Government Shutdown Will Impact Construction Markets

October 2, 2013

Make no mistake, the shutdown of the federal government will have an impact on the construction industry right as things have been picking up. And when construction is impacted, so is the aggregates industry.

Possible impacts include:

  • The Environmental Protection Agency will stop performing environmental impact assessments, delaying large-scale construction projects that need government approval before they can break ground. Further damage will be done to construction companies and other small businesses because the Small Business Administration will stop handing out loans that are meant to help small businesses get through the economic recovery.
  • The real estate market could take a hit too, which would decrease the demand for construction of new homes. The Federal Housing Administration would be unable to provide guarantees on new home loans, forcing first-time home buyers to postpone closing dates.
  • The Federal Highway Administration and other fee-based government agencies that operate on multi-year budgets will remain open, so highway construction and road repaving projects should remain on schedule.

Total construction spending hit an unknown level in August because the Census Bureau was unable to release new data as a result of the federal government shutdown, according to the Associated General Contractors of America. Association officials cautioned that the impacts of the shutdown will go beyond data as solicitations for many new construction projects come to a halt.

“It is hard to get a sense of where the industry is heading when basic construction spending data isn’t available,” said Ken Simonson, the association’s chief economist. “Unfortunately, the lack of federal spending data likely foreshadows a decline in federal construction spending until the government reopens.”

Association officials urged members of Congress to quickly resolve the political impasse that resulted in a federal shutdown that started yesterday. They warned that solicitations for new federal construction projects will be delayed until the federal government reopens. In addition, other federal construction projects may be delayed as many federal supervisors will not be available to answer questions, approve change orders.

“Depending on how long the government is closed, construction workers are likely to miss out on new job opportunities,” said Stephen E. Sandherr, the association’s chief executive officer. “This shutdown poses a real risk of undermining the industry’s long-awaited recovery.”

The American Institute of Architects (AIA) called on Congress to settle its differences.

“AIA members are extremely disillusioned with the current state of affairs in the nation’s capital,” the group said in a statement. “The design and construction industry is slowly recovering from one of the worst economic crises in modern history. The last thing we need is the self-inflicted wound that can potentially further damage the economy. We urge both political parties to set aside political divisions and put the common good of the American public first. That phrase is an anachronism in today’s political vernacular, but lawmakers ought to commit it to memory in coming weeks as the fight over the budget commences and the deadline to address the debt ceiling arrives. We urge the public to ask their Congressional to refocus their debate to responsibly and immediately address the federal budget. Above all, we urge the public not to become politically disengaged.”

Government contracts are NOT likely to be affected by a federal government shutdown, according to the Associated General Contractors:

  • Ongoing, Direct Federal Agency Contracts. Federal contracts that are not funded by FY 2014 appropriations will be largely unaffected by the shutdown because they will not require new funding once the continuing resolution expires. Most federal construction contracts are included within this category because they were already awarded on a fixed-price basis, and funding was appropriated at the time of award. Accordingly, most federal construction projects will not be substantially affected by the government shutdown.
  • Unawarded, Direct Federal Agency Contracts. For federal contracts that have not been awarded, contractors should consult the contracting officer before the shutdown to determine how the agency intends to handle the contract award once the shutdown is over. It is also important to note that court and protest deadlines remain in effect regardless of a shutdown. However, it is unclear how long it will take to resolve such claims if federal court and GAO employees are furloughed.
  • Federal-Aid State DOT Contracts. The federal-aid highway program would not be immediately impacted by a shutdown. Because Congress has enacted authorization for Highway Trust Fund (HTF) spending through the end of FY 2014 and there remains a balance in the HTF, the Federal Highway Administration will remain open for business and will continue to process state DOTs’ requests for reimbursement for on-going highway projects. States will also be able to continue to enter into contracts with the assurance of federal reimbursement. However, USDOT grant and lending programs, like TIGER grants and TIFA loans, could be impacted.

Rock Products will keep you informed about any other developments specific to the government shutdown.

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