The sticker shock felt by all of us at the gas pump due to high oil price fluctuations is equally or more shocking to asphalt producers and contractors. The overall effect is exaggerated in the fact that not only is the cost of the material directly impacted; the cost to produce, deliver and install the product is largely dependent upon fuel pricing.
The material cost portion of an asphalt project can vary anywhere form 40% to 60% of the overall project cost. Thus, the fluctuation in material pricing greatly impacts the overall project cost. In years past (prior to 2008), the cost of material at the asphalt plant had remained relatively stable throughout a construction season. Now, we are experiencing major fluctuations from month to month and sometimes week to week. As a result, contractors are forced to quote projects on a fluctuating price index basis. In other words, a project will be quoted using a material price at the time of the quote and adjusted at the time of construction based on a third-party index typically provided by the State’s Department of Transportation. There are a numerous benefits for the end-user when utilizing the fluctuating price index method. First, quotes remain fair amongst competition since the material pricing is relative to the index at the time of the quote. Second, pre-inflated speculative pricing by the contractor and material producer is eliminated thus forcing the proposal to better represent the actual cost at time of completion. Third, the index fluctuates both up and down which provides an opportunity to actually lower the cost at the time of construction.
The added fuel costs to deliver and install the material remains a volatile factor in the pricing of projects for contractors. Since these costs are a smaller portion of the overall project, most contractors are able to absorb or predict these increases by tracking and adjusting their prices accordingly.
With alternatives that include asphalt recycling, Ruston Paving has taken a proactive approach to reduce the impact of fluctuating oil prices associated with asphalt pavement construction. To learn more about this process you can contact one of our managers at any of our locations listed HERE.