Highway and Street Construction, Except Elevated Highways

SIC 1611

Companies in this industry

Industry report:

This industry covers general and special trade contractors primarily engaged in the construction of roads, streets, alleys, public sidewalks, guardrails, parkways, and airports. Special trade contractors primarily engaged in the construction of private driveways and sidewalks are classified in SIC 1771: Concrete Work.

Industry Snapshot

In the late 2000s, the United States maintained about 2.5 million miles of paved roads and 1.5 million miles of unpaved roads, the vast majority of which were under the control of local entities. The U.S. highway and street construction industry was worth $85 billion in 2009. The American Road & Transportation Builders Association (ARTBA) reported that the value of new transportation contract awards in the first five months of 2010 totaled $25.9 billion, up 4.4 percent compared to May 2009.

Three-quarters of highway construction is for roads, called flatwork. In 1998, the Transportation Equity Act for the 21st Century (TEA-21) was signed into law, allowing nearly $200 billion for highway construction and maintenance between 1998 and 2003. Most of the money for federally subsidized highway and airport projects comes from excise taxes on fuel, airplane fares, trucks, and related products. Americans also spend more than $1 billion annually on tolls. TEA-21 expired in 2003, and in 2005 President Bush signed the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU). The legislation provided $286.4 billion in guaranteed funding for federal surface transportation programs through 2009, including $52.6 billion for federal transit programs, representing a 46 percent increase over transit funding guaranteed in TEA-21. Even with SAFETEA-LU in place, state departments of transportation struggled with unprecedented production cost increases, putting many projects in jeopardy. Compounding the problem was the downsizing of the workforce during the gap between TEA-21 and SAFETEA-LU coupled with the loss of part of the workforce to construction market opportunities in reconstruction efforts after a string of hurricanes hit the United States in 2005. By 2009, the highway trust fund had run dry and began to be subsidized by revenues from the Federal Treasury. As of mid-2010, no new highway bill had been passed, although government officials, highway industry participants, and others involved engaged in heated debate about what the U.S. government's next steps in regard to the highway construction industry should be. Some proposed that highway funding be passed to the states.

Organization and Structure

A number of different categories of independent contractors make up the highway and street construction industry. Each of these specializes in a different facet of the industry. More than 100,000 firms operatein the construction industry, a figure that far outnumbers the total of firms in all other manufacturing sectors.

Despite the large number of firms, the average size of most firms is relatively small. Many of these, in fact, comprise one individual performing a specialized task in the construction project. Although there are a number of exceptions to this, the overwhelming majority of contract construction firms have no employees at all, except for the self-employed owner and operator of the firm. Despite this, small firms in the industry account for only 6 percent of the industry's total volume. About two-thirds of the construction activity in the industry is carried out by small to medium-sized contracting firms with fewer than 100 employees.

Construction contractors typically limit their activity to a specific, local jurisdiction. More often than not, these are the states in which they are located. In fact, only one in eight contractors performs out-of-state work.

The construction contracting business can be a precarious one. Contractors hire employees on an ad hoc basis after securing contracts. Very rarely are two contracting jobs the same, and contractors have to meet the labor and material requirements of each job and its particular specifications. Also, contractors have very little control over the development of new business or increased demand for their services. The industry and nature of the work also demand that contractors adhere to strict completion schedules. The nature of the industry mandates that contractors and the heavy construction machinery they need to do the job must be mobile. Each contracting firm must be able to restructure and equip its organization according to the requirements of the contract, as well as transport crew and materials to the construction site. Inevitably, this leads to increased management problems and expense and requires specific organizational skills on the part of the contractor.

The most common reason that contracting businesses fail is that individual contractors have to cover the cost of labor and machinery rentals, usually within 10 to 30 days. This leaves most contractors operating with a minimum of working capital. As a result, most contractors show a lower profit margin than other major industries. Because of the risk involved in underwriting the construction project, most general contractors subcontract different aspects of the project to specialty contractors. This minimizes their investment and risk and increases the likelihood they will earn a reasonable profit from each job. Street and highway construction contractors, however, use their own equipment and underwrite the job when they can to maximize the profit margin, although this increases the financial risk of the project. Contractors have limited success in passing rising labor and material costs on to customers because demand for their product has not kept pace with inflationary trends of labor and material required to manufacture the product, especially with highway and street construction.

