PCA Economist Discusses How Higher Oil Prices Are Influencing State Infrastructure Costs

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At the 2012 World of Concrete last month in Las Vegas, Portland Cement Association (PCA) Chief Economist Ed Sullivan reported that to manage the new cost realities of asphalt and concrete DOTs must become "efficient" spenders. As oil prices rise and refineries adopt new technologies, the industry is seeing a direct impact on the costs for states to build and maintain roads and highways. The lower "initial bid" of asphalt roads has disappeared, yet industry experts say many state departments of transportation (DOTs) have not changed their bidding policies.

Although the free market is the best way to have efficient solutions to financial budget constraints, Sullivan said old and irrelevant policies like the use of escalators benefit suppliers and distort free market mechanisms. Since 2005, liquid asphalt prices have increased annually 12 percent while concrete rose only four percent. Yet, states’ DOT procurement practices that include escalators, non-use of alternative material bidding, flawed LCCA calculations, and the lack of equivalent paving design are slowing costing taxpayers billions of dollars. PCA estimates that since 2006, escalator clauses have cost states $1.1 billion.

Source: PCA Executive Report e-newsletter for January 30, 2012. For more informatin, contact Ed Sullivan at esullivan@cement.org.