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You’re probably
both lucky and good if your water and wastewater construction business
is growing these days. For many underground contractors, backlogs
are just holding even, according to a spot check of contractors
around the country. A number of firms are struggling just to get
by.
In Illinois, for example,
business for some contractors is not good, says Patrice Ekins, associate
director of legislative and public affairs for the Underground Contractors
Association of Illinois. “People have had to drop out of membership,
and the economy is so bad that some contractors are hanging on by
a thread,” says Ekins.
The good news is that
the construction demand exists, and we’re going to have to
spend the money sooner or later. The volume of unmet infrastructure
needs—for both clean water and drinking water—is large
and growing. “There’s still a huge need for water and
wastewater construction but not enough funding to get all the work
done,” says Robert Hall, chief financial officer at CAS Construction
Inc. in Topeka, KS. “A very significant amount of our infrastructure
was built in the old WPA days, and things don’t last forever,”
he says in reference to the Works Progress Administration of the
1930s. “It’s a potential crisis, and some communities
don’t ‘fess up’ to their own city council about how
bad things are,” says Hall. “The public-works people realize
that funds are not forthcoming, so they may not want to let people
know how bad it is because they don’t want to get people too
stirred up. A lot of government agencies don’t keep reserve
funds for updating and improving water and wastewater plants, so
the backlog of needs grows, and when they don’t have the money,
what do they do?”
Large Funding Gaps
By not maintaining and improving our deteriorating water infrastructure,
our nation is steadily running up a huge construction tab. In a
report dated September 2002, the United States Environmental Protection
Agency (EPA) said the potential gap between operations and maintenance
(O&M) needs and current spending, assuming no revenue growth,
could reach a “point estimate” of $148 billion for clean
water over the next 20 years—and a high-end estimate of $229
billion. On the drinking-water side, the O&M funding gap could
reach a point estimate of $161 billion—and a high-end estimate
of $495 billion over 20 years. EPA’s point estimates are at
a midpoint between the high- and low-end estimates.
What’s more, EPA
identified a capital-payments gap. That is equal to the capital-payment
needs less the current spending on capital. For clean water, EPA
says the capital gap over 20 years attains a point estimate of $122
billion for the no-revenue-growth scenario. The capital gap for
drinking water reaches a point estimate of $102 billion for the
no-revenue-growth scenario. Current capital spending, EPA says,
is estimated at $13 billion per year for clean water and $10.4 billion
for drinking water.
“However, this gap
largely disappears if municipalities increase clean water and drinking
water spending at a real growth rate of 3% per year,” claims
EPA. The report goes on to say that a 3% real growth rate, above
inflation, is consistent with the long-term growth estimates of
the economy.
If you add up EPA’s
point-estimate gaps for both clean and drinking water—for capital
payments and O&M—and divide by 20 years, the result is
a gap of $26.7 billion per year. That’s just a bit higher than
the $23 billion annual spending gap reported by the Water Infrastructure
Network (WIN) in April 2000. WIN is a coalition of local elected
officials, drinking-water and wastewater service providers, state
environmental and health administrators, engineers, and environmentalists.
“Not meeting the investment needs of the next 20 years risks
reversing the public-health, environmental, and economic gains of
the last three decades,” says WIN.
Increased Federal
Role
Through water and sewer bills, local citizens already pay about
$60 billion a year—or 90% of the total cost to build, operate,
and maintain their water and wastewater systems—WIN says in
a 2001 report titled Water Infrastructure Now. “Increased local
fees and taxes will help pay a share of future system requirements,
but local fees alone cannot solve all funding problems,” WIN
contends.
Efficiency gains can
pay some of the bill. Many publicly owned and operated utilities
have demonstrated that operating costs can be reduced by as much
as 25% over a three- to five-year period. But, WIN says, efficiency
improvements have already been deducted to arrive at the $23 billion
total.
“The case for federal
investment is compelling,” WIN says. “Clean and safe water
is no less a national priority than is national defense, an adequate
system of interstate highways, or a safe and efficient aviation
system.” The latter two infrastructure programs enjoy sustainable,
long-term federal grant programs—but under current federal
policy, water and wastewater infrastructure does not.
