September 2009 Vol. 64 No. 9
Newsline
September Newsline: Stimulus impact on utility construction, 2009 infrastructure spending drop, and more
Economic stimulus impact on utility construction
Infrastructure spending to fall in 2009 despite stimulus
Urban areas quest for broadband funds
Pipeline construction contracts awarded web exclusive!
New Immigration Enforcement requires review of contractor practices
California’s bonds near junk rating web exclusive!
FMI 2Q09 construction outlook
Texas construction safety initiative unveiled
APCA releases best practices fact sheets web exclusive!
Economic stimulus impact on utility construction
Griff Morris, managing director of utilities business development with FMI, recently discussed the economic stimulus and its impact on utility construction at the CMAA Leadership Forum in Scottsdale, AZ.
Morris noted there is $16.8 billion available for utility construction through the Department of Energy, $3.2 billion of which has been allocated to state energy programs. Given this current situation in which regulatory commissions will be seeking help from constituents to compete for the stimulus funds, Morris predicts the following:
- Stimulus funding will be delayed as new regulations are developed and implemented;
- Delays will take place during the next six to nine months and will be followed by a robust upturn in utility construction spending for traditional projects coupled with a serious upswing in new technologies spending; and
- Opportunities abound for utilities and major constructors as well as residential and commercial builders to form new strategic alliances to take advantage of the changing landscape.
Specific opportunities exist for utilities. They can assist regulators in understanding new rules and designing new regulations to help state public utility commissions compete for federal funds; and be positioned to shape regulations to improve their business.
Infrastructure spending to fall in 2009 despite stimulus
Despite an infusion of federal stimulus funds, infrastructure spending in the U.S. is still expected to decline 4.3 percent in 2009. According to the Second Quarter 2009 U.S. Infrastructure Market Analysis from IHS Global Insight’s Construction Service, the infrastructure market has been a victim of large state government deficits and funding shortfalls to cities and towns. IHS Global Insight compiles the State of the Equipment Rental Industry reports for the American Rental Association (ARA) and Rental Management.
Without infrastructure spending in the power segment on several new oil refineries and pipeline construction, total infrastructure construction would slip 6.8 percent in 2009. IHS Global Insight expects infrastructure spending to decline 1.6 percent in 2010 and then grow 2.4 percent in 2011 as tax receipts improve for state governments and the federal stimulus package, totaling approximately $120 billion for infrastructure, is fully implemented.
With the exception of power, all infrastructure sub-sectors are expected to drop in 2009.
Of particular note is construction spending for water and sewer infrastructure is expected to fall 6.5 percent in 2009 despite increased federal stimulus spending. The additional federal stimulus funds and the gradual recoveries in the economy and housing market should set this sector up for a strong rebound in 2010 and 2011, growing 9.8 percent in 2010 and 7.4 percent in 2011.
To get the complete Second Quarter 2009 U.S. Infrastructure Market Analysis Executive Summary, visit www.ihsglobalinsight.com/constructionoutlook.
Urban areas quest for broadband funds
The American Reinvestment and Recovery Act has targeted $7.2 billion to bring broadband to more Americans, and now underserved urban areas are eligible for the grants as well as rural regions.
The money had been primarily aimed at expanding broadband service to rural areas, but with the urging of some in Congress, urban areas were included in the program.
When the Obama administration announced the broadband initiative July 1, underserved areas were included in the legislation.
Companies are racing to tap federal stimulus programs aimed at spreading high-speed Internet access, with proposals ranging from infrastructure expansion to subsidizing computers with satellite broadband service.
The Department of Agriculture’s Rural Utility Service (RUS) is overseeing $2.4 billion in loans and grants. The Department of Commerce’s National Telecommunications and Information Administration (NTIA) is overseeing distribution of another $1.6 billion in grants, most of which require winners to match 20 percent of the funding.
Money will be awarded in November, and winning projects will start receiving it by year-end. Another application round will be held for the remaining $3.2 billion left for broadband expansion under the American Recovery and Reinvestment Act.
According to the Recovery Act, an underserved area is one or more contiguous census tracts that can show at least one of four factors: No more than 50 percent of households have access; no service provider offers at least 3 megabits per second download speed; the rate of broadband subscribers is less than 40 percent; or there is no service.
In some poorer urban census blocks, being below the 40 percent subscriber threshold could mean eligibility for grant money to set up a computer center.
Pipeline construction contracts awarded
Enbridge Energy was awarded a contract to U.S. Pipeline Inc. for construction of 87 miles of 36-inch and 20-inch pipeline with two spreads in Clearwater, Beltrami, Hubbard, Cass and Itasca Counties, MN. Headquarters is Bemidji, MN. The superintendents are Wayne Fontenot and Jim Jennings. The approximate starting date is Aug. 17.
Blackwell Enterprises Inc. has been awarded a contract by Henkels & McCoy Inc. for right-of-way restoration and maintenance of approximately 60 miles of 42-inch pipeline in Lamar County, TX. Headquarters is Paris, TX. The superintendent is Glen Madden. The expected start date was July 6.
Precision Pipeline LLC received a contract from Enbridge Energy for 46 miles of 20-inch pipeline in LaSalle, Grundy and Will Counties, IL. Headquarters is Morris, IL. The superintendent is Russell Fischer. The approximate start date was July 13.
New Immigration Enforcement requires review of contractor practices
Immigration and Customs Enforcement (ICE) officials launched a new worksite enforcement campaign targeting employers and their I-9 practices.
