More than one in four of the nation’s bridges are either structurally deficient or functionally obsolete.
There are more than 4,000 deficient dams in the United States—and for every dam that gets repaired, nearly two more are declared deficient.
America’s drinking water systems face an annual shortfall of at least $11 billion to replace aging facilities and to comply with federal water regulations.
The American Society of Civil Engineers’ 2009 Report Card for America’s Infrastructure has some scary numbers—and in two years, the outlook hasn’t changed much. Neither has the reaction.
“We all realize that we’ve got a problem. But we’re not aligned to a solution,” said Mark Gerencser, executive vice president at Booz Allen Hamilton and a longtime advocate for infrastructure solutions, particularly in what he calls the three “lifeline” areas: transportation, water and energy.
Gerencser’s stances on infrastructure have gained attention in the federal contracting world and the mainstream—he was quoted in Thomas Friedman’s latest book, That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back. Gerencser is one of a crop of infrastructure thought leaders who are getting more notice as the contractor focus shifts from defense spending to what we can do right here.
“Infrastructure has a direct impact on our national security,” Gerencser said, “whether in logistics, the movement of troops and information or performing other vital functions. Of course the politicians are interested in that side, but they’re also concerned about the economy and jobs. That is the big push right now.”
“Other factors don’t seem to get as much attention, but are equally important. These would be our economic competitiveness as a nation and our quality of life as citizens. America was the standard for many years in infrastructure, the model that every nation aspired to. And we can no longer say that.”
Or, as U.S. Transportation Secretary Ray LaHood put it, in a Washington Post discussion: “…America is one big pothole now.”
Infrastructure is an area where, in many ways, GovCon companies are equipped to lead. But to do that, leaders agree that infrastructure planning, financing and execution must change.
Interstates and investment models
In what’s now a legendary infrastructure success story, President Eisenhower pushed the Interstate System into being as a matter of national and economic security. (Another purpose, disaster evacuation, has gained increasing relevance today.) Faced with climbing costs and governors who balked at raising state taxes, he increased the federal share of the road building to 90 percent. Loath to add to the federal debt, Eisenhower sought to pay the freight with a bond issue and taxes on gas and oil; Congress opted to fund it with highway user taxes instead. Eisenhower, modeling the Autobahn, also didn’t emphasize urban highways, which have become critical as hub connections in themselves.
The lesson? Even in the best projects, two aspects of infrastructure can be problematic: innovative financing and long-range planning.
In a Wall Street Journal op-ed this year, Robert Puentes, a Brookings Institution senior fellow writes: “Before we start writing more checks, we need to stop and think long and hard about transportation. Not only are we spending too little right now, but we’re also not spending it wisely.
“For instance, we do a great job of building new roads—since 2000, we’ve added enough new lane miles to circle the globe four times. Yet border crossings, crucial to our nation’s exports, are chronically congested.”
This is an example of a problem that building a new road—or repairing an old one—can’t solve.
It calls for application of technologies that can finesse everything from just-in-time logistics to weather predictions; from measuring air pollution health effects to increasing fuel efficiency; from educating drivers to exploring innovative financing methods for new inspection stations.
This new, holistic way of viewing infrastructure investment is something Gerencser has pushed for years. It also happens to be something federal contractors are well equipped to do.
Today, we’re looking at an exponentially complex and urgent version of the post-World War II road challenge. Everyone agrees that there’s a problem and that there are people and entities uniquely equipped to tackle it. So, what’s stopping us?
Roadblocks to success
The first obstacle is the multi-layered nature of infrastructure. While much of the actual work gets done on the state and local level, change won’t come without federal-level vision and direction. “The annual federal budget cycle is misaligned with the time horizon for infrastructure projects,” Gerencser added. And the procurement process often forces spending and erases benefits of flexibility and longterm planning.
