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Asphalt Spike Erodes State Budgets

"Cost increases may cause another round of asphalt-price escalation overruns for many state transportation departments this year, which may cut their paving outlays for the season."

So concludes a report in the March 26, 2012, issue of Engineering News-Record titled "Higher Oil Prices Push Asphalt Up 11.2% from a Year Ago."

Citing Bureau of Labor Statistics' producer price index, the article notes that rising crude oil prices have pushed asphalt paving mixtures up 1.5% in January and another 2.3% in February. The PPI for asphalt now stands at 11.2% above February of last year.

According to a recent PCA report, 41 states with asphalt-price escalation clauses resulted in overruns totaled about $70 million last year.

Even though initial cost comparisons now favor concrete over asphalt, escalator clauses unfairly limit competition by allowing asphalt paving contractors to raise their construction price based on a fluctuation in asphalt costs which, typically, are directly related to the price of oil. These price adjustments occur after the contractor has won the bid. As a result, states, and ultimately taxpayers, take on the risk of increasing asphalt prices and the resulting higher maintenance costs of asphalt roads.

The PCA  report, “The New Paving Realities: The Impact of Asphalt Cost Escalator Clauses on State Finances,” points out that many state departments of transportation (DOTs) have not changed their bidding policies to reflect structural changes that have taken place in the paving material market.

PCA calculates that in 2003 asphalt enjoyed a $225,000 or 39 percent cost advantage over concrete for one mile of two-lane roads. Since then, both oil prices and asphalt prices have increased by more than 200 percent. Concrete prices during the same period increased a relatively modest 37 percent.

Download the complete report as a PDF

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