APA Hits Back on Price Adjustment Clauses

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about road construction agencies, and PCA’s claim that “states are losing hundreds of millions of dollars due to outdated bidding policies that favor petroleum-based asphalt over other paving materials.”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.

(source: Rock Products, click here for complete article)

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