Highway construction costs have increased 68 percent since 2021.
Below-average bidder competition and higher project costs have added additional pressure to infrastructure projects.
Understanding budget constraints and market dynamics may help construction professionals find, bid, and win more infrastructure projects.
Highway construction costs have surged 336 percent since 2003, with a 68% increase alone since 2021, according to the National Highway Construction Cost Index (NHCCI).
The NHCCI is the Federal Highway Administration’s quarterly measure of highway construction cost changes. It is based on actual winning bid prices from state projects across the country. The index tracks cost trends across nine construction input categories, including grading, bridge work, concrete, and asphalt. The report for Q3 2024, released in May of this year, clocked the index at 3.36, with the baseline of 1 in Q1 2003.
Recent infrastructure cost increases stem primarily from earthwork and structural components that affect virtually all highway and bridge projects. Grading and excavation operations emerged as the primary cost driver, while bridge construction and concrete work contributed substantially to the 6.5% quarterly increase seen by the most recent NHCCI report.
This dramatic cost increase could put pressure on state departments of transportation, municipal agencies, and infrastructure project managers, who must deliver projects with limited budgets. Understanding project delivery methods and market competition may help construction industry professionals better maintain project viability in a rising cost environment.
The Federal Highway Administration tracks the number of bidders on highway construction projects, and the total number of bidders has dipped after a peak in 2020-2021. However, the number of bidders has rebounded recently, nearing but remaining below historic averages in recent quarters.
Fewer bidders mean less competition, which eases downward pressure on bid prices and drives up project costs. The impact is greatest for complex work like bridge building and major earthwork, where the NHCCI has recorded substantial cost increases.
If market competition continues to increase, we may see some easing in infrastructure construction price inflation. Firms that are aware of the dynamics of market competitiveness can potentially gain an edge when bidding on infrastructure projects in the future.
Sustained cost inflation and fewer bidders have created potential financial constraints across state transportation agencies, possibly encouraging changes to traditional project delivery approaches.
The Washington State Department of Transportation reported losing $37 million in purchasing power between 2023 and 2025 due to inflation, illustrating the budget constraints that impact the state’s infrastructure construction and maintenance decisions.
Rising costs have encouraged states to seek cost and schedule reduction methods. Alternative project delivery approaches, like design-build, have helped agencies cut down on costs and build time.
Design-build differs from traditional project delivery methods like design-bid-build because the design and construction phases are rolled into one contract. This approach is intended to streamline the construction process, lowering costs and project timelines.
The Federal Highway Administration’s evaluation of design-build found 3% cost savings and 14% schedule decreases compared to traditional infrastructure project delivery methods. A more recent study of the same method in South Carolina found similar improvements in cost mitigation and time savings compared to the state’s traditional project delivery approach.
States may turn to nontraditional approaches with proven results, such as design-build, to optimize efficiency and reduce expenses amid economic uncertainty. Firms that can adapt to evolving delivery models will potentially be better equipped to handle further changes in the infrastructure construction landscape.
The convergence of cost inflation and reduced market competition has created a potentially challenging environment for infrastructure budget management. This has made flexibility increasingly important for construction professionals.
The NHCCI does not yet include possible tariff-related price increases on key infrastructure materials. These increases add an additional layer of strain to the infrastructure market, which has already seen tremendous price increases, making it even more important for construction professionals to understand current market dynamics.
Adaptability to alternative delivery methods and a strong understanding of competition can help firms potentially position themselves better for winning projects. States are looking for streamlined processes, reduced timelines, and optimized budgets. Firms that embrace diverse strategies will potentially be better equipped to meet the demands of a rapidly changing market.
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