High-priced gasoline has hacked away anticipated road-construction profits from state highway contracts signed before or during the recent escalation in oil prices.
But contractors got partial relief last week when Utah Transportation Commission approved a provision adjusting fuel costs for future contracts and those now advertised.Prices must change 15 percent from the agreed base contract price for the adjustment provision to kick in. Only major contracts or those valued at more then $100,000 qualify for adjustment.
Regarding asphalt, which is made from oil, if its price increases more than 50 percent from the contract price, the state will decide whether it's feasible to continue the project.
The commission approved the provisions after hearing the financial woes of a room full of contractors last week.
They explained that diesel fuel is not purchased with long-term contracts, so when the price goes up or down, contractors either lose money or gain a windfall on state contracts.
In the past two months, contractors have been losing. "I know one company we work with is paying $100,000 more in fuel costs per month," said Paul Clyde, vice president of W.W. Clyde & Co. in Springville and chairman of the Associated General Contractors Highway Committee.
On top of fuel expenses, the cost of supplies has gone up as shippers pass on their increased fuel costs, he said Monday.
Contractors said asphalt contracts are long-term and haven't been affected by soaring oil prices.
The lone vote against the provision came from commission member John Dunlop, who said fluctuating costs are part of the contracting business. He said if the state removes the risk of rising costs, it also ought to reduce the rewards of profit.
"We should open up the whole process and go an entire indexing system," Dunlop said.
But Clyde said contractors are only seeking protection from cost fluctuations they have no control over. He noted that because the provision doesn't cover current contracts, some companies hurt by the spiraling fuel costs could suffer again if prices fall more than 15 percent.
The fuel cost adjustment is effective only until the commission wants to rescind it. Clyde said it would take an act of the Legislature to make the adjustment provision permanent or to adjust current contracts. But the contractors association hasn't determined whether to take its case to lawmakers.
Contractors did do that after the first oil price shock in the early 1970s and won an adjustment of current contracts.