Commonwealth Transportation Board briefed on why construction estimates are increasing

Charlottesville Community Engagement is a newsletter and podcast that tries to keep up with how much it costs to build things, a major factor in the provision of infrastructure. The Virginia Department of Transportation also keeps an eye on changing trends as part of an effort to deliver services more efficiently. This comes out of a 2020 study by the firm of Ernst and Young who took a lot at the methodology VDOT uses to estimate the cost of projects and the way it bids them. 

The Commonwealth Transportation Board got a briefing at their meeting on Tuesday, October 25.

“Ernst and Young made several recommendations to the Department and one of those recommendations was to constantly keep up with the economic items including inflation and commodities in our bidding process throughout the year, which is historically something VDOT has not done,” said Bart Thrasher, VDOT’s chief engineer.  

This led to the creation of a Strategic Resource Evaluation Study conducted by The Balmoral Group, which takes a look at the economic future and what that might do to VDOT’s construction budget. 

“The department was experiencing large price increases beginning in spring of last year as were many other transportation agencies,” said Valerie Seidel is the President and principal economist at the Balmoral Group. “We were seeing the rapidly changing market conditions coming out of COVID and just as some of those things were occurring, Russia invaded Ukraine, and we saw things triple even further this year.” 

An image from Seidel’s presentation lays out the key influences and their possible effects in the next two years (Credit: The Balmoral Group)

Seidel said the work took a look at the supply chains upon which contractors depend for materials as well as the labor market for people to build those materials. She said construction workers have not returned to pre-pandemic levels. 

“Exacerbating the situation is that its estimated within the next five years, a third of your workers in concrete, asphalt, and aggregate are going to retire, so the situation is not going to go away,” Seidel said. “You’re going to continue to have this constraint on your labor pool.” 

Seidel said market conditions are worse than they have been for many years and are unprecedented in recent history. That’s in part because the crisis disrupted business as Chinese factories closed to stop the spread of COVID.  

“The U.S. economy and the global economy had operated on a just in time system for several decades,” Seidel said. “When the pandemic hit and no one could spend money on restaurants and gyms and hotels, they just started buying stuff and no one was set up to deliver that stuff in time so you had a huge shipping backlog.” 

The war in Ukraine has also meant many skilled freighter captains are currently fighting on land. 

“Russia and Ukraine produced about one out of every seven ship captains globally,” said. 

Seidel said these factors are why bid prices are increasing. Asphalt prices, for instance, are expected to increase another ten percent this year. 

One member of the Commonwealth Transportation Board suggested that VDOT consider using the funding for fifth round of Smart Scale to cover the cost of project overruns. 

“You’re going to have all this catch up and if Americans start killing Russians you’re going to have a real big problem out of our control,” said Bert Dodson. “That’s a pretty drastic approach I know but what happens we’ll always feel uncomfortable about thinking like that but I’m just saying that it’s not going to get any better and you plan for the worst.” 

Will other members of the CTB agree with Dodson? Find out in a future installment of Charlottesville Community Engagement

The study took a comprehensive look at the cost of materials used in construction projects (Credit: VDOT / The Balmoral Group) 

Before you go: The time to write and research of this article is covered by paid subscribers to Charlottesville Community Engagement. In fact, this particular installment comes from the October 27, 2022 edition of the program. To ensure this research can be sustained, please consider becoming a paid subscriber or contributing monthly through Patreon.

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