Fuel and Asphalt Cost Adjustment Provisions

1. FUEL AND ASPHALT COST ADJUSTMENT PROVISIONS

2. Use of Cost Adjustment Provisions • FHWA Technical Advisory Dec 10, 1980 • “Price volatility of construction materials and supplies …. Can result in significant problems for contractors in preparing realistic bids.” • “This leads to price speculation and inflated bid prices to protect against possible price increases.”

3. Development of Cost Adjustment Provisions • Price adjustments should apply for both upward and downward movement of prices • Price adjustments should be based on an index or other economic barometer which is not susceptible to manipulation • Price adjustments should be “Triggered” only by a significant change in the index base price

4. Development of Cost Adjustment Provisions • Price adjustment computations should be performed at specified intervals rather than as each change in price occurs. Monthly is suggested. • The 1980 Tech advisory recommended against optional selection of cost adjustment provisions but FHWA later stated “Since all bidders have the same option, this is consistent with competitive bidding principles”

5. Fuel Cost Adjustment Provisions • Fuel is typically an incidental cost to the a project • A methodology for basis of payment must therefore be determined • CDOT methodology is Fuel Usage per Unit method • This estimates the amount of fuel used in various units of work under average conditions • Fuel factors were developed in cooperation with Colorado Contractors Association

6. 2001 CDOT Fuel Cost Adjustment Specification • First implemented on May 31, 2001 – Not optional • Index was the spot price per barrel of West Texas Intermediate crude oil as posted in the Wall Street Journal • Trigger was 10% • Payment was based on the increased pay quantities for three items • Excavation – 0.29 Gal/CY • HBP – 1.06 Gal/Ton • Concrete Pavement – 0.03 Gal/SY/Inch Thickness

7. Revised November 2005 • Revised November 14, 2005 - Optional • Index was still the spot price per barrel of West Texas Intermediate crude oil as posted in the Wall Street Journal • Trigger was left at 10% • One more item was added: • Aggregate Base Course – 0.29 Gal/CY

8. Revised Again November 2006 • Revised on November 30, 2006 – remained an option to the contractor • Index was revised to Opis Denver # 2 Diesel • Trigger was revised to 5% • Additional items were added • Fuel factors were revised

9. Revised Again November 2006 • Items now include: • Removal of Asphalt – 0.006 Gal/SY/Inch depth • Excavation, Embankment, Borrow – 0.29 Gal/CY • Excavation (Rock) – 0.39 Gal/CY • Structure Excavation – 0.29 Gal/CY • Aggregate Base Course – 0.85 Gal/CY (convert Tons to CY 0.557 Tons/CY) • Lime Treated Subgrade – 0.12 Gal/SY • Full Depth Reclamation – 0.06 Gal/SY • HMA & SMA – 2.47 Gal/Ton • Heating & Scarifying – 0.44 Gal/SY • Cold Bituminous Pavement Recycle – 0.01 Gal/SY/Inch depth • Concrete Pavement – 0.03 Gal/SY/Inch depth

10. WYDOT Fuel Adjustment Specification • Optional for all WYDOT Projects • Based on Index Prices posted by WYDOT on the Web Page. Index is from OPIS. • Contains a ± 7.5% “Buffer” area • Adjustments are Positive and Negative

11. WYDOT Fuel Adjustment Specification • Contractor submits Affidavit (Form E-12) with their signed contract • Establish % of Contract for Fuel items • Based on affidavit and original contract total • Computed: (Affidavit Cost/Original Contract Cost) x 100% • For each product (Unleaded, Diesel, Burner) • Will remain the same for the life of the contract

12. Affidavit of Fuel Cost for Project

13. WYDOT Fuel Adjustment Specification • Unleaded and Diesel Fuels eligible for adjustment at every Estimate • Burner Fuels eligible for adjustment only on those Estimates where paving or crack sealing happened

14. WYDOT Fuel Adjustment Specification • Adjustments are made only when the index price changes by more than 7.5% • Base Fuel Index (BFI): established previously • Current Fuel Index (CFI): price for month prior to the date of the Estimate

15. WYDOT Fuel Adjustment Specification • If an adjustment is warranted, it will be computed: %Contract x Estimate Amount x (Change±0.075) • Adjustments are made on each Estimate

16. 2009 ??? • CDOT and CCA have had discussions regarding revising the Fuel Cost Adjustment specification again. • CCA is currently researching fuel factor data for the existing items and any additional items they may wish to request

17. CDOT Asphalt Cement Cost Adjustment • Joint Task Force with CDOT, FHWA and CAPA worked to develop a specification • First implemented in 2007 as a pilot project as an option to the Contractors on 6 projects • Index was the spot price per barrel of Western Canadian Select Crude Oil as published by Encana • Trigger was 5% • Payment based on the quantities for HMA and SMA

18. CDOT Asphalt Cement Cost Adjustment • In 2007 none of the Contractors “opt’d In” and no data was gathered • In 2008 the specification was again offered as a pilot until July. • In July 2008 as a response to the asphalt cement price volatility CDOT implemented the Asphalt Cement Cost Adjustment specification as a Standard Special Provision on all projects with HMA or SMA. The cost adjustment specification is mandatory, not at the contractors option. • No change in the index or trigger from the pilot specification has been made.

19. WYDOT Adjustment for Performance Graded Asphalt Binder • Current Specification implemented in 2009 • Reaction to extreme escalation in price • Also reaction to supply issues within the state • Includes adjustment for Chip Seal oils

20. WYDOT Adjustment for Performance Graded Asphalt Binder • Mandatory for all WYDOT Projects with PG Binders and Chip Seal oils • Based on Index Prices posted by WYDOT on the Web Page. Index based on wholesale prices. • Contains a ± 10% “Buffer” area • Adjustments are Positive and Negative

21. WYDOT Adjustment for Performance Graded Asphalt Binder • The Contractor provides an Affidavit (Form E-14) and a confidential bid price at the beginning of the project.

22. Affidavit of PGAB Price

23. WYDOT Adjustment for Performance Graded Asphalt Binder • Adjustments are made only when the index price changes by more than 10% • If an adjustment is warranted, it will be computed: $$ = (PPI-BPI) x 0.90 x Tons of Binder • Adjustments are made on each Estimate

24. WYDOT Adjustment for Performance Graded Asphalt Binder • Additional adjustments are allowed for projects that go beyond one construction season. • Adjustment is based on Confidential Bid Price received from the Contractor (AAF) • If an adjustment is warranted, it will be computed: $$ =AAF x (PPI-BPI) x 0.90 x Tons of Binder

25. Sharing of the Risk • Cost adjustment specifications not designed for the DOT to assume all of the risk • Contractors still have to bid risk at least up to the trigger • Also have to consider downward movement of the price • CDOT index still based on crude oil price, not asphalt cement price, as requested by CAPA • Cost adjustment only on HMA or SMA, not emulsified items

26. Sharing of the Risk • DOT’s advertise projects in winter to allow contractors and suppliers to plan their work for the next construction season • The longer the period between bid and actual construction the greater the risk the index will fluctuate – the greater the risk to both parties

27. WYDOT Specifications and Formswww.dot.state.wy.us Specifications Forms & Index Prices Working With WYDOT Contractor Information Contractor Forms or 3. Base Index Prices • Information Central • Manuals and Publications • 2003 Standard Specifications • Supplemental Specifications

28. Questions? Dennis Largent, P.E. Project Development Branch, Area Engineer dennis.largent@dot.state.co.us Mark W. Ayen P.E. WYDOT Construction Staff Engineer mark.ayen@dot.state.wy.us