President Joe Biden on Nov. 15 signed a $1.2 trillion infrastructure package—The Infrastructure Investment and Jobs Act—that provides historic funding levels to improve public works, including roads, bridges, highways, internet access and the power grid, as well as to mitigate the effects of climate change. (The bill does not include funding for social policy, which is covered under separate legislation known as the Build Back Better Act.)
This is one in our series of industry-focused outlooks analyzing the impact of the infrastructure legislation.
What the $1.2 trillion Infrastructure Investment and Jobs Act means for government contracting
Numerous infrastructure repairs and upgrades funded by the bill will be performed by private companies that win contracts with federal agencies or state or local governments. In that sense, government contracting is at the heart of this bill.
It equates to an abundance of opportunities for contractors, even those that have worked only business-to-business jobs. When a contractor wins even a single government contract, they become a government contractor. With new opportunities, though, come new disciplines that contractors need to adopt to be successful, such as government-compliant cost accounting, budgeting, pricing and documentation.
Successful adoption and a track record of quality performance should make it easier for them to bid on future contracts, and winning those bids may result in a stable, predictable and collectible cash flow.
Specific allotments for government contracting
The bill provides $550 billion of new federal investments over five years, which will translate to many opportunities for companies that specialize in such areas as construction, engineering, transportation, energy, telecommunications and environmental conservation.
Generally, federal agencies will allocate the funding to states in the form of grants, with state-by-state amounts determined by a formula that accounts for population and other factors. It’s important to note that federal regulations could govern projects even if they are negotiated at the state or local level.
Source: White House press release
The big picture
While the bill is designed to modernize America’s infrastructure, the Biden administration also touts that it will add an average of 2 million jobs per year over the decade. In fact, while large contractors will benefit, the bill will earmark contract awards for small and disadvantaged businesses, such as those owned by minorities, women, veterans and other similar classifications of people.
In all, the historic funding levels will widen and deepen the pool of government contractors, which will foster competition, growth and innovation in the sector—not to mention resilience.
When a company adds as its customer the No. 1 consumer of goods and services in the world, it diversifies its revenue stream and makes itself more predictable and transparent, which appeals to investors. After all, the government doesn’t stop building, contracting or paying when the economy turns downward. On the contrary, it is likely to continue all of that during a recession to spark the economy. Doing business with the government is effectively recession-proof.
In the short term
Companies eager to bid on infrastructure projects need to understand what they’re signing up for. That entails complying with various regulations, ones that might be unfamiliar to companies that are new to government contracting. The vaccine mandate for federal contractors is one of the compliance issues that immediately stands out. Whether a company is a prime contractor or a subcontractor, hiring attorneys and consultants who are familiar with government contracts can help it navigate the regulatory environment so that it can win and perform these contracts.
Contractors also should ask themselves if they have the personnel necessary for this kind of project—professionals with the proper skills, credentials and the ability to work collaboratively with contract officers. Alternatively, some contractors may be better suited for a subcontractor role that allows them to participate just on the parts they are best suited to perform. Those will also be plentiful in the wake of this bill.
Diligence in record-keeping is absolutely critical for government contractors. This often poses a steep learning curve for those new to serving the government. Well positioned contractors not only have detailed documentation procedures but also the technology, tools and controls needed to monitor compliance efficiently and effectively. Those that are able to use detailed historic pricing and contract data to plan for the future in a data-driven manner will prove to be superior.
Questions that frame the path forward
- How will funding be channeled from the federal government through state and local governments to the bidding process for projects?
- To what degree will federal-level contract terms be pushed down into state and local government contract vehicles?
- What can small and disadvantaged companies named in the bill—including small businesses, minority-owned businesses, women-owned businesses and veteran-owned businesses—do to maximize the bill’s intent to serve them?
- Will new entrants have a meaningful impact on competition within the government contracting ecosystem?
- What long- and short-term opportunities will contractors have to help protect our new and improved infrastructure?
For more information, visit RSM’s government contracting sector page. Check out the tax implications of The Infrastructure Investment and Jobs Act here. And for more information on tax policy changes, see RSM’s Tax Policy Resource Center.