The Infrastructure Investment and Jobs Act (IIJA), in conjunction with the Inflation Reduction Act (IRA), aims to make a substantial push towards sustainability. Contractors taking advantage of financial incentives when performing work on sustainable projects will need to adhere to certain requirements spelled out in the new laws.
There are several ways in which the “E” in “ESG” will be relevant for contractors under both the IIJA and IRA, says Liz Malone, head of the environmental group at Skadden, Arps, Slate, Meagher & Flom LLP in Washington, D.C.
“First, both laws prioritize projects that reduce greenhouse gas emissions, improve the resiliency of physical assets to extreme weather or address negative environmental impacts that have disproportionately affected disadvantaged communities,” Malone says.
For example, the IIJA established the Rebuilding American Infrastructure with Sustainability and Equity (RAISE) program. Projects seeking funding under the RAISE program are evaluated first on certain “merit criteria,” one of which is environmental sustainability.
“Given the IIJA and IRA’s emphasis on environmental projects, contractors seeking project opportunities under these laws should consider placing a higher emphasis on the environmental benefits they can deliver,” she says. “This may include expanding expertise to include emission-reducing projects and technology, as well as incorporating environmentally friendly components into traditional infrastructure projects.”
Additionally, the IIJA sets a two-year deadline for completing the federal environmental review under the National Environmental Policy Act and the permitting process, Malone says. Contractors must be able to show, through detailed project schedules, budgets and personnel, that they have the expertise and resources available to provide the relevant federal agencies with the information needed to meet this time limit.
This information will include project construction and operational, as well as relevant data and studies that detail known project impacts and possible mitigation measures for those impacts.
One of the IRA’s stated goals is to reduce America's carbon footprint by 40% by 2030. This includes efforts to reduce greenhouse gas emissions by requiring the use of low-carbon materials for certain funded projects, says S. Elysha Luken, an attorney and partner in the Fort Lauderdale, Florida, office of Smith, Currie & Hancock LLP.
“Many construction materials, such as concrete, steel and glass, are believed to be putting a giant weight on our greenhouse gas emissions,” Luken says. “If these materials are necessary to build a project, the IRA’s goal is to promote the manufacture and use of materials with lower levels of embodied greenhouse-gas emissions, so the building or roadway to be constructed will have less of a carbon footprint. This is a life cycle approach, seeking to reduce emissions from the manufacture of the material to the end of the project’s life cycle when the material needs to be disposed of or recycled.”
The IRA provides $2.15 billion to the General Services Administration to acquire low-carbon materials for federal construction projects, and another $2 billion for the Federal Highway Administration to incentivize and reimburse additional costs associated with low-carbon materials that can be used in roadway projects that receive federal funding, which may include projects funded by the IIJA.
In addition to that, the IRA funds the Environmental Protection Agency $350 million to develop a standardized environmental product declaration to include information about greenhouse gas emissions. These product labels may start to be used on private projects as well, Luken says.
Moreover, IRA tax credits and other financial incentives to reduce carbon emissions may be used on projects to improve the energy efficiency of commercial and residential buildings or projects to construct renewable energy facilities.
Aside from creating new tax credits and other financial incentives, the IRA additionally funds already existing tax credits, such as the renewable energy production tax credit; tax credits associated with purchasing property for siting a renewable energy facility; the energy-efficient commercial building deduction; and the energy-efficient new home credit.
“However, under the IRA, many contractors could have to comply with certain wage and workforce requirements if the project is to receive these tax credits,” she says. “These can involve complying with the Davis-Bacon Act prevailing wage requirements, as well as additional reporting requirements. Contractors may also need to hire apprentices involved in a registered apprenticeship program.”
Sustainability projects under the IIJA also have similar requirements for contractors, as well as new “Build America, Buy America” requirements, which require domestic content for everything that is used on projects.
“For all of these projects, contractors have got to read the fine print on these solicitations and procurements,” Luken says. “Unless you're a federal government contractor that regularly does federal work, some of these requirements may be kind of a surprise or at least something that you may not currently have the internal infrastructure within your own organization to do.”
For example, for the Davis-Bacon requirements, contractors must keep track of what they’re paying each and every worker on the project, filing reports every week with their payroll. In some instances, they must submit certified payrolls to the Labor Department.
For the Build America Buy America requirement, contractors may have to prove that they used domestic content by obtaining that information from their material suppliers, she says. There are also specific certifications about low-carbon materials that federal agencies will likely require, and contractors can be required to research the EPA’s new environmental product declarations for the materials they plan to use on certain projects.
“You're going to have to ask yourself whether you can meet whatever threshold they're requiring if you use this material,” Luken says. “If a certain material doesn’t meet that threshold, a contractor may have to use something that has a lower carbon emission for another material to make up for it in the overall materials that you’re using for the project.
For any additional IIJA and IRA requirements on projects, contractors must ask themselves if they can comply with the requirements, and then they need to build that into their pricing structure for that project, she says.
If contractors want to maximize their business opportunities in the next five to 10 years, it’s in their best interest to be familiar with the low-carbon and other clean materials requirements related to the IIJA and IRA, says Adie Tomer, a senior fellow leading the infrastructure team at Brookings Metro in Washington, D.C.
“Contractors who have experience using such materials have a distinct advantage in the marketplace,” Tomer says. “It’s imperative they make their expertise known to public sector customers.”
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