The 2021 signing of the Infrastructure Investment and Jobs Act (IIJA) afforded us all some much-needed relief. In the midst of talent shortages, recruitment challenges and the after-effects of a pandemic to boot, an agreement for the single-largest investment in infrastructure in American history is certainly something to shout about.

The bill provides opportunities for all types of engineers and engineering project managers. But with inflation growing at record rates, what impact will this have on engineering projects budgeted under the IIJA?

The price of everything from food to fuel is rising. Not only does that mean that goods cost more , it also means you can buy demonstrably less with the money you have. Or, as The Eno Center for Transportation (Eno) so astutely puts it: “For infrastructure programs, the buying power of each $1 million in infrastructure funding diminishes as the prices of gravel, steel, asphalt, cement, heavy equipment and organized labor go up.”

So while the IIJA was designed to inject a “once in a generation” sum into infrastructure, the current climate could see plans go awry.

the effect of inflation on IIJA investment

In June 2022, U.S. inflation rates hit a 40-year high, rendering the infrastructure investment made by Biden’s government less substantive than it first appeared. But what impact could we expect to see on the $1.2 trillion pledged to address energy and power infrastructure, access to broadband internet, water infrastructure and more?

If we take $48.676 billion in outlays from 2021’s financial year (FY) as a baseline, spending is projected to rise 8.6 percent in 2022, a further 16.1 percent in 2023, an extra 6.1 percent in 2024, 3.3 percent more in 2025 and an additional 2.8 percent in 2026 (the final year of authorizations covered by the bill). Impressive! But the growth rate in spending has to be weighed against the growth in construction costs.

Projected Annual Federal Highway Outlays Under IIJA
Projected Annual Federal Highway Outlays Under IIJA

If we see a seven percent annual highway cost inflation, for argument’s sake, $30.9 billion of this impressive increase in spending will be eaten up by higher costs — reducing the $92.3 billion IIJA increase against flat-line costs to $13.1 billion in real terms (or about $2.2 billion per year). And if sustained highway cost inflation averages above seven percent per year, inflation will have consumed the entire IIJA spending increase.

the impact on engineering projects budgeted under the IIJA

The Infrastructure Investment and Jobs Act (IIJA) has set aside around $660 billion over the course of five years for grants and program funding, covering freight, transit and other transportation projects overseen by the U.S. Department of Transportation (DOT). But some road, rail and port projects may find themselves curtailed or delayed due to rising inflation impacting the purchasing power of the $1.2 trillion infrastructure bill.

States may know how much money they can expect to receive under the bill, but they might not know what they can actually buy with it, as the cost of construction materials continues to rise dramatically. There are also challenges around hiring for engineering projects — If you can’t hire the right people, your project is never getting off the ground. In fact, a recent survey found that 60 percent of firms experienced project delays due to labor shortages.

We always knew that demand for engineering talent was set to soar as a result of the IIJA bill: The sheer scope of the bill means that employers in the engineering space are under pressure to tighten talent acquisition and retention strategies, with particular demand expected for engineering experts in project management, manufacturing, electrical and civil engineering. And with the cost of living hitting people hard, in-demand professionals are demanding their worth, adding a further cost consideration.

There’s a fear that the government may opt for smaller, less ambitious projects, as costs for materials and workers continue to rise, pushing contractors to make far less competitive bids. This could significantly reduce the number of infrastructure projects that the IIJA bill can feasibly finance.

the supply chain challenge

In addition to the heat of rising costs, the supply chain issues prompted by the pandemic are going nowhere, fast. While many were hoping to see the back of supply chain issues as we entered 2022, problems persist. This means that while the new infrastructure bill should, in theory, create a flourish of construction activity, sourcing the materials and equipment needed for project execution could prove challenging. Being creative with materials and designs could help to mitigate some of the challenges surrounding supply chains, but it’s not only materials that are in short supply.

There’s been a severe shortage of skilled labor as many Gen-Xers retired during the pandemic, creating tense competition for the industry’s remaining talent base. This has had a knock-on effect on supply chain logistics, with strain being felt in trucking and warehousing due to labor shortages. An understanding of the candidate market, along with clear knowledge of how to appeal to, secure and retain in-demand talent, could prove critical in these uncertain times.

As our white paper on the challenges and opportunities created by the IIJA bill makes clear, creating a workforce plan that anticipates any talent needs resulting from IIJA spending will help to position you for success. And while much of the spending won’t start until 2023, it’s crucial to start assessing your workforce needs now to ensure you can acquire talent and deliver on forthcoming projects.

If you’re concerned about fulfilling your current or future engineering talent pipeline, Randstad can help. Our engineering staffing experts can make sure that your company is poised and ready to take on work under IIJA, without delays. Get in touch to find out more.