ASPHALT PRICE ADJUSTMENT

1. ASPHALT PRICE ADJUSTMENT PRICE ESCALATION IN THE 21ST CENTURY

2. Presenters • Brigitte M. Codling, Contract Monitor Asphalt Price Adjustment Administrator Vermont Agency of Transportation • Brian L. Donald, Contracts and Specifications Engineer Construction Contracting Staff Supervisor Vermont Agency of Transportation

3. References • FHWA Technical Advisory, “Development and Use of Price Adjustment Contract Provisions”. Dated December 10, 1980. • AASHTO Publication “Suggestions and Guidelines for Combating Shortages and Minimizing the Effects of Price Uncertainties for Materials and Fuel in Construction” • FHWA Contract Administration Core Curriculum and Participant’s Manual and Reference Guide 2001 (Revision #1), Section IV, Part D. Price Adjustment Clauses. • FHWA Memorandum, “Price Adjustment Contract Provisions”. Dated August 21, 1990.

4. OVERVIEW • HISTORY • NATIONAL RESPONSE • THROUGH THE YEARS • NEED DETERMINATION • ESTABLISHING PRICES • SUPPLEMENTAL SPECIFICATION • QUESTIONS & ANSWERS

5. History: How it all began • The Energy Crisis of 1973 • AASHTO Task Force Meetings held in December of 1973 • AASHTO Publication “Suggestions and Guidelines for Combating Shortages and Minimizing the Effects of Price Uncertainties for Materials and Fuel in Construction”

6. National Response • Price volatility of oil based products created significant problems for contractors with preparing realistic bids, which often resulted in Agencies receiving inflated bid prices. • Transportation Agencies nation wide, began developing, and using Price Adjustment Contract Provisions. • The goal being to minimize the cost effects of price uncertainty and obtain lower bids.

7. Through the Years From 1973 to the current day there have been a variety of global and local events that have necessitated the implementation of Asphalt Price Adjustment ~ Price Escalation provisions in highway construction contracts.

8. Market stimulated implementation Price variance cited that reveals unpredictable, uncontrollable shifts away from normal price trends. Determine the primary cause of the price variance and assess whether that condition is expected to exist in the foreseeable future. If it is determined that the condition will persist, begin implementation. Need Determination

9. Trigger Clause • Some states have included a “Trigger Clause” within their Asphalt Price Adjustment Provisions. • How does a Trigger Clause work? When Asphalt Price Adjustment Provisions include a Trigger Clause, the entire provision is only “triggered” into effect when the market price for a ton of asphalt increases beyond a previously established margin. AASHTO has suggested that a 5% trigger is sufficient

10. Price Adjustment provisions should not be incorporated into standard specifications for permanent application to all projects. • The need to include price adjustment provisions within contract documents, should be assessed project-by-project, based upon considerations such as: • Single season contracts, that call for a predetermined amount, or more, of bituminous material . (In Vermont that amount is >2000 tons of bituminous mix) • Contracts scheduled to exceed 9 months in duration from bid opening to the contracted completion date, that include any amount of bituminous material. • Multiple season contracts, that include any amount of bituminous material. • Whenever Asphalt Price Adjustment provisions are adopted their need, effectiveness, and fairness should be continually evaluated by the contracting Agency.

11. Price Adjustment provisions should allow for both the upward and downward movement of prices. Which will provide for either compensation to the contractor or a credit to the State. Price Adjustment provisions should contain a reasonable margin for upward and downward price movement. Preferably in percent % form rather then actual dollars $ Currently Vermont’s Asphalt Price Adjustment provision does not contain a movement margin; however, the Agency intends to include such a clause in the updated version of that provision.

12. Asphalt Price Adjustments should be calculated from an index. The index should be established using data obtained from consistent and reliable sources, and data should be secured on the same day each month. An index price can be established by recruiting data from local, regional, state-wide, or national markets. Which ever is the most relevant for your projects. In Vermont we recruit binder prices from terminals that actually supply material to our projects. VAOT recruits binder prices monthly ~ but offers a bi-monthly averaged posted price for the purpose of calculating Asphalt Price Adjustments. Establishing Prices:

13. The Index Price is established through the same recruitment process as the Posted Price. The Index Price is averaged monthly rather then bi-monthly. The Index Price is made a part of the Asphalt Price Adjustment provision, within contracts that have been cited as needing such a provision. Example: 22. SUPPLEMENTAL SPECIFICATION - ASPHALT PRICE ADJUSTMENT PROVISIONS, dated May 1, 2001, is hereby made a new subsection of the Specifications superceding all previous editions and their modifications. Asphalt Price Adjustment. The Contractor's attention is directed to these Asphalt Price Adjustment Provisions. The procedure outlined in the Provisions will be used to compute any price adjustments for asphalt cement if the Agency determines that asphalt cement costs have changed during the construction of this project. The index price for asphalt cement is $213.00 per ton, f.o.b. the supplier's terminal.

14. State of Vermont Supplemental Specification Agency of Transportation May 1, 2001 ASPHALT PRICE ADJUSTMENT This specification contains price adjustment provisions for asphalt cement used in asphalt concrete mixtures produced under Section 303 - Plant Mixed Base Course, Section 406 - Bituminous Concrete Pavement, Section 409 - Open Graded Asphalt Friction Course, and 490 – Superpave Bituminous Concrete Pavement. The price adjustment will be based on the quantity of asphalt cement incorporated in the work multiplied by the difference between an index price and an average posted price. The procedures will be as follows: • Prior to advertising for bids, an Index Price for a ton of asphalt cement will be established by the Agency equal to the average posted price at three or more major oil company terminals capable of supplying Vermont. This price will be included in the proposal in the project Special Provisions and will be the base from which price adjustments are computed. • A bi-monthly Average Posted Price per ton will be calculated by the Agency for each of the following periods: April-May, June-July, August-September, and October-November. This will be done by averaging the posted price at the beginning, midpoint, and end of each period (first of each month and last day of second month, or the nearest business day thereto.) The posted prices used will be from the same terminals used to compute the Index Price. • The quantity of asphalt cement to be used for payment purposes in each period will be computed by multiplying the number of tons of mix used (Items 303.25, 406.25, 406.27, 409.25 and/or 490.30) by the base percent of asphalt called for in the project mix design for each item excluding any percent of asphalt from Recycled Asphalt Pavement (RAP). • The Asphalt Price Adjustment to be paid will be computed as follows: Price Adjustment = Quantity of Asphalt X (Average Posted Price - Index Price) Note: The Price Adjustment may be either positive or negative. 5. Payment will be as follows: The work performed under Section 303, 406 and 409 will be paid for at the Contract unit prices bid following established Agency practices. At the end of each bi-monthly period, the Engineer will compute the Price Adjustment for that period and enter it for payment on the next bi-weekly estimate. Payment will be made under: Pay ItemPay Unit 406.50 Price Adjustment, Asphalt Cement LUMP UNIT

15. THANK YOU…. ANY QUESTOINS?