It’s obvious with all of the grant money coming downhill from the federal government that there is going to be a lot of fiber constructed over the next year or two, and much of it by municipalities or other entities that have not built fiber before. Today’s blog talks about issues that can increase the cost of building fiber – an important topic since cost overruns could be devastating to an entity that is largely funded with grants.
I think everybody knows of cases where the funding for infrastructures has gone off the rails, with the final cost of a project being much higher than what was originally funded. I can remember when I last lived near DC and watched the cost of a new Beltway bridge over the Potomac come in at more than twice the original cost estimate. I can remember instances of big cost overruns for infrastructure like schools and roads. Cost overruns can also easily happen on fiber projects.
The number one issue facing the whole industry right now is shortages in the supply chain. I have clients seeing relatively long delivery times for fiber and fiber electronics. New entities that have never built fiber are going to go to the end of the line for receiving fiber. To the extent that grant-funded projects come with a mandated completion date, this is going to be an issue for some projects.
But more importantly, labor-related costs for building fiber are going to rise (and have already started doing so). With a huge volume of new projects, there will be a big shortage of consultants, engineers, and construction contractors. Like always happens in times of high demand, this means labor rates are going to rise – and that’s even assuming you can find somebody to work on a small project. One of the hidden facts in the industry is that very few construction companies build 100% with staff and heavily rely on subcontractors. Those subcontractors are going to be bid away from small projects to get more lucrative work for big projects. Even ISPs that build with their own crews are going to see staff lured away by higher pay rates. If you estimated the cost of building fiber a few years ago, the labor component of those estimates is now too low. Another issue to consider is that some grants require paying labor at prevailing wages, which means at metropolitan rates. This alone can add 15% or more to the cost of a rural fiber project.
The biggest crunch will be consultants and engineers who work for smaller projects. I’m in this category. There are only a handful of good consultants and engineers and we’re already seeing that we are going to be swamped and fully booked before this year is over. Don’t be surprised if you hear that your preferred vendors are not taking on new business.
The other big gotcha in fiber construction projects is change orders. This means any event that gives a construction contractor a chance to charge more than the original proposed cost of construction. Using the example of the bridge that went over budget – most of the extra costs came through change orders.
There are construction firms that bid low for projects with the expectation that they’ll make a lot more from change orders. You want to interview other communities that used the contractors you are considering. But a lot of change order costs can be laid at the feet of the project owner. It’s not unusual to see a project go out to bid that is not fully engineered and thought through. Changing your mind on almost any aspect of a project can mean extra costs and cost overruns. Here are just a few examples of situations I have seen on projects that added to the costs:
- After the first neighborhood of a project was built, the client decided that they didn’t like fiber pedestals and wanted everything put into buried handholes. That meant ripping and replacing what had already been built and completely swapping inventory.
- A contractor ran into a big underground boulder that was incredibly difficult to bore through. This was a city network, and the city would not allow an exception to build shallower only at this boulder and insisted on boring through it – at a huge, unexpected cost.
- I worked on a project where the original specification was to build past every home and business in the community. Once construction was started the client decided to build fiber to every street, including the ones with no current buildings. That’s a valid decision to make, but it added a lot to construction costs.
I could write a week worth of blogs listing situations that added to construction costs. The bottom line for almost all of these issues is that the fiber builder needs to know what they want before a project starts. There should be at least preliminary engineering that closely estimates the cost of construction before starting. Project owners also need to be flexible if the contractor points out opportunities to save costs. But my observation is that a lot of change orders and cost overruns come from network owners that don’t know what they want before construction starts.