When Donald Trump is inaugurated as the 45th President of the United States of America this afternoon, the event will have an additional significance for the US civil engineering sector as it could herald a massive programme of infrastructure spending.
Most agree US infrastructure needs the investment. Every four years the American Society of Civil Engineers gives US infrastructure a report card grade. In 2013 it only gave it a D-plus. The next report is due out on March 9, however it’s unlikely the intervening years have made much of a dent in the £2.9 trillion of investment the ASCE says is needed by 2020.
Trump has said the US will see an infrastructure investment of $1 trillion (£810bn) during his term in office. So what can civil engineering firms realistically expect?
Trump’s infrastructure manifesto says as President he will transform America’s crumbling infrastructure into a “golden opportunity for accelerated economic growth and more rapid productivity gains” with a plan to invest heavily without going into deficit.
The new regime will pursue an “America’s infrastructure first” policy that will push for investment in transport, water, and energy.
Trump says he will fund this by raising new revenues and looking to opportunities including public-private partnerships (PPPs). His policy says the administration will “harness market forces to help attract new private infrastructure investments through a deficit-neutral system of infrastructure tax credits.”
Contractors will also be incentivised to ensure projects are on time and on budget.
The Wall Street Journal has reported that Trump is planning to name real-estate developers Richard LeFrak and Steven Roth to lead a new council of 15 to 20 engineers and builders to monitor infrastructure spending.
For civil engineering consultants in the US the policies and the additional work associated with them is obviously good news, although it’s going to require more than a change of administration.
Turner & Townsend managing director for North America Murray Rowden says it is going to take a cultural shift to move away from the model of state-owned assets to PPP or similarly funded infrastructure. However, the market is being looked at for alternative funding, and Rowden sees infrastructure policies moving quickly after the inauguration.
“I think there will be a drive to make the impact and also engage the market on how it [the policy] can be funded and implemented. Trump’s background means he does understand how market forces work,” said Rowden.
“Trump’s fundamental drive is to invest in the US using levers such as tax incentives to create new jobs, to get social stability and to fundamentally provide infrastructure to make that work. His team has identified 50 top projects to invest in and one could argue that he gets how infrastructure is a key part of economic growth,” he added.
US programme manager Hill International chief executive David Richter said: “The US was market was doing very well even before the election. It has been one of our strongest markets and we expect that continue. With the Republican Party controlling Congress, it is pro-growth and will also do a lot of great things for US economy and for construction. I see regulation and taxes coming down and expect the economy will get a big boost from that.”
However Richter said PPPs have not developed in the same way as they are in the UK, so he did not expect to see many.
A recent PwC report on PPPs, or P3s as they’re known in the US, cites statistics from the UK National Audit Office which shows investment of more than £4bn on average each year over the past 15 years from PPPs / PFIs. “In the US, where the economy is more than six times bigger, only five P3 deals worth a total of $2.4bn (£2.88bn) closed in 2015,” says the report.
Historically in the US PPPs have manifested themselves in the form of toll roads, although this is changing. For example in 2014 in Pennsylvania, the Rapid Bridge Replacement Project PPP brought together 558 structurally deficient bridges under one repair package to benefit from economies of scale. Plenary Walsh Keystone Partners won the contract to finance, design, construct and maintain the bridges for a 28-year term, and is remunerated by Pennsylvania’s Department of Transportation on a performance related basis. Funding comes from the PennDOT’s revenue stream, although the work will be carried out on a faster scale.
Hill International and Turner & Townsend see massive potential in the US market. “I’m there to help drive the business forward. Yes, we will be investing. We’re alliancing with US organisations. You’ve got to be there, invest in and create a North American business to achieve that end,” said Rowden.
Source: @realDonaldTrump / Twitter
One of the most infamous policies has been Trump’s proposed wall along the Mexico border. Only a few days ago Trump said on his Twitter feed that he would get Mexico to pay for it. Does the industry really think this is going to happen?
“The world takes Trump literally, the US voter doesn’t necessarily take him literally. The sentiment is saying we’re going to invest in the US, in its manufacturing capability and build it up and use whatever levers are available to us,” said Rowden.
“I have no idea. I would be very surprised if they build a wall,” said Richter.