The primary federal agency for this industry is the Department of Transportation's Federal Highway Administration (FHWA). The FHWA administers an annual, multibillion-dollar program of financial assistance to the states. The agency is also responsible for the development and distribution of the latest technology to meet the need of federally financed road programs. It serves as the highway design and construction agent for the U.S. government and regulates and enforces federal requirements relating to the safety of operation and equipment of commercial motor carriers engaged in interstate or foreign commerce.

Through cooperation with major financial and developmental institutions, such as the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Export-Import Bank, the United Nations, the Organization of American States, and the Agency for International Development, FHWA provides technical help in highway technology nationally and internationally.

The American Road & Transportation Builders Association (ARTBA), based in Washington, D.C., is a federation of private firms, public agencies, and associations. It is the only national association to represent all sectors of the transportation construction industry to the executive and legislative branches of government as well as federal agencies. Its primary goal is to advocate strong federal investment in transportation infrastructure. In the late 2000s, ARTBA had more than 5,000 members, including the chief executive officers of large transportation construction firms in the United States; owners and partners of planning, engineering, and design firms; and heavy equipment purchasing directors from all 50 state departments of transportation, major public works departments, and county transportation departments.

Background and Development

The history of the road and highway construction industry can be traced to the invention of the automobile in 1892. The number of cars, buses, and trucks escalated quickly, and in the early 2000s, roughly 250 million vehicles were on the roads in the United States, which has the largest passenger vehicle market in the world. Even in 1900 it was apparent that the nation's road system would see a period of major expansion.

Road and highway builders organized an association in 1902 that represented them as an industry. It evolved from a bicycle group founded 22 years earlier called the League of American Wheelmen. The history and growth of the ARTBA parallels that of the increased construction of roads and highways in the early twentieth century and continued to grow.

The Office of Road Inquiry, which became the Office of Public Roads, was formed in 1905. With the establishment of highway departments in 16 states by 1906, road construction escalated dramatically. The Federal-Aid Road Act of 1916 was the harbinger of voluminous road construction across the United States. It fueled transportation construction, from single-lane roads in rural America to the super interstate highways that traverse the nation. President Woodrow Wilson officially signed the act into law on July 11, 1916. Substantial money became available for heavy construction of roads and ratified several principles and objectives that have remained in place to the present. The legislation established the federal-state relationship that determined that federal help would be channeled through the states, which were responsible for implementation of heavy construction projects. The act also provided for the institution of a state matching requirement operated in tandem with federal contributions to highway and road construction. Finally, the act put forth financial distribution formulas that determined the distribution of money, based on demographics such as population, area, and road mileage.

Although this program was supposed to promote and support the federal aid highway program for three years, it was extended for an additional two years at the onset of World War I. In 1921, Congress once again set out to create an ambitious highway development program, using the 1916 law as a paradigm that would set the pace and structure for completion of the federal highway program. The pace at which the industry subsequently developed was largely determined by the categories of funding established by the 1921 legislation, which in turn established the principle of contract authority that allowed highway money to be obligated to the states, even if they had not been appropriated. Basically, this meant that construction could begin with the apportionment of money becoming a financial obligation of the federal government. Soon, numerous contractors began major construction projects before the money was in hand, knowing that the federal government would eventually pay for it.

In 1925, only a few years after the revolution in highway legislation, the U.S. Numbered Highway System became a reality. The entire street and highway development program leaped forward when Col. H. L. Bowlby, Chief of the War Materials Division of the U.S. Bureau of Public Roads, was elected ARTBA president. This led to further organization of the heavy construction industry, coordinated with the federal government's ambition to build an arterial transportation infrastructure throughout the nation. The creation of the Highway Research Board of the National Academy of Sciences was another watershed event that escalated quality road construction in America.

