Sources: Portland Cement Association, Skokie, Ill.; CP staff
Beyond fuel and transportation, rising oil prices directly impact street and highway building and maintenance costs, compounding the hundreds of millions of dollars states lose due to outdated bidding policies that favor petroleum-based asphalt over other paving materials.
In a recent report, PCA Chief Economist Ed Sullivan describes how asphalt no longer has a competitive cost advantage compared to concrete at the time projects are bid. However, policies like the use of escalators benefit asphalt suppliers; such clauses are post-bid adjustment provisions that allow paving contractors to raise their construction price based on a fluctuation in asphalt binder costs which, typically, are directly related to the price of oil.
As a result, taxpayers take on the risk of increasing asphalt prices and the resulting higher maintenance costs of asphalt roads, PCA contends. The association calculates that in 2003 asphalt enjoyed a $225,000 or 39 percent cost advantage over concrete for one mile of two-lane roads. Since then, both oil and asphalt binder prices have increased by more than 200 percent. Concrete prices during the same period increased a relatively modest 37 percent. A reversal occurred in 2009, when concrete roads enjoyed a $65,000 cost advantage over asphalt, largely due to oil price jumps . Today, PCA calculations show concrete’s cost advantage has climbed to $192,700 for one mile of two-lane urban roadway.
“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 “Yet that’s not the case in many states, where outdated public works policies fail to respond to changes in prices.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 the time of delivery is higher than the price you agreed to when the order was placed. With road building projects, bids 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.’”