Crumbling American Infrastructure Demands Foreign Contractor Support

Domestic Builders Face Record-Setting Backlogs

Domestic contractors face a deep and record-setting backlog. The negative effect of this fact for the Trump Administration and state governments is extended project time horizons, a reduction in bid competition, and higher construction costs. Governments need to incentivize foreign expert builders to bid on and build work in America, to drive construction costs down and to ensure critical infrastructure gets delivered expeditiously.

The Washington, D.C.—based Associated Builders and Contractors’ Construction Backlog Indicator, which measures the average length of backlogs among all its contractor members, rose to nine months during the first quarter of 2017, up 8.1% from the fourth quarter of 2016, says Chuck Goodrich, president of Gaylor Electric Inc. and 2017 ABC chairman.

“For the first time in the series’ history, every category—firm size, industry and region—registered quarterly growth in the Construction Backlog Indicator. The Construction Backlog Indicator is up by 0.4 months, or 4%, on a year-over-year basis.”

Governments can turn to international builders to keep costs down, and to ensure projects get built. On June 29, 2006, the Indiana Toll Road Concession Company, a joint venture between Cintra Infraestructuras S.A, a separate Spanish construction firm, and Macquarie Atlas Roads, an Australian toll road company, was awarded the contract to construct and operate the Indiana Turnpike. In Florida, over five years beginning in 2009, a Spanish multinational contractor, Actividades de Construcción y Servicios S.A. (ACS) Infrastructure Development of Madrid, constructed the $1.8 billion I-595 Expressway. In 2017, In North Carolina, I-77 Mobility Partners LLC, another joint venture led by Cintra, will finance, develop, design, construct, operate and maintain the 26-mile I-77 Express Lanes Project as part of a public-private partnership with the North Carolina Department of Transportation.

As shown in Figure 1, in 2018, even as the gap between construction spending and GDP widens, construction spending is nevertheless set to rise to an all-time high. The Federal Government and state governments will soon compete for a narrowing market of domestic contractors, creating an issue that could stymie the Trump Administration’s Rebuilding America’s Infrastructure Plan and Governor Justice’s Roads Building Plan.

According to an article published by Princeton University on international competition in engineering and construction, in the past, American contractors faced little international competition for large, high-margin domestic government contracts, because they had the resources and capacity to build it all. However, with American contractors spread out across the globe taking advantage of a globalized construction marketplace, and American governments set to make major infrastructure investments, domestic contractors face potentially years-long backlogs. While perhaps American governments can afford to waste this time, failing infrastructure cannot.

International Builders Hesitate To Depart From Safe Harbors

President Trump has promised to “get out of the way,” but his America First policies, which steers the world towards an international realism worldview, deepens the already growing uncertainty in the international contracting industry. Political and economic uncertainty has created reticence amongst international contractors, which is evidenced by the results of the Engineering News-Recording (“ENR”) Top 250 International Contractors list.

The Top 250 International Contractors reported $468.12 billion in contracting revenue in 2016 from projects in foreign markets, down 6.4%, from $501.14 billion, in 2015—representing the third straight year showing a drop in Top 250 revenue from outside domestic markets. As a group, firms also reported $927.94 billion in revenue from domestic projects in 2016, up 3.4%, from $897.33 billion, in 2015. Political and economic uncertainty has international contractors looking for markets that are reliable and safe.

Before President Trump’s election, international contractors were forced to assess the impact of Britain’s exit from the European Union as well as growing political turmoil in the Middle East and elsewhere. Now, international contractors must assess whether the Trump Administration’s nationalist rhetoric is nothing more than posturing. If the Trump Administration’s rhetoric turns into action, then the issue is how the international community will respond.

Can The Trump Administration Legally Implement Its America First Policies

With his bold, repeated, and consistent commitment to reestablish ‘international realism,’ President Trump has created policy concerns within the international trade law community. President Trump has been emphatic that his policies are underpinned by his belief in this philosophical worldview, which sharply contrasts with the philosophical doctrine of internationalism, a view promoted by President Obama and politicians cut from the same cloth such as Prime Minister Trudeau.

In response to World War II, 23 countries, including the United States and major European powers ratified the General Agreement on Trade and Tariffs (the “GATT”), which became law on January 1, 1948. The original purpose of the GATT was to boost economic recovery, through trade liberalization. In other words, major nations committed to eliminating or reducing tariffs, quotas, and subsidies, while maintaining meaningful regulations.

The GATT has been refined over decades and eventually led to 123 countries creating the WTO on January 1, 1995. Thus, what began as an international treaty designed to mitigate the risk of international war by boosting national economies has evolved into a major international regulatory body. Though attenuated to most citizenries, the WTO has had a profound effect on each and every nation. The effect of the WTO’s trade regulations cannot be over-emphasized. As demonstrated in the Trump Administration’s “Trade Deals That Work For All Americans” policy, President Trump has isolated international trade law as a primary causal factor in America’s domestic political unrest:

“For too long, Americans have been forced to accept trade deals that put the interests of insiders and the Washington elite over the hard-working men and women of this country. As a result, blue-collar towns and cities have watched their factories close and good-paying jobs move overseas, while Americans face a mounting trade deficit and a devastated manufacturing base.

With a lifetime of negotiating experience, the President understands how critical it is to put American workers and businesses first when it comes to trade. With tough and fair agreements, international trade can be used to grow our economy, return millions of jobs to America’s shores, and revitalize our nation’s suffering communities.

This strategy starts by withdrawing from the Trans-Pacific Partnership and making certain that any new trade deals are in the interests of American workers. President Trump is committed to renegotiating NAFTA. If our partners refuse a renegotiation that gives American workers a fair deal, then the President will give notice of the United States’ intent to withdraw from NAFTA.

In addition to rejecting and reworking failed trade deals, the United States will crack down on those nations that violate trade agreements and harm American workers in the process. The President will direct the Commerce Secretary to identify all trade violations and to use every tool at the federal government’s disposal to end these abuses.

To carry out his strategy, the President is appointing the toughest and smartest to his trade team, ensuring that Americans have the best negotiators possible. For too long, trade deals have been negotiated by, and for, members of the Washington establishment. President Trump will ensure that on his watch, trade policies will be implemented by and for the people, and will put America first.

By fighting for fair but tough trade deals, we can bring jobs back to America’s shores, increase wages, and support U.S. manufacturing.”

The international trade law community would likely agree that it is unfair to place blame squarely at the feet of “Washington Politicians” for the negative effects on the domestic economy caused by international trade law, President Trump is correct to highlight that international trade law has had a profound affect on America’s domestic economy. President Trump is also correct to point out that America sacrifices its sovereignty on the alter of international trade deals, which the supra-national entity, the WTO, acts to enforce.

Prudent international contractors need to know whether the Trump Administration can legally implement America First policies.