In the meantime, ARTBA elected J. H. Cranford as president in 1924. This was the first time a contractor had been elected to head the organization, and the move increased the association's efficacy in promoting and lobbying for work and money from the federal government. ARTBA also established a Manufacturers Division, which was the result of ARTBA's affiliation with the Highway Industries Association and today's Construction Industry Manufacturers Association. This and other divisions created by ARTBA served to increase the specialized focus of the group and organized street and highway contractors in a way that increased their credibility and productivity as an industry.

Road construction, similar to most other industrial initiatives, slowed during the years of the Great Depression. States began leveraging gas taxes and vehicle registration charges as a way to underwrite the cost of highway construction. Prodded by the industry to use creative means to stimulate the economy and increase and improve the nation's streets and highways, Congress initiated huge public works programs that included substantial highway construction projects. The industry continued to lobby on Capitol Hill, urging continued highway development projects, even as the Depression abated and World War II drained the nation's manpower, along with its financial and material resources. As the industry argued, a well-constructed and maintained road and highway system was needed to facilitate the nation's war effort.

Highway construction that was needed to move men and material during World War II took precedence over all other heavy construction during the war. It was during this period, however, that more emphasis was placed on road and highway safety, and engineers and designers threw themselves into these efforts with a vengeance.

It became evident by the mid-1950s that an expanded highway construction program was urgently needed. Increased motor traffic and reliance on the automobile as the primary mode of conveyance throughout the United States, civil defense plans during the Cold War, and highway construction deferral during World War II placed the industry at the center of the nation's economic stage. The industry surged forward after Congress authorized a 40,000-mile national highway network in 1944, named the "interstate" system three years later. Appropriation of money proved difficult, however, and financing of the bill had to compete with other federal-aid highways at a 50-50 matching ration.

The situation changed drastically in favor of the industry in 1956, however, when the government enacted the federal aid Highway Act of 1956, which represented a redesign of the interstate system. The Highway Trust Fund was set up to pay for this initiative, with the federal government paying 90 percent of the cost. This put the industry at the forefront of major government initiatives aimed at mobilizing America. The "Golden Years of Road Building" were at hand.

Building the interstate system took precedence over all other heavy road construction activities and was the primary focus of the highway construction industry for the next 10 years. As the project neared completion, the industry focused more on other modes of transportation. Councils were established throughout the country to advise government and industry on construction of airports, public transit, rail, and highway maintenance and improvement.

Federally funded highway construction and improvement projects, as well as mass transit programs, felt the impact of the Surface Transportation Assistance Act, which was the result of a 1978 Congressional decision. Shortly afterward, the industry met one of its biggest challenges, which was support of the reauthorization of the federal aid highway program in 1982. The Reagan administration announced it would support increased highway user fees to back funding for highway construction and maintenance programs, along with the jobs they would create. After much Congressional debate and negotiating, the bill was finally passed in January 1983. This led to a 5 cent per gallon increase on the gas tax. One cent of this tax was set aside for funding mass transit programs.

Another battle ensued in 1986 when reauthorization of highway and mass transit programs was addressed by Congress. After an adjournment late in the year, Congress declared the legislation a high priority in January 1987. The industry lobbied heavily, as money for highway and mass transit programs began to dry up. Although Reagan vetoed the measure, he was overridden by Congress, and road building moved into high gear once again.

The overhaul of the federal surface transportation program, finalized in 1991, consumed the industry's attention in the late 1980s. Completion of the interstate system, coupled with fiscal restraints and tight budgets in government, did not favor the road and highway construction industry.

Congress developed the Intermodal Surface Transportation Efficiency Act (ISTEA), and The House Public Works and Transportation Committee recommended a 5 cent per gallon fuel tax. Debate and lobbying continued, much of which was focused on preventing the use of federal fuel taxes to decrease the federal deficit. In 1991, Congress enacted the massive and complex ISTEA, which changed and rewrote the federal highway law for the first time since 1916. Authorizations of funding equal to $155 billion were provided over the next six years for federal highway and mass transit programs. President George H.W. Bush signed ISTEA into law on December 18, 1991. In 1997, President Bill Clinton offered the National Economic Crossroads Transportation Efficiency Act (NEXTEA) as a guideline for highway construction spending over the following six years.

