According to the Federal Highway Administration, for every $1 million invested in highway construction, 125 construction jobs (50 onsite and 75 offsite) are created. Now that the Vietnam war has ended, a large influx of returning veterans will be coming home without jobs to become more names on the unemployment lists. Construction is a good way to employ these returning servicemen. The Associated General Contractors, in cooperation with the National Association of Homebuilders and the Department of Labor, has set up the Veterans Construction Job Clearinghouse to provide veterans with lists of prospective employers who are in need of their skills. The risk of doing business in this great construction industry of ours is inherent by reason of numerous factors, some of which have been described above. The fact that risk is inherent should make construction a more profitable business because rewards should be greater for additional risks taken and extra effort put forth. Unfortunately, the record will accurately show that this is not the case, due to the fiercely competitive nature of our industry. This competitive nature, however, is an advantage to the Government, since it is assured of obtaining the completed project at the lowest possible cost. Therefore, the construction industry should not be compelled to absorb the additional risk involved in the lack of funding for continuing work which it has undertaken in good faith. We feel that the curtailment of construction funds without full congressional review and approval constitutes a breach of faith. Impoundment constitutes a diversion of taxes that were collected to be used for the general good and welfare of the Nation, but which instead are doing nothing to relieve the domestic problems of this country. Thank you, Mr. Chairman. (Mr. Teer's full prepared statement, with attachments, follows:) THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA, INC., Washington, D.C. PREPARED STATEMENT OF THE ASSOCIATED GENERAL CONTRACTORS OF AMERICA, PRESENTED BY NELLO L. TEER, JR. Mr. Chairman and members of the Committee, my name is Nello L. Teer, Jr. and it is my privilege to appear before you today to discuss the impoundment of funds by the Executive branch of the Government. I am currently serving as Senior Vice President of the Associated General Contractors of America. I am also a general contractor, performing approximately $50 million worth of construction in the United States and abroad annually. Our home office is located in Durham, North Carolina, but we perform work as far north as Pennsylvania and as far west as Oklahoma. The Associated General Contractors of America is a national trade association of 9,500 general construction firms with members and branches in all 50 states, Puerto Rico and the District of Columbia. GENERAL STATEMENT It is not our purpose here today to advise the Congress on levels of funding for any particular program, but rather to point out to this Committee the effects which the impoundment of funds has on the construction industry and, as a result, on the taxpayer. We sincerely hope that Congress will take action to assure the scheduling of public works on an orderly basis, which in turn will permit efficient and economical construction. CONSTRUCTION PROGRAMS The AGC supports current public works construction programs, and feels the benefit evaluation criteria used by principal Federal construction awarding agencies clearly indicates thorough economic consideration. The country needs these programs, scheduled on an orderly, planned level, to continue to meet the needs of our growing nation. Those needs cannot be met when the levels of authorizing funding are decreased, as they are now. However, after several months of this restriction, projects dependent on completion of initial work will be deferred, thereby resulting in a general stretch-out. Obviously as less work is accomplished, capacity for future work is curtailed. Current figures indicate that the Administration has impounded funds totalling $12 billion. Included in this total are construction funds from various agencies: $400 million in water and sewer grants from HUD, $1.83 billion in highway funds, $20.4 million for Corps of Engineers civil construction projects, $109.5 million for water, sewer and industrial expansion grants by the Economic Development Administration, $6 billion in Environmental Protection Agency water pollution control facility funding, $44.8 million in HEW construction funds, $24.1 million in Department of Treasury construction, $50 million in hospital construction funds from the Veterans Administration, and $65 million for Ap palachian Regional Commission airport and highway construction. Planning EFFECTS ON CONSTRUCTION Slowing down or interrupting construction of long-term projects results in the inefficient use of manpower and machines. These costs are difficult to estimate but must be reflected in the cost of the project to the owner. Other costs such as interest on borrowed funds, direct overhead, price increases, and loss of Federal tax revenue can be more accurately analyzed. Construction cannot be performed economically on a stop-and-go basis. Interruptions and slowdowns inevitably result in increased costs and loss of Federal revenue. When projects involving power are suspended or delayed, direct revenue to the Treasury is lost. Revenue losses due to delays in beneficial occupancy may be less obvious, but are important. During the preparation of a bid, both large and small contractors must prepare cost estimates based on manpower and equipment requirements and material deliveries that are necessary to meet the completion date specified in the contract. Weather, transportation, labor availability, labor disputes and numerous other factors also must be considered. Unforeseeable interruptions can delay a project for several weeks or several months. A river may rise and flood a cofferdam, thereby delaying construction until low water prevails. In 1971 there were 751 work stoppages which involved 451,300 men and 6,849,000 man hours lost. The average duration of these strikes was 30.5 days. Construction delayed in the favorable season (late spring to early fall), cannot be economically rescheduled for rainy or winter weather. Long-term projects, extending for several years, must be as accurately estimated as relatively short-term work if the contractor hopes to stay in business. Extensive advance planning is mandatory for long-term work before mobilizing the job and breaking ground. This planning, however, cannot be accurate and economical unless it is known that a program will be adequately financed. INCREASED COSTS Labor and labor costs have been unstable elements in the past several years. Suspending or extending the contract adds to this an uncertainty for which a contractor must attempt to provide in his bid. Under stretch-out conditions, a bid allowance for labor and other associated contingencies could easily be insufficient. Although contingency bidding can have a high dollar value, it must be carefully scrutinized or else the contractor will never be a low bidder. If the contingency does not occur, the government loses because it is paying for something it does not get. Therefore, contingency bidding can be costly to both contractual parties. History has proved that “stop-and-go" or "peak and valley” construction always costs the owner-in this case the public-substantially more than a continuing orderly program such as the Congress authorized in 1956 for Federally-aided highways. Today the highway program, as well as other construction programs of the Congress, are seriously jeopardized by withholding and restoring funds at irregular and unpredictable intervals. The United States construction industry is the largest industry in the world. It accounts for about 10.5 percent of the gross national product and provides direct employment for about 4.5 million persons. Its size and the employment it generates warrant the government's best efforts to keep it healthy. It cannot remain healthy if its work is to be turned off and on at irregular intervals. EFFECTS ON HIGHWAY CONSTRUCTION In 1956 Congress passed the Federal-Aid Highway Act and created the Highway Trust Fund for the purpose of carrying out the objectives of that Act. The fund was created from taxes which Congress earmarked to go directly to the fund. Money was then apportioned to the states to enable them to meet the highway needs of the states by providing the essential element, for such a massive program, of a continued source of revenue. In 1966 the Executive Branch began a course of action contrary to the goals and purposes of Congress by impounding a portion of the Highway Trust Fund, thereby limiting the amount of Federal-aid funds available for release to the states. Currently the Executive Branch of the government has seen fit to impound $1.837 billion of highway funds. We as contractors cannot understand why funds earmarked for a specific purpose have to be reserved or impounded. The Highway Trust Fund has proved to be an effective means of supplying funds for the highway program. We are seriously burdened at the present time by unemployment in this country. We need roads; to build them creates