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Contractors World 2012 Volume 3 Issue 2
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Construction News - Economics - Business - Regulations






Portland Cement Association complains of uneven procurement concepts

Until recently, asphalt enjoyed a lower “initial bid” and, according to some, a “life cycle” paving cost advantage compared to concrete. Even though since 2005 liquid asphalt prices have increased annually 12 percent and concrete only four percent.

A recent report by the Portland Cement Association (PCA) shows that some USA states’ department of transportation (DOT) procurement practices hinder “free market” dynamics economics. These practices could be costing states and taxpayers billions of dollars in unnecessary paving initiatives.

The report, “Paving, The New Realities,” by PCA chief economist Ed Sullivan, details the world economic growth dynamics that have resulted in the elimination of asphalt’s paving cost advantage, both on initial bid and life-cycle costs.

Unfortunately, states are not taking full advantage of the cost-savings concrete affords. State DOT procurement practices that include escalators, non-use of alternative material bidding, flawed life-cycle cost advantage (LCCA) calculations and the lack of equivalent paving design are slowing concrete’s penetration of the paving market and costing taxpayers billions of dollars.

Asphalt cost escalator clauses are a price adjustment provision that allow asphalt paving contractors to adjust their construction price based on a fluctuation in liquid asphalt cost. This practice can result in DOTs choosing a more expensive paving option and significant cost overruns.

“While escalators, for example, may have been a prudent policy for the 1970s, they have no place in the context of the new paving realities. Today they mask unneeded cost overruns caused by asphalt’s price volatility. PCA estimates that escalators have cost states roughly $70 million annually in cost overruns since 2008,” said Sullivan. “The new realities in the road construction materials markets will force DOTs to make huge changes to how they evaluate road-paving projects.”

During 2010-2011 concrete’s initial cost advantage over asphalt increased to $78,500 in 2010 and $192,700 in 2011 per one-mile standard two-lane roadway. Using Wisconsin DOT software, PCA estimates by 2015 concrete paved roads will enjoy a $266,185 initial bid cost for the same road - roughly a 30 percent savings and the savings will grow to 44 percent by 2025.


Currently concrete roads have a $372,466 LCCA over asphalt for a one-mile standard two-lane roadway – or roughly a 37 percent savings. By 2015, this will increase to a 42 percent savings, and to 53 percent by 2025. [CWMAGS]

Lobbying for Government approvals

AEM President Dennis Slater The Association of Equipment Manufacturers (AEM) is speaking out with other national organizations calling on the Obama administration to approve the Keystone XL project without further delay.

AEM President Dennis Slater (right), in a letter, urged President Obama to take immediate action; AEM also joined with other construction and business groups in an industry call-to-action letter. AEM will continue to work with allied organizations to push for support of the pipeline. Slater noted that the project will create 20,000 high-wage jobs in construction and manufacturing.

Slater said the project will “help provide a stable supply of North American energy to American consumers …. (as) recent tensions in the Middle East and concern over the safety of the Straits of Hormuz necessitate that the United States enact sound energy policies that focus on expanding North American energy supplies and maintaining stable prices for American consumers.”

The Keystone XL could provide 4 million barrels a day by 2020, twice what the U.S. currently imports from the Persian Gulf, Slater noted. “Enhancing our energy partnership with Canada will strengthen America’s energy and economic future.”

The Keystone XL pipeline has been vetted for environmental concerns for more than three years by the U.S. Department of State. The final Environmental Impact Statement (EIS) issued August 26, 2011, found that the proposed pipeline will have “limited adverse environmental impacts” during construction and operation, Slater stated in his letter. “Additionally, the (EIS) document concluded that the pipeline ‘would have a degree of safety greater than any typically constructed domestic oil pipeline system under current regulations.’“

Slater concluded, “Mr. President, AEM strongly urges you to act swiftly to approve the Keystone XL pipeline. This pipeline will initiate immediate and long term economic benefits and is in the best interests of all Americans.” >>>>>

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