Public investment in the nation's network of roads and bridges declined steadily throughout the second half of the twentieth century, according to an analysis by Apogee Research, Inc., of Bethesda, Maryland. Investment that had been 1.4 percent of the gross national product in 1958 declined to 0.7 percent in 1988.

The fiscal health of the Highway Trust Fund met the immediate needs for highway improvement expenditures. The balance in the federal Highway Trust Fund at the end of fiscal year 1987 was $9.4 billion. Revenue accruing to the Highway Trust Fund during that fiscal year totaled $12.7 billion, and expenditures equaled $12.8 billion. Federally aided highway program obligations totaled $12.9 billion during fiscal year 1987.

Several states committed themselves to substantial road building programs, despite the fact that total state spending on road construction increased only slightly faster than the inflation rate. Voters in California approved a relatively large gasoline tax to pay for billions of dollars in road improvements. The California legislature, in the meantime, approved the implementation of four toll roads. The state suffered a tremendous blow in January 1994, however, when a massive earthquake crippled the Los Angeles highway system. Repairs to the area's highways and bridges cost billions of dollars and took years to complete.

The Highway Bill, passed in December 1992, provided more money for highway maintenance. Industry skeptics were discouraged by the fact that the allotment was to be spent over a five-year period. Moreover, the bill had no incremental spending built into it. Nevertheless, the industry was encouraged by the aspect of the bill that allowed states and municipalities to own stretches of road and bridges they built and to collect tolls for their use. It was hoped that this would encourage the issuance of tax-free bonds to initially finance construction of local roads and highways, given that revenue would be generated from their construction and use.

About 25 percent of highway construction in 1992 was in the areas of bridge construction, overpasses, and tunnels. Flatwork (primarily roads) accounted for the remaining 75 percent of the work.

Due to the limited lifespan of most highways and roads, maintenance and repair expenditures have continued to grow since the 1970s. This reflects the increase in the number of these structures as well as their age.

According to President Clinton's statement of March 12, 1997, concerning NEXTEA, approximately 12 million people were employed in transportation and transportation-related industries. One million of those jobs had been created since 1994, representing just over 10 percent of the total civilian workforce. The NEXTEA program proposed spending about $175 billion between 1998 and 2003 for the improvement of bridges, highways, and transit systems. NEXTEA authorized an 11 percent increase over the Intermodal Surface Transportation Efficiency Act (ISTEA) of 1991. It concentrated on improving border crossings and developing major trade corridors within the United States.

On June 9, 1998, the Transportation Act for the 21st Century (TEA-21) was signed into law. Nearly $200 billion was allocated for highway construction and maintenance between 1998 and 2003, picking up where ISTEA left off.

Although spending on operations and maintenance remained relatively stable following completion of the interstate system, there was a steady trend toward disinvestment on the part of the federal government. Although capital investment declined, highway use in the United States increased. In 1962, the United States spent $42 for every 1,000 vehicle miles traveled (VMT) on highway infrastructure. Expenditures leveled off at around $16 per 1,000 VMT in the mid-1990s.

From 1970 to 1990, the VMT averaged growth of 3.3 percent compounded annually. However, for the first five years of the 1990s, growth slowed to 2.3 percent. A statement issued by the U.S. Department of Transportation in May 1996 found lower growth rates consistent with Highway Performance Monitoring System forecasts, which projected 2.37 percent compound annual national growth over the following 20 years. The report reasoned that vehicle ownership rates might have reached a saturation point, with ownership at one vehicle for personal use per household driver in 1990.

