Challenges and Strategies for Implementing the Infrastructure Act

As 2026 rolls around, the Infrastructure Investment and Jobs Act (IIJA), once heralded as a monumental step in rebuilding American infrastructure, has transitioned from the excitement of funding announcements to the sobering reality of project execution. With $1.2 trillion allocated to improve infrastructure, state and local governments are no longer just focusing on securing funds but are now grappling with the hurdles of implementation. The key challenges presenting themselves are increasing costs, regulatory challenges, and looming federal deadlines.

Execution Challenges and Financial Strain

The foremost issues that project issuers and borrowers are facing include time constraints and financial miscalculations. For instance, a municipal fiber expansion project initially budgeted at $100 million in 2023 is now potentially running up to $125 million due to inflation impacting labor and material costs. This imbalance has led to funding gaps as projects that were financially scoped during a period of expected temporary inflation now find themselves over budget.

To fill these financial voids, project owners and sponsors often resort to taking on additional debt, which can negatively impact vital project metrics like debt service coverage and overall profitability. As borrowing increases, the cost of capital rises due to market perceptions of weakened credit fundamentals, thereby narrowing equity returns and increasing financial strain.

Regulatory Bottlenecks Complicate Compliance

Another pressing issue is regulatory compliance, which is now a major bottleneck despite recent efforts to expedite the federal environmental permitting process. The Build America, Buy America (BABA) regulations, for example, are causing delays and increasing project costs. BABA mandates that a significant portion of manufactured components be sourced domestically, complicating procurement processes and extending timelines. Electric vehicle (EV) charging infrastructure projects have seen notable delays due to these requirements.

Delays, primarily due to BABA compliance issues, pose significant credit risks as they can alter the financial assumptions of projects post-financing. This is particularly challenging for fixed price contracts, where any cost increases cannot readily be adjusted, thereby exposing contractors to financial losses and increasing the risk of default.

Deadline Pressures and Strategic Shifts

Adding to the complexity is the impending expiration of IIJA authorizations for funding key infrastructure programs by September 30, 2026. Projects not legally committed by this deadline risk losing funding. This urgency is exacerbated by the completion deadline of the American Rescue Plan Act (ARPA) projects by the end of 2026, which has intensified competition for contractors and labor, putting additional pressure on timelines.

This convergence of pressures—rising costs, regulatory hurdles, and deadline constraints—has led to a market phenomenon known as "bid shock," where project bids have surged beyond available funding, forcing owners to consider alternative delivery models. These models aim to engage contractors early to manage costs and optimize scheduling but also demand project owners to demonstrate flexibility and regulatory readiness to attract competent contractors.

Redefining Success in Project Delivery

The focus of infrastructure projects has fundamentally shifted from merely obtaining funds to ensuring project completion. Success in this landscape requires adaptability in delivery models, meticulous compliance management, and strategic risk allocation. The market will differentiate between those who can overcome these challenges and those who cannot, with the former securing efficient project delivery and the latter potentially facing the risk of stranded funding.