Infrastructure Development in an Era of Political Gridlock

There are ways to increase the efficiency of infrastructure projects

By Manuel H. Lazerov

Political divisiveness is becoming a permanent fixture in America, even as everyone recognizes the need to upgrade and expand the nation’s infrastructure using new technology.

The gap between what is needed and what is being built is growing, causing costs to rise at an accelerating rate. Something is seriously wrong when we know what needs to be done and collectively refuse to do it.

The most recent barrier to infrastructure development includes the failure of the administration and Congress to come up with a national public-private infrastructure plan and funding. That is largely attributable to the agreement made to pass the latest piece of tax legislation, putting limitations on the size of future deficits, meaning Congress will be unable to realistically initiate new programs while continuing to struggle to fund existing ones.

It also means that elected federal officials will be unable to ride to the rescue of their local jurisdictions since raising taxes, incurring more debt, and disposing of existing assets in their districts to raise money for new infrastructure are politically toxic thoughts. This effectively shifts much of any initiatives to the state and local level where virtually all infrastructure development takes place.

Local infrastructure development is no picnic. Getting projects through the approval process means overcoming environmental challenges and NIMBY-sponsored drives, increasing taxes, incurring debt, struggling over public vs. private development, and dealing with conflicting interests between cities and rural areas. Added to the mix is the distrust between business and government officials, and the resistance of people in some circles to stop development altogether. Changes must be made to the rules in order to deliver projects.

For example, the timing of approvals needs to be accelerated (i.e. having environmental protections and standards considered in a timely and reasonable manner). Concerns over environmental issues affecting a project must be heard and concluded during the approval process, precluding suits being filed after all approvals are completed and a permit is issued solely to draw out the project process. There is no reason P3 legislation should not include provisions that prevent disruptive tactics like this.

The public does have some legitimate concerns. Cost overruns on public works jobs are almost an expectation. Operation and maintenance costs are frequently 10 times that of original construction costs, and can be exacerbated when maintenance is not timely, or when available technologies meant to bring down costs are deferred.

Risks can be mitigated by using the design-build approach and Guaranteed Maximum Price (GMP) contracts, which can shift construction and operating risks from government to private sector concessionaires.

For instance, firms that offer that kind of service require very close collaboration in the planning stages with the customer to insure that projects come in on budget and on time, especially since user fees are a function of both construction and operating costs. The typical GMP contract can be provided to the customer by the time the project is as little as five percent completed. There is no reason for government agencies to rely upon the design-bid-build arrangement, where they are responsible for any and all design flaws, and the contractor has every incentive to find those flaws and pile on change orders.

Performance guarantees can also shift substantial operating risk. The concessionaire can be made responsible for performance when the government specifies the outcome it wishes to achieve, creating the opportunity to introduce new technology that could have a large impact on operating costs. Since operating costs have such a huge financial impact, any technology that can reduce life cycle costs is as important as construction costs.

The real action in infrastructure is at the state and local level. Social infrastructure, such as courthouses, prisons, schools, hospitals, availability-based road systems, etc, are being developed without relying upon federal funding.

To overcome many of these obstacles requires involved political leadership, and the capability to sort out and deal with competing interests for the benefit of the entire community. Elected public officials are responsible to sponsor a project and be intimately involved in shepherding it through the approval process and beyond.

All of the foregoing presumes greater responsibilities on the part all of the parties, which will produce significantly better outcomes and greater satisfaction.

If the government’s reluctance to initiate projects cannot be overcome, then the subpar development and upgrade of our infrastructure will not change, and our economy and our national competitiveness will suffer. The failure to develop infrastructure is a decision and an unwillingness to invest in our future. It will have an impact.

Manuel H. Lazerov is President of Infrastructure Financial, Inc. He may be reached at www.infrastructurefinancial.org

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