Then there’s the elephant in the room. Of the president’s $447 billion American Jobs Act, $50 billion represents infrastructure spending—and is subject to concerted congressional attack. The I-bank part of the president’s plan—a $10 billion pool to both fund projects and new ways to finance and execute them—was in October declared “dead on arrival” by the Republican chairman of the House Transportation Committee, Rep. John Mica (R-Fla.).
The obstacle that most concerns federal contractors is the market itself. Buzz abounds on new financing models and increased confidence in achieving public-private partnerships. The summer issue of The Journal of Applied Corporate Finance from Morgan Stanley was devoted to infrastructure financing. Still, a combination of risk, instability and an inability to see return has made investment slow.
With so many concrete barriers, how can anyone reach the destination? Stakeholders are all viewing the problem from their own perspectives, Gerencser said—and they need to be compelled to see other views. He has broken the problem down to four key points, as he and others in the field are drumming up solutions.
First: Time to ‘’re-imagine’’ infrastructure
In an article in The American Interest this spring, Gerencser called for “re-imagining infrastructure.” Infrastructure planning and execution is often based on repair and replacement: “patch-the-pothole” thinking. Many perceive a competition for resources between building new infrastructure and repairing the old—but thought leaders say it’s time to get beyond this. “We must view infrastructures as a single network of complex systems comprised of different
assets, jurisdictional authorities and stakeholders,” Gerencser writes. For instance, investors and government alike can change their way of viewing costs, said Darcy Immerman, senior vice president of energy at AECOM.
If she could change just one thing in energy infrastructure, it would be to institute long-term thinking in government and corporations. “Get out of the ‘first-cost’ mentality and into a lifecycle costs mentality,” she urged. An investment in renewable energy, for example, can appear more expensive up front—but the energy security granted may be worth much more in long-term savings.
“There’s a lot of education involved,” said Joseph “Bud” Ahearn, recently retired senior executive at CH2M HILL and retired U.S. Air Force Major General. “The players have embedded structures, processes, tools and a set of cultures in place that have served them well over the years. If you don’t know how to reshape business models and conduct, and you’re highly attached to existing methods, you’ve got to be educated to see the benefit of change and learn to
execute that change.” Such education is not only needed in corporations and government, but can also be put into place immediately in academia, to train tomorrow’s business leaders in this new thinking.
But there’s great potential in this re-imagining. “We know how; we can do it,” Ahearn said. “America is the best in the world at integrated leadership in infrastructure. In measuring program specifics, we’re the industry leaders.”
Second: New design, new models
Gerencser and others also call for new design principles— in technology, building and business models. What all this innovation should have in common is that it is sustainable, upgradable and forward looking. Modular design and resiliency against all disasters as well as the ability to scale to technological change are critical.
Many of these technological innovations dovetail with some of the best resources federal contractors have to offer. Smart grid technologies, for instance, which use a network of power to keep supply steady even in fluctuating demand, have been slow to get going because current regulations discourage cooperation among states. But creating models to work out these bugs—within the United States and throughout North America—could be an opportunity for contractors.
Another example: traffic congestion, which costs the United States nearly $200 billion annually in lost productivity and environmental impact, Puentes writes.
Beating this requires tools and metrics—bread and butter to some govcon companies.
Flexible process design counts, too. For instance, Puentes proposes that states with particularly strong environmental review systems be able to waive federal environmental impact statements—resulting in a big savings of time and money.
Weapons systems, Gerencser points out, often integrate pre-planned product improvement, or evolutionary acquisition. Infrastructure technology could be designed that way as well, with the capacity to integrate future technological improvements.
Materials ranging from new steels to new fuel cells mean technology put in today will have a longer life and be more easily upgradable than infrastructure of past decades, said Gregory Frank, general manager for defense and security at Bechtel. In addition, we’re far better equipped today to look ahead. “Operations and maintenance costs, lifecycle costs, can be factored into upfront design,” Frank said. “We have the technology and design tools to predict supplies for repair, parts and labor costs.”
Innovative design also extends to business models (see sidebar on page 17 for more detail).