Yet federal spending
for water and wastewater is abysmally low. “At the federal
level, we are spending less than $3 billion per year,” says
Jeff More, a partner at The Accord Group, a Washington, DC, consultant
to the drinking-water and wastewater community.
Congress provides federal
funding for highways, airports, and waterways because those systems
broadly underpin the US economy, and their benefits accrue to users
spread across wide geographical areas without limitations imposed
by local political boundaries. However, WIN argues, water and wastewater
infrastructure provides comparable economic and societal benefits.
“We’re going
to have to look at a dedicated long-term trust fund to pay for wastewater
and drinking water both, but that’s probably a number of years
away,” says More. In its 2001 report, WIN recommends that Congress
authorize the creation of state-administered grant and loan programs
through Water and Wastewater Infrastructure Financing Authorities
(WWIFAs). Such authorities would be the next generation of today’s
state revolving funds (SRFs) for water and wastewater. These WWIFAs
would have broad latitude to meet needs within their states using
combinations of grants, loans, and other financial-assistance instruments.
Funding This Year?
For the near term, the industry is hopeful that Congress will pass
a new multiyear wastewater funding bill. Congressman John Duncan
(R-TN) introduced HR 1560, a five-year, $20 billion wastewater-infrastructure
bill. The bill passed out of subcommittee and might have been sent
to the full House in the fall.
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| Don
Walker (right), chief of staff to Rep. John Duncan, chair of
the Water Resources and Environment Committee, briefs Mike Murphy
(Turner Murphy Co.) and Chris Matthews (Chris Matthews Construction)
on water infrastructure funding legislation. |
“The Clean Water
SRF has not been reauthorized since 1994,” says Eben Wyman,
vice president of governmental relations for the National Utility
Contractors Association. Federal money has been appropriated, however,
at about $1.35 billion per year for the past several years.
We have been working
feverishly to reauthorize this program,” says Wyman. SRFs for
both clean water and drinking water are funded by 80% federal money
and 20% state money. Then states loan money to local communities
for projects as determined by states’ priorities. Over a longer
period of time, local communities pay back the borrowed money to
the SRFs at a low rate of interest. The SRFs are intended to be
self-sustaining. “That has not happened,” says Wyman.
The funding need has
skyrocketed in both wastewater and drinking water, but more so in
wastewater. “What has killed reauthorization in the past is
the debate over the Davis Bacon Act,” says Wyman. Davis Bacon
requires contractors on all federally funded projects to pay “prevailing
wages,” which amounts to union wages. So labor unions, pro-labor
Republicans, and Democrats generally favor requiring Davis Bacon
to take effect on clean-water projects—but most Republicans
oppose it. The problem is with the second round of SRF funding,
Wyman says. “Until 1994 they applied Davis Bacon to the first
round of projects, and those were like federal grants. But when
the money comes back and is loaned out again, unions want Davis
Bacon to apply to all projects, to all rounds of funding in all
states.”
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In the field, Davis Bacon
has largely been resolved anyway. Thirty-one states have prevailing-wage
requirements and pay union wages. Wyman says that in states without
prevailing-wage laws, such as Florida, Georgia, and the Carolinas,
contractors pay extra “to get the right people to get the job
done.” Both Wyman and More say that if Congress could resolve
the Davis Bacon issue, a clean-water funding bill would probably
pass without any problems. There is also some debate over funding-allocation
formulas. “If there was an agreement reached on Davis Bacon,
the Senate would get off the dime on the allocation formula, and
the bill would move along,” says Wyman.
How Contractors Are
Doing
Following are some snapshots of business from water and wastewater
contractors around the country:
Alabama has a $650 million
deficit this year, so it’s difficult for water infrastructure
to get its share of funds. “Our business is on a roller coaster,
and right now things are lean,” says Bob Rast, president and
CEO of Rast Construction Inc. in Birmingham. “We used to see
three to five bidders on a job, and now we see 10 to 14 bidders
on a sewer or water job. … We’ve been living under the
Davis Bacon Act, and we primarily pay at the union wage level. Our
rates are market-set and adjusted to comply with prevailing-wage
rates. When we bid for a job, the people we bid against have to
pay the same wages we do.”
