Rising oil prices not only affect fuel and transportation costs, they also have a direct impact on the cost of building and maintaining our streets and highways. States are losing hundreds of millions of dollars due to outdated bidding policies that favor petroleum-based asphalt over other paving materials.
"Event outside of current political stresses on the prices of oil, the world economy has permanently chanced with the emergence of strong growth in countries such as
In a recently released report, Sullivan describes how asphalt no longer has a competitive cost advantage compared to other materials, such as concrete, at the time projects are bid. However, old and irrelevant policies like the use of escalators benefit asphalt suppliers and distort free market mechanisms.
Asphalt cost escalator clauses are price adjustment provisions that allow 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.
PCA calculates that in 2003 asphalt enjoyed a
Costs now favor concrete over asphalt. The reversal came in 2009, when concrete roads enjoyed a
"In a level playing field, where the free market dictates winners, concrete wins," says Sullivan.
Yet that's not the case in many states, where outdated public works policies fail to respond to changes in prices. Distortions caused by these policies are partially responsible for the rise in paving and highway maintenance costs, which are straining already cash-strapped state budgets.
"Compare it to buying a product where the price you pay at a time of delivery is higher than the price you agreed to when the order was place," says Sullivan. "With road building projects, birds are placed, prices are agreed upon, and then construction proceeds to build a road. But when you go to actually build the road and pay for it, the asphalt contractor says 'Sorry but oil prices went up. You're going to have to pay more because our costs went up.'"
Sullivan concludes, "You would never buy a car or a television that way. Why does our government buy roads that way?"
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Hispanic #1 Breaking News for Entrepreneurs, Professionals and Small Business Owners - HispanicBusiness.com
OCTOBER 31, 2014
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