jobs. The money is there, but people are out of work. Contractors are ready to hire them. Many contractors have borrowed money to buy construction equipment and they cannot pay the money they have borrowed because the equipment is idle as a result of impoundments by the Executive Branch. The contractor must operate like any other businessman. He has all of the usual business problems-personnel and equipment to procure and maintain, materials to buy, creditors and taxes to pay. Yet the highway construction industry, with an average profit of 2.8 percent, is substantially below the national average of 4 percent. We sincerely believe, however, that the principal cause of recent cost increases in the highway construction industry is the very action which the Administration says will curb inflation: the cutbacks themselves. Construction simply cannot be done economically on a stop-and-go basis; it always costs more this way in the long run. The contractor must be able to plan ahead in order to carry on his work efficiently and economically. He must be able to plan and project his work program on more than a season-to-season basis. It stands to reason that the contractor can, while he still has his equipment, personnel and sources of supply mobilized, submit a bid lower then he can if he has lost the advantage of a mobilized, wellfunctioning organization. Of great concern to us also is the personnel problem arising from sudden cutbacks. Superintendents, foremen, equipment operators, and other top craftsmen, who are kept on the payroll by contractors during the off-season and employed in repairing equipment so they will be available for summer construction, may have to be laid off. Releasing these workers will result in severe disruption of the labor market. The investment made by these construction firms in training personnel will be lost, since there is no assurance that the workers will be available when needed in the future, as the program is resumed. The workers will try to locate employment in fields unaffected by stop-and-go construction activities. It is very difficult for these workers, with their present skills, to find employment in other fields. College students, to whom summer employment in the construction industry is important, will find that summer employment is nonexistent. Another employment program which has been jeopardized by the impoundment of funds is the FHWA 7-2(2) program to train minority employees on all Federal-aid highway construction projects. Attached (Chart A) is some statistical information compiled on this program by the Federal Highway Administration. As reflected in the figures, this program was successful in employing 33,891 minority trainees in highway construction during fiscal year 1972. According to the Federal Highway Administration, for every $1 million invested in highway construction, 125 construction jobs (50 on site and 75 off site) are created. Another problem caused by construction delays due to cutbacks in funds is that of inflationary increases in construction costs. We have attached to our testi mony two charts which show the rise in construction costs since 1956 when our present highway program was begun. Chart B shows the distribution of costs on all Federal-aid primary highway projects during 1970. Labor accounts for 25.5 percent while equipment overhead and profit account for 33.1 percent. Thus these two combined, amount to 58.6 percent of the cost of constructing a Federalaid primary highway project. The third chart (C) shows the increases in hourly wage rates, equipment costs and contract prices since 1956. CONSTRUCTION INDUSTRY CAPABILITY We understand that the capability of the construction industry has been questioned with regard to the amount of construction funded by current construc tion programs. For example, the water pollution bill passed last Congress authorized for appropriation the following sums for fiscal years: 1972—$2 billion; 1973-$5 billion; 1974-$6 billion; 1975-$7 billion. However, when we examine the cost of a sewage treatment facility we see that approximately 50 percent of these funds will go to land acquisition, engineering and equipment (approximately 5 percent involves land acquisition, 7 percent involves engineering, and roughly 40 percent involves equipment such as pumps, motors and so forth). Similar figures pertain on other construction programs. Therefore, the magnitude of need for increased skills in the construction industry appears to be well within the range of capabilities that we have. We can continue to train others, including many now unemployed, to bring them into our industry. Highway