually on new construction and upgrades.
"We are speaking to counterparts in other states, and they are experiencing the same thing we are," said Winchester.
Louisiana has over 13,000 bridges and part of the federal funding is specifically for those bridges.
"We got a healthy chunk of that money," said Winchester. "But inflation does not help."