Driver's licensing rates approached saturation, with 93 percent and 83 percent of men and women, respectively, of driving age. Women closed this gap after the 1970s, and by the 2000s, women's rates were near men's licensing rates in the older driving age groups. Also, the age structure of the population had a great effect on travel, with the baby boom generation entering the high driving age groups during the late 1970s and 1980s. A decline in the number of new drivers became evident as the baby boom phenomena passed.

The highway and street construction industry was also hurt by the recession at the beginning of the 1990s. Federal and local governments, burdened with tightened budgets and swelling deficits, had difficulty maintaining existing highway, airport, and street construction projects. New street construction initiatives were sparse as well.

Despite this, road and bridge construction increased slightly during 1992. The demand for improved essential arterial transportation systems necessitated work on major roads and highways, which helped to keep contractors working. New construction suffered, as money was directed toward highway maintenance and repair.

For financial year 2001 under TEA-21, federal investment in highways exceeded $30 billion for the first time, reaching $30.4 billion, a 5.7 percent increase from $28.8 billion in 2000. A large part of this increase was the result of higher than expected gas tax revenues that contributed money to the Highway Trust Fund (HTF). Core highway spending in this plan was $872 million for 2001, an increase of 3.2 percent over the previous year.

TEA-21 doled out $31.8 billion in 2002 and expired on September 30, 2003. However, the TEA-21 mathematical formula included the "revenue-aligned budget authority" (RABA). The actual money available through TEA-21 depended on the amount of funding states receive from incoming highway user fees because TEA-21 expenditures were linked to the HTF's Highway Account. The economic recession of the early 2000s drove revenues down, causing the RABA formula to dictate an $8.6 billion decrease in TEA-21 funding. Compromise among Congress, the Bush administration, and industry advocates led to a $4.4 billion reduction in highway funding in 2002.

Material costs for highway construction rose sharply in the early 2000s. According to the Associated General Contractors of America, the overall cost of highway and street construction increased 14.1 percent from 2001 to 2005, largely because of rising asphalt and diesel fuel costs as well as higher concrete prices.

Other factors hindering the highway and street construction industry were increased technical requirements in contracts and regulatory restrictions such as environmental permits for plants and quarries. The Alabama Department of Transportation, which planned to put 23 projects that involve grading up for bid from December 2007 through March 2008, announced in November 2007 that it had halted all projects until environmental concerns could be addressed.

In early 2005, the American Society of Civil Engineers (ASCE), reported that the national infrastructure was "crumbling" and gave the U.S. highways a failing grade of "D." The final grade was determined by the overall condition, performance, capacity, and allotted funding. It was determined that 34 percent of the nation's major roads were in poor condition or in need of repair, and another 36 percent of major urban roads were congested. By 2009, the grade assigned by the ASCE for U.S. highways had dropped to a "D-"

Current Conditions

The highway and street construction industry was in trouble in the early 2010s. The failure of SAFETEA-LU to finance highway construction through the end of the 2000s caused serious problems in funding in the industry. Although the American Recovery and Reinvestment Act of 2009 (ARRA) included funds for the transportation industry, some contended that the government was spending money it did not have. According to the Congressional Budget Office, as reported by States News Service in May 2010, "unless transportation spending is cut from current levels or federal fuel taxes are increased substantially, an additional $56.1 billion will be added to the deficit [of $67.3 billion] over the five following fiscal years (2013 to 2017)." President and CEO of ARTBA commented on the situation in June 2010 by saying "If Congress and the President do not act later this year or in early 2011 on passage of a new, multiyear highway and transit authorization bill, hundreds of thousands of U.S. jobs could be lost and states could face at a 50 percent cut in federal funding."

According to a report by Research and Markets, in the early 2010s the average distance traveled by vehicles was growing at a faster rate than road capacity in metropolitan areas. Traffic congestion was a serious problem and was affecting the United States' ability to compete on a worldwide level, as most products shipped in the country are transported via its highways. Overall, the firm predicted that road maintenance and repair activity would exceed new highway and street construction into the 2010s.