contractors were asked in 1956 to gear up for vastly expanded activities. They did this, on the basis of your assurances that the programs would be conducted on an orderly, planned basis. Furthermore, overall design and construction guidelines such as used in the highway program and as used by principal Federal construction awarding agencies will go far to reduce the time it takes from initial application for a Federal grant to start-up of the completed plan. Industry competition, such as construction contractors generate when they purchase sewage treatment purification systems from manufacturers, would also result in a savings as well as promote use of new technology in the waste treatment field. The guidelines will help to guarantee performance. Is the construction industry operating at capacity? The answer is a very simple "no." Consider the amount of unemployment of skilled crafts in various sections of the country. Now that the Vietnam war has ended, a large influx of returning veterans will be coming home without jobs to become more names on the unemployment lists. Construction is a good way to employ these returning servicemen. The Associated General Contractors, in cooperation with the National Association of Homebuilders and the Department of Labor, has set up the Veterans Construction Job Clearinghouse to provide veterans with lists of prospective employers who are in need of their skills. CONCLUSION The risk of doing business in this great construction industry of ours is inherent by reason of numerous factors some of which have been described above. The fact that risk is inherent should make construction a more profitable business because rewards should be greater for additional risks taken and extra effort put forth. Unfortunately, the record will accurately show that this is not the case due to the fiercely competitive nature of our industry. This competitive nature. however, is an advantage to the government, since it is assured of obtaining the completed project at the lowest possible cost. Therefore, the construction industry should not be compelled to absorb the additional risk involved in the lack of funding for continuing work which it has undertaken in good faith. We feel that the curtailment of construction funds without full Congressional review and approval constitutes a breach of faith. Impoundment constitutes a diversion of taxes that were collected to be used for the general good and welfare of the Nation, but which instead are doing nothing to relieve the domestic problems of this country. Chart A STATISTICAL SUMMARY OF EMPLOYMENT DATA FOR ALL FEDERAL-AID HIGHWAY PROJECTS Compiled as of July 31, 1972 (Includes Minority Breakdown) OFFICE OF CIVIL RIGHTS/FEDERAL HIGHWAY ADMINISTRATION 3 4 5 876 6 7 486 8 495 9 ૩૧૩ 10 322 327 6293266.29 224 12 5 625 16 3 1764 1529 432 34 8 3735 162 4 604 35 6 2445 160 7 436 1925108.772-10237 4 2 677 18 3 1798 132 7 344 13 4 5900 445 8 811 36 4 2011 4/201 1680293943.28 2631-1849 12 2 2079 188 9 310 11 4 72961405 19724 25 10 2534 902 36 1.694,520,187.00401 7 2 1032 38 4 2310 12a 5 489 34 7 2774 510 7 586 25 4 4188 347 8 604 1,308,550.60263/63 7 4 615 ya 7 1402 205 15 283 26 9 4956 1507 30 526 11422 M04 769 Yo 497 3374-5-83/50 6 4 380 7 7 838 36 4 159 7 4 3057 152 5 346 14 4 1503 72 5 474,030,695.40 132 3 a 3yo 9 2 662 32 5 171 6 7 2970 161 5 516 19 y 1862 111 6 927,445,004.30 251 36 14 355 47 13/38a 288 al 212 48 222821 458 16 388 37 10 1898 191 15 493 711 405. 12 215 || 5312 15 5 797 34 yaays aaa61 133 6 397 29 7 1193 38 3 TOTAL 48151321,915,81747 2044 87 4 5205 2.4 4 130321189 9 2629 184 7 40770 493212 4896384 8 18938 3007 16 GRAND 436 876 916 1 3 4 5 6 664 VALUE OF Total Percent Percent 322 140629326629792 138|17|1402 125 9 347 93 27 203 18 9 24 3 13 156 36 232946 623 2 / 3721 522 11 1925108772,10 499 7314 1643 163 10 559 223 40 140 la 8 65 11 17 23 62635|| 797234211002 1680293,943-2505 105 21 1708 440 26 1005 830 83 92 67 100 5858 8685 17 3965 1822466908 33 1974, Sao, 187.30 9.20 77 8 1790 144 & 1041 322 312943913 as a 8 111 18 16 3634 Pad236639 1,308.552,606.63 563 FOR 54 1380 601 by 907 729.80 40 5 13 321442 36/2332963 1145 S, SAY: 407.937.986.83 182 1810 634 549 310 682a 57 3 5 0 0 0 38 3 8 1136 133 12 8 YOU 478032,695.40 193 2010 3:32 48 12 152 41 26 51 48 200 201 5 1169 154 1 1911 212 927,445,004,32 635 212 33 10234 83983 378, 257, 12607529 30 19 63 25 3 A180 1067 57, 1281 690 54 496,911,405,92 314 26 8 510 27 5129 18:14 167 159 B4 3 12 57 6 1/1305 179 14 877 10112 TOTAL 481510,321,095,817.97|4653 970 21 10419|1834|189833 2583 53 130617 14 30311036 552 100 1822499 2350 2333057 10774 33 486 495 |