Glenbrook Excavating
& Concrete Inc. in Prairie View, IL, does water- and sewer-line
construction but doesn’t do treatment plants. Glenbrook’s
backlog is about the same now, at $4 million–$5 million, as
it was a year ago. “Most of it is publicly funded construction,”
says Bob Gwiasda, vice president. “I would say work has been
fairly constant. There’s been plenty of work to bid this year.
We’d always like to see more, though. We bid about $300 million
worth of work every year and get about $20 million [worth]. We’re
bidding work every day and try to keep the margins as high as we
can.”
For Robert Hall, construction
volume this year will be about the same as in 2002, at $30 million.
“Normally we would have seen a larger number of building contractors
attempting to work in our market. But 9/11 and the resulting weakness
in the surety markets have prevented a number of building firms
from getting into our business. The number of bidders is more closely
related to how far you get from a metropolitan area. We bid a job
in Lincoln, Nebraska, and there were six bidders. Then we bid a
job in Dodge City, Kansas, and there were three bidders.
“Our state legislature
seems to think the work is almost exclusively related to more strict
environmental regulations,” says Hall. “But the majority
of the work is being done because communities are growing and need
to add capacity. We have communities in Kansas that have moratoriums
on growth until they can expand their wastewater treatment facilities
and collection network.” CAS just finished a treatment plant
for Gardner, KS, a bedroom community for Kansas City—and the
developer had to delay building new homes until the new $14.5 million
treatment plant was complete.
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| Oscar
Renda Contracting places 90-in.-diameter HOBAS pipe, made of
fiberglass mortar, for a sanitary sewer line in San Antonio.
|
For Frank Renda, vice
president of Oscar Renda Contracting Inc. in Roanoke, TX, work under
contract amounts to $85 million, with most of it in Texas and some
in Arizona and Arkansas. That’s up from some $80 million a
year ago because Renda won a couple of large contracts with the
City of San Antonio. One $21 million project involves building a
90-in. sanitary sewer line up to 100 ft. deep. The project is 4
mi. long, and Renda is using HOBAS pipe, a centrifugally cast fiberglass
pipe. Production is faster with the HOBAS pipe than with concrete,
says Renda, because the fiberglass pipe is much lighter.
Renda says the firm doesn’t
encounter many privatized water or sewer districts. Clean water
and drinking water are nearly all publicly funded, especially in
major metropolitan areas. Renda did come in second, however, on
a privately funded 70-mi. water line in Lonoke and White Counties
in Texas. Renda’s bid was $15.8 million, and the winner was
Garney Construction with $15.1 million. The owner is Community Water,
a privately funded water-supply cooperative.
For Chris Matthews Construction
Inc. in Birmingham, AL, 2003’s new awards total $12 million,
half of which is privately funded work. In 2002, new awards reached
just $6 million, and it was all publicly funded construction, says
owner Chris Matthews. A portion of Matthews’s construction
work comes from privately funded wastewater systems owned and operated
by affiliated Matthews companies. “For example, we own a treatment
plant in Pelham, Alabama. We’ve grown to double the size at
that plant, and we’re in the permitting process for an entirely
new plant,” says Matthews. “We own, operate, finance,
design, and build the wastewater treatment for a 3,500-home development
in Pelham.” Presently 200 homes have been built.
Design-build has helped
rescue some projects on which the bids came in overbudget, Matthews
says. On two projects, Matthews was the low bidder—and left
money on the table—but all bids were overbudget for plants
in Leesburg and Cleveland, AL. So Matthews redesigned the plants
and brought their costs within budget. “The yards of concrete
are less, but the level of quality is the same,” says Matthews.
Better days lie ahead
for water and sewer contractors. As always, the trick is to survive
until funding catches up with need.
Frequent contributor
Daniel C. Brown is the owner of TechniComm, a communications business
based in Des Plaines, IL.
GEC
- November/December 2003
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