ICE issue Notices of Inspection to 652 businesses nationwide. This announcement marks the shift in enforcement form the Bush administration’s policy of emphasizing criminal investigations of employers suspected of violating the federal immigration employment laws.
Local immigration counsel advises that in addition to continued criminal violations fro egregious behavior, there is now a full range of civil fines from paperwork violations to hiring or continuing to hire unauthorized aliens. Counsel expects this trend to continue and more employers will come under scrutiny for their I-9 practices.
Fines can range from $110 to $1,100 for paperwork violations to $275 to $2,200 for unauthorized hiring violations.
With these new ICE enforcement provisions in place, the PLCA recommends that contractors conduct a full audit of their I-9 and immigration related practices.
California’s bonds near junk rating
California’s credit rating was cut for the second time in as many weeks by Fitch Ratings after a stalemate over how to close a $26 billion budget deficit forced the most-populous U.S. state to pay some bills with IOUs.
Fitch lowered its rating of California’s general obligation bonds by two steps to BBB from A-, placing the debt two ranks above junk status, and said the state may be cut further. The credit-rating company last lowered its assessment of California on June 25. Standard & Poor’s has said it also is considering ratings downgrades on California.
To save cash, California began issuing IOUs in June for the second time since the Great Depression. Gov. Arnold Schwarzenegger has imposed three furlough days a month. Meanwhile, advocates for social services are protesting against cuts and proposed reforms outside the Capitol. They want to spare programs they say are vital to senior, low-income families and the disabled.
A junk rating indicates the state’s bonds and other securities are not considered investment-grade, meaning a smaller pool of potential buyers will require higher interest rates to offset the greater risk they’re taking in buying the paper.
FMI 2Q09 construction outlook
In FMI’s Construction Outlook report, the second quarter of 2009 remains bleak. Total construction in 2009 and 2010 will be down 13 percent and 7 percent respectively. FMI anticipates that nonresidential construction will turn negative this year and decline 14 percent with even further declines of 17 percent in 2010.
Nonbuilding construction will continue to be the only bright spot, increasing 4 percent per year in 2009 and 2010, although not in the most obvious segments. Year-to-date nonresidential put in place construction through April is flat, but is expected to decrease sharply throughout the year. Contractors are still reporting backlogs of nine months in 2Q09 (down from 11 months in 1Q08), according to FMI’s Second Quarter Nonresidential Construction Index (NRCI).
Tight credit continues to cause cancellations and delays. Project delays continue to be four times the normal rate and are currently at 20 percent (up from three times in 3Q08). Project cancellations are five times the normal rate and are currently at 10 percent of backlog (doubled from 3Q08). Credit is expected to remain tight through 2010 and delays and cancellations are likely to increase.
According to FMI’s Q09 NRCI, “Now that the details of the American Recovery and Reinvestment Act of 2009 (ARRA) projects are beginning to become known, nonresidential building contractors are realizing stimulus funds won’t bring an immediate cure for declining backlogs as 88 percent of panelists said they had not yet seen the affects of the stimulus bill. However, 23 percent expect the bill will increase their backlogs as much as 5 percent in the next year.”
The water and wastewater segments were intended to benefit from the stimulus bill and will receive some benefit. These segments have been revised slightly upward from 2010 to 2012.
Construction has lost more than 1 million jobs since its January 2007 employment peak.
Texas construction safety initiative unveiled
In June, the U.S. Secretary of Labor Hilda L. Solis addressed the annual gathering of the American Society of Safety Engineers. She announced that the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) will launch a major construction safety initiative in Texas to prevent workplace injuries and fatalities.
“Beginning in July, OSHA will increase the number of inspectors in Texas for a concentrated effort to prevent injuries and fatalities at construction sites. When these inspectors observe unsafe scaffolds, fall risks, trenches or other hazards, they are empowered to launch an immediate investigation,” announced Secretary Solis. “As I have said since my first day on the job — the U.S. Department of Labor is back in the enforcement business.”
More workers die in Texas than in any other state. In 2008, there were 67 construction industry fatalities, and in 2009 there already have been 33. The rate of Hispanic fatalities in construction is especially alarming, having increased by 125 percent between 1992 and 2005. In 2007 and 2008, more than 3,000 inspections were conducted by OSHA in southeastern states. The agency cited a total of 4,390 violations.
APCA releases best practices fact sheets
Links to Fact Sheets on the best practices for the safe operation of excavators, sidebooms, and pressure testing are among the resources now available on the OSHA Web site. Through the OSHA and American Pipeline Contractors Association (APCA) Alliance, APCA developed 10 fact sheets that address activities germane to the pipeline construction industry, such as best practices for using heavy duty equipment (backhoes, sidebooms, trenching machines) and pressure testing. APCA tailored the fact sheets for the employee or the supervisor and created Spanish versions.
The fact sheets address considerations before, during and after operating heavy equipment. In the fact sheet on Excavation and Trenching Best Practices for Operators, for example, the pre-operation section reminds the operator to wear appropriate personal protective equipment and to use a spotter if over-head power lines are present. The operation section states that the operator should maintain a two-foot lateral open area for all material, equipment and spoil. The post-operation section provides considerations that should be made prior to backfilling.
The fact sheets are posted on americanpipeline.org and www.osha.gov/dcsp/alliances/alliance_products.html.
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