Industry Leaders

Granite Construction Inc., of Watsonville, California, was a giant in the highway and street construction industry in both revenue and reach in the early 2010s. It had a heavy construction division that worked on projects nationwide and a branch division that served local markets, plus it operated about 150 processing plants for construction materials. Granite Construction Inc. employed about 2,700 and reported 2009 sales of almost $2 billion.

Transportation construction accounted for about 45 percent of the sales for Peter Kiewit Sons', Inc., of Omaha, Nebraska, which earned more than $8 billion in revenue in 2009. The firm had approximately 15,000 employees, with project areas that included power, heating and cooling, petroleum, commercial buildings, water supply, and dams.

Workforce

According to the U.S. Department of Labor Bureau of Labor Statistics, 57,600 heavy and civil engineering construction or highway contractors were in the United States in 2009, and the highway, street, and bridge construction industry employed 328,900 workers. The average hourly wage for nonsupervisory workers in this sector of the construction industry was $22.11.

America and the World

The U.S. highway and road system has not kept pace with those of other nations throughout the world. Highway capital investment relative to the economies in Japan, Korea, and Germany, for instance, was significantly higher in the 2000s than similar investment in America. For example, Japan spent $6.3 trillion on construction-related public investment between 1991 and 2008, according to a February 5, 2009, New York Times article. This continued a trend begun in the late 1980s; in 1988, Japan spent more than 1.8 percent of its gross national product (GNP) on highway infrastructure, almost triple the amount that the United States invested in highways at 0.7 percent of its GNP.

Japan substantially outspent other nations in highway development and maintenance when comparing capital spending per vehicle miles traveled (VMT) as well. In 1988, Japan invested $150 for every 1,000 VMT, nine times the U.S. investment. In the same year, Korea spent $95 per 1,000 VMT, and Germany expended $30 per 1,000 VMT. The U.S. spent only $16 per 1,000 VMT. Some experts contended that Japan's spending on transportation infrastructure was a mistake, as thousands were spent on roads and bridges that were rarely used.

Research and Technology

New technology in highway construction and maintenance in the 2000s offered significant opportunities to the industry in terms of the ability to meet safety concerns, energy concerns, and other transportation challenges. The highway construction industry instituted high-tech methods of dealing with traffic management and safety throughout the United States. One example of this approach was the INFORM system on Long Island in New York. Conceived as an FHWA research and development project, the system featured variable message signs that inform motorists of unusual congestion and also implemented ramp metering and signal control on affected freeways and arterial roads.

The Smart Corridor in California was another example. This 12.3 mile stretch of the Santa Monica Freeway featured traffic data and management strategies coordinated with the California Department of Transportation, the California Highway Patrol, the City of Los Angeles Department of Transportation, and the City of Los Angeles Police Department. By linking traffic control centers and developing a common database of information, the coordination of strategies, such as ramp metering policies, parking enforcement, signal timing, and detours around congested areas was possible.

In Philadelphia, I-95 was transformed into a high-tech traffic management superhighway. An elaborate traffic management plan with advanced technologies, such as integrated ramp metering and signal control, was put in place to alleviate traffic congestion, integrate public transit and automobile traffic, and mitigate air and noise pollution.

Another new technology to highway construction in the late twentieth century was the use of rubberized asphalt. Roads made with recycled tire chips showed less frost heave than conventional roads. Tire chips also proved much better than soil as an insulator, limiting the depth of frost and therefore the damage of winter. Using rubber in retaining walls reduced the pressure on those walls, allowing them to be lighter, thinner, and less expensive.

Studies by FHWA and university research programs aimed to use robotics in highway construction. These included the development of an automatic pavement crack-sealing machine and a pothole-repairing machine. Another area of research was directed at improving work zone safety and minimizing traffic congestion with the use of robotic aids.

One of the most environmentally sound research strategies in the highway construction industry was the use of waste materials and by-products in place of conventional asphalt. Research was done to help implement materials, such as blast furnace and steel slags; carpet fibers; coal ash by-products, including fly ash and bottom ash; glass; municipal solid waste combustion ash; recycled plastic; roofing shingle wastes; and rubber tires into roads and highways.

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