“Finance needs to be involved,” Immerman says. “Projects succeed when a facility has a team mentality, and dead center in the middle of that is finance.”
Governments in particular can get stuck in wanting to pay for infrastructure projects in traditional ways, like bonds and appropriations. As they wait for this type of funding to be approved, the situation worsens. “People need to understand that there are new financing options,” Immerman said. “The bond fairy is dead and buried. If I need a new car, ideally, I would love to be able to buy it outright, but if I can’t, I would have to lease it, or buy it on time. Why should our thinking about infrastructure investment be any different?”
Third: Align leaders and stakeholders
Infrastructure’s disparate stakeholder set needs integrative leadership capable of pulling a project together—while all stakeholders are heard and aligned.
Gerencser calls for “megacommunities,” or arenas in which business, government and civil society can join together, recognize each others’ interest and act.
In an op-ed for the Wall Street Journal, Puentes points to several leadership/stakeholder issues impeding the process. States often compete for transportation activity or resources rather than collaborate on solutions, resulting in redundancies and waste. Groups also need to take a longterm planning view so solutions don’t falter when state executives and national administrations change.
Gerencser points to recent situations in Australia and the Netherlands, where permitting stakeholders came together and used a central point person to reduce permitting times from six years to one.
“That is a tactical change,” he said. “In energy alone in the United States, there are more than 30 entities that get involved in policy, which is not at all
coordinated with transportation policy, which is not at all coordinated with environmental policy.”
Federal contractors could have a role, he says, applying their experience with the Department of Defense which, for instance, has evolved an efficient Acquisitions, Technology and Logistics mechanism to wrangle its extremely complex projects.
In infrastructure, he says, “funding is not really stable, it’s decided annually, it changes—it goes up and it goes down. Leadership isn’t stable. One day nuclear is in, then it’s out. We need a set of requirements that transcend these other factors.”
Fourth: Establish a national vision
“Finally, we must articulate a national vision for America’s infrastructure that defines the function and performance of the whole system over its entire lifecycle,” Gerencser writes. “Only with such a vision can we devise an integrated policy that spans government bureaucracy silos and enables key stakeholders (business, government, civil society) to operate in alignment. Only with such a vision can we ensure long-term, stable funding that benefits from private capital and appropriate levels of government investment.”
Thought leaders applaud the idea of an effort of “moon shot” proportions to address the problem’s urgency. What form would this take? Visions range from establishing a cabinet position, to an interagency task force, to establishing a permanent commission or council. Gerencser references cybersecurity: A serious, integrated effort to assure American advancement and global security couldn’t move forward until the issuance of the Comprehensive National Cybersecurity Initiative. Could a similar move advance infrastructure?
“We have no national energy policy—it’s all state by state,” Immerman said. “It has to come down to people being willing to do the right thing and set aside the silos.”
National vision is critical to repairing one of the most difficult disconnects: the lack of holistic planning and communication among representatives in the different types of infrastructure. Water, transportation, energy and other forms of infrastructure are not only siloed in themselves, but also cut off from each other.
Michael Deane, executive director of the National Association of Water Companies, is a longtime expert in infrastructure policy and financing. Deane looks to points such as the “water-energy nexus” to realize savings and progress. “Providing water services uses huge amounts of energy,” he said. “Energy savings can reduce up to a third of the cost of wastewater systems.”
Looking to technology solutions ranging from more efficient pumping to onsite use of biogas can benefit several types of infrastructure at once. Other solutions can be as simple as opening lines of communication between water and transportation representatives. For instance, “in replacing water lines, a significant part of the cost actually comes in replacing the road—so if you can do the water line replacement at the same time you’re ripping up the road for improvements, you save,” Deane said.
While the energy side of infrastructure tends to be based more on private investment, and transportation is more publically funded, Deane is just one seeing and advocating for more integration. “I represent the private water companies, but we need to break down barriers to find the best solution for the proper mix.”
All agree that turning the infrastructure crisis into an opportunity is possible. “But to seize that opportunity.