Road construction bids "are coming in at the lowest in the modern era."
Bob McDonnell on Wednesday, January 12th, 2011 in a speech.
Gov. Bob McDonnell says Virginia road bids are the lowest in a generation
It’s an ideal time to build roads, Gov. Bob McDonnell says. He’s telling everyone that interest rates are low, the improvements are badly needed and bids on highway projects are coming in dirt cheap.
The arguments have gained traction in the General Assembly. The House and Senate have passed versions of McDonnell’s proposal to accelerate the issuance of $1.8 billion in bonds to fund road projects across Virginia over the next three years.
McDonnell, a Republican, set the goal during his State of the Commonwealth Address to the legislature last month. In laying out reasons to speed up borrowing for roads, he said, "Bids on construction are coming in at the lowest in the modern era."
We’ve heard supportive legislators repeat McDonnell’s line about bids -- or versions of it -- and wanted to know if it is true.
First, we asked for clarification. How does the McDonnell define the "modern era" when it comes to road bids? "He’s talking about a generation, about 20 years," Tucker Martin, the governor’s chief of communications said.
So McDonnell is saying bids for road construction are the lowest in about 20 years. Martin said the information came from the Virginia Department of Transportation and urged us to call Malcolm Kerley, the chief engineer.
Kerley could not confirm McDonnell’s claim, explaining that VDOT does not keep annual records of the overall rise or fall in state construction bids. "Historically, we haven’t done it," said Kerley, a 40-year employee at VDOT. "I don’t remember anyone asking for it."
Kerley acknowledged that last year bids for large state road projects were indeed low. They came in an average 17 percent below VDOT’s projections, he said. VDOT had not tracked the figure prior to 2010.
"I don’t know if we’re making history or not," he said.
With the construction industry hurting, Kerley said competition among contractors for road work has increased, resulting in lower bids. Last year, about 130 new firms sought to qualify to bid on state highway work, Kerley said. During a normal year, "10 to 20" new companies seek qualification, he added.
We called Jeff Southard, executive vice-president of the Virginia Transportation Construction Alliance, a lobby for road contractors. Although he, too, is also convinced bids are coming in low, he had no data to offer other than what VDOT told us.
"People are looking for work and it’s very competitive," Southard said. "You see companies that used to do commercial work bidding on highway work. You see a lot more companies coming in from out of state and expanding their geographical boundaries."
OK, we’re convinced road prices are good right now. But is there any historical data that will tell us how good?
We found a few interesting charts that cast doubt on McDonnell’s claim bids are the best lowest in 20 years.
A Bureau of Labor Statistics index shows the cost of highway construction materials went up 98 percent nationally between 1990 and the middle of 2010.
The Federal Highway Administration began a quarterly measure of road construction costs in 2003. The index shows that costs at the end of last June -- the latest time available -- plunged 28 percent since the summer of 2008, when oil prices hit all-time highs. Oil is a key ingredient in asphalt.
Even with the drop, construction costs at the end of June were not at the low point in the 7 1/2-year history of the index. They were the cheapest prices since March, 2004.
A road building cost index for five Western states goes back 20 years -- exactly the span McDonnell referred to in his speech. Since 1990, construction costs in those five states went up an average of 115 percent.
Given these indexes and the lack of any historical data in Virginia, is it possible that McDonnell is right and construction bids are coming in the lowest in two decades?
Ken Simonson, chief economist for the Associated General Contractors of America, did not want to weigh in specifically on the governor’s claim, citing the dearth of data from Virginia. But he said the indexes we are using are reliable.
Simonson said Virginia may not have seen quite the increase in road costs over the last 20 years experienced by the more mountainous Western states. On the other hand, he added that Virginia has not been immune to a steady rise over two decades in the price of road construction materials such as oil, steel, copper and concrete.
McDonnell says Virginia’s highway construction bids "are coming in at the lowest of the modern era." His communications chief says the governor was referring to about 20-year time span. McDonnell offers no statistical proof for his claim because such data has never been kept in Virginia.
But there is data that undercuts the governor’s claim. A Bureau of Labor Statistics index shows the price of highway construction materials went up 98 percent over the last 20 years.
A Federal Highway Administration index shows road construction prices are the lowest in six years. The Western state index shows highway prices have increased by 115 percent since 1990.
While circumstantial evidence certainly suggests the governor statement is inaccurate, we can not establish that beyond all reasonable doubt. We rate McDonnell’s claim Barely True.
Editor's note: This statement was rated Barely True when it was published. On July 27, 2011, we changed the name for the rating to Mostly False.
Published: Saturday, February 19th, 2011 at 7:00 a.m.
Gov. Bob McDonnell, State of the Commonwealth Address, Jan. 12, 2011.
Interview with with Jeff Caldwell, gubernatorial press secretary, Feb. 10, 2011.
Interview with Tucker Martin, gubernatorial press secretary, Feb. 15, 2011.
Interviews with Malcolm Kerley, chief engineer, Virginia Department of Transportation, Feb 10-17, 2011.
Interview with Jeff Southard, executive vice president, Virginia Transportation Construction Alliance, Feb. 11, 2011.
Federal Highway Administration, Construction cost trends for highways.
Washington State Department of Transportation, Construction cost indices.
Interview with Ken Simonson, chief economist, Associated General Contractors of America, Feb. 18, 2011.
Bureau of Labor Statistics, Producer Price Index Industry Data, Material and supply inputs to highway and street construction.
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