Prices skyrocket on WA transportation projects, and fewer contractors want the jobs

When the state began advertising work for a new 520 bridge over Portage Bay in Seattle, its engineers guessed the project would cost just over $800 million.

But last week, the Washington State Department of Transportation revealed it had received just two bids for the contract, and the low bid was roughly $1.3 billion.

Such a massive overshoot of the estimated price tag is cause for concern to lawmakers on its own. But the Highway 520 bridge is not on its own. In July, the state awarded a contract for work on I-405 toll lanes that was $230 million over its estimated price. A contract for related work on Highway 167 was 40% over. The price to convert three ferries to hybrid-electric went up by $30 million, or 25%. A fish passage project on the Olympic Peninsula was $17 million over.

As state lawmakers look toward a more than 15-year sprint to build out Washington’s highways, bridges, ferries and more, it’s a worrisome trend that casts a shadow over their lofty ambitions.

“It makes it tough to do all of the projects we’ve voted on to pass and to do,” Sen. Curtis King, the ranking Republican on the Senate Transportation Committee, said of the rising costs. “It makes it tough to meet those promises.”

Underpinning the price escalations are several factors, including the cost of materials, supply chain delays and inflation. But WSDOT has raised particular alarm about a trend noticed over the last year and a half: declining competition for large design-build contracts. As recently as 2021, the state averaged more than six bids per project. So far in 2023, that number has dropped to around 2½.

“It’s certainly a kind of a concerning trend because we have a lot of design builds coming up in the next couple of years,” said Chris Christopher, director of construction for WSDOT.

Washington is at the beginning of a $17-billion, 16-year push to upgrade the state’s transportation system. But as Sound Transit continues its build-out of a central Puget Sound transit network and as federal infrastructure dollars roll out in droves across the country, contractors are in high demand. Combined with labor shortages, companies that might have previously jumped at a state contract might already be stretched too thin with other work.

“We’ve got a lot of large contracts happening and the contractors who are capable of doing these large projects are not as numerous as they need to be,” said Sen. Marko Liias, the Democratic chair of the Senate Transportation Committee, and one of the key architects of the state’s spending plan.

The state is considering ways to make its megaprojects more appealing to smaller contractors, including by breaking them into multiple, smaller contracts. Long term, the state needs to cultivate a broader pool of qualified bidders, said Liias of Everett.

In the short to medium term, however, lawmakers have decisions to make, both about the scope of its major highway projects and whether to find even more money for transportation in the state’s budget.

Rep. Jake Fey, the Democratic chair of the House Transportation Committee, raised the possibility of rejecting the 520 bids and revisiting the details of the project. And while it’s unlikely to happen in the 2024 session, lawmakers may have to look for new or increased revenue sources.

“We don’t have another $500 million laying around,” he said.

Cost for contractor risk

WSDOT staff first began to notice a lack of competition in 2022. The department put out a request for bids to widen I-5 near DuPont — a contract that was estimated to be worth up to $200 million.

“We only ended up with two bidders on that,” Christopher said. “And that was kind of odd, because that was the first time we had gone forward with a project of that size and had only two bidders.”

The 520 project only had three bidders to start, and one dropped out later in the process. A $500 million contract to build the remaining 2 miles of new Highway 509 Expressway fetched just a single bid, causing the department to pause procurement. A contract for joint and pavement work on I-5 between Yesler and Northgate received only two bids; the project was paused in favor of other WSDOT priorities.

The decrease in bids is only happening on design-build contracts — when the contractor is responsible for both planning and executing a project. The state likes to use design-build because it’s faster — the contractor can immediately begin work once the design is finished — and tends to spur more creativity.

The flip side is that those jobs carry more risk for the contractor. With so much work available and so few civil engineers, the motivation to take on a government design-build decreases and the price increases.  

“The feedback that we’re getting is that, not only is there a lot of work out there right now but those projects that get above the $300 to $500 million range really do represent a pretty significant risk to a lot of contractors,” said Christopher.

Prices are jumping on transportation construction everywhere, a multiyear trend. In general, those increases have been between 20% and 50% across the country, said Jim McDonnell, director of engineering with the American Association of State Highway and Transportation Officials.

The cost of some materials has doubled or even tripled, he said, but staffing shortages seem to be driving many of the increases. Civil engineers in particular are severely lacking.

“If their staff is fully booked with work, they can’t legitimately bid for a job that they can’t do in a timely fashion because they’ll have deadlines that they can’t meet,” he said.

More money needed?

Lawmakers opted to move forward with the I-405 contract, despite the cost increases, while also asking the state transportation commission to look into increasing the tolls to cover the costs.

“The 405 project, we can’t scale back,” Liias said. “It’s adding HOV lanes from Bothell to SR 527. You can’t build half of a lane; you can’t build a lane in the middle of nowhere.”

But the 520 contract may not fly through as quickly, said Fey of Tacoma, who raised the possibility of rejecting the bids and rebidding a revised request for proposals. That could be welcome news to nearby residents who’ve wanted to see the project scaled back.

“That it would be over, that wouldn’t have surprised me,” Fey said. “But the level? That it would be over $500 million? That’s a miss.”  

Still, there are risks to changing the project’s scope, namely that it could cause delays. The Portage Bay section is currently slated to begin construction next year and be completed by 2030, which is already later than originally planned.

Looking forward, Fey and Liias don’t rule out the need for more state money for transportation, despite recently passing the $17 billion package. The scope and specifics of a new package don’t exist and both said it’s unlikely anything would happen until at least 2025.

Republicans, who voted nearly unanimously against the 2022 package, have pushed for earmarking some portion of sales tax on vehicles for transportation projects, arguing it would be a sustainable revenue source independent of the gas tax.

King, of Yakima, suggested looking at some of the state’s prevailing wage and apprenticeship requirements to reduce costs.

Next year, WSDOT will put out to bid as many as 18 design-build contracts, Christopher said, more than he can remember the state posting.

Wrestling with the costs and how it affects the state’s agenda is likely to be the top priority for both the House and Senate transportation committees, said Fey.

“It makes me nervous,” he said.