APA Hits Back on Price Adjustment Clauses
- Published: Monday, 09 April 2012 14:26
The Asphalt Pavement Alliance (APA) fired back at The Portland Cement Association (PCA) for its recent statements about road construction agencies, and PCA’s claim that “states are losing hundreds of millions of dollars due to outdated bidding policies that favor petroleum-based asphalt over other paving materials.”
PCA, in a press release, took issue with price adjustment clauses, which they call “escalator clauses.” Price adjustment clauses allow contractors to adjust their construction prices up or down if certain commodity prices change significantly after the contract has been awarded.
Price adjustment clauses for fuels and construction materials are time-tested policies implemented by many state departments of transportation (DOTs) to reduce contracting risk, APA said. Under these clauses, the road-building agency and the contractor agree to share the risk of increases and decreases in the cost of materials such as asphalt cement, portland cement, diesel fuel and steel. If the cost of an agreed-upon specific material rises or drops by a pre-determined percentage, then the value of the contract will change based upon a precise formula. Many times, these clauses are used in contracts for multi-year projects because of uncertainty in forecasting commodity prices over long periods of time; this is particularly important because it helps states ensure the completion of projects.
According APA Executive Director Michael J. Kvach, price adjustment clauses are not used in every state and they are not used in every contract. They are voluntary agreements, and they are one way that contractors and state agencies have worked together to ensure that smooth, long-lasting roads are being built in the most cost-efficient manner possible. When prices fall, the road-building agency saves money, and the taxpayer is the beneficiary.
“The Asphalt Pavement Alliance does not have a position on price adjustment clauses, but we believe in the ability of road-building agencies to decide whether and when to include these clauses in a contract,” Kvach maintained, in an exclusive statement to Rock Products. “The engineers and policy makers at DOTs are smart people. They are good stewards of public funds and we should let them do their jobs.”
“Asphalt roads deliver more value to the taxpayer,” Kvach continued. “Asphalt roads can be engineered to last indefinitely with minimal maintenance and in a more environmentally friendly manner than concrete roadways. In addition to conserving natural resources, agencies save significant dollars through the standard practice of recycling pavements, along with shingles, and rubber from used tires. When a concrete road reaches the end of its life it often must be completely removed and replaced. With the proper design an asphalt road is a permanent asset that can be left in place indefinitely, with only routine maintenance and periodic surface renewal.
“In today’s economic environment, where reduced funding is combined with high infrastructure needs, prudent spending is more important than ever,” Kvach said. “Decision-makers exercising good stewardship practices can easily justify their decisions and choices to their constituents. Utilizing price adjustment clauses to reduce significant risk and making pavement decisions based upon the merits of the engineering, the impact on the environment, and economic factors are good stewardship practices.”