AMERICAN FORK City officials have approved additional funding for the cost of asphalt in connection with the city's pressurized irrigation project paying contractors up to 90 percent of their overages due to large increase in the cost of producing asphalt over the past few months.
The overages are estimated to be close to $500,000. But all of the phases of the project, up until this point, have come in under budget leaving some extra money, without having to cut into the entire contingency fund of the $47 million general obligation bond that residents voted for in 2006.
"It was determined that we wanted to be a little more generous to the contractors, for future business with them and for their own good will," Mayor Heber Thompson said. "Also because of the circumstances surrounding the current complications with the asphalt industry."
Asphalt prices have seen a large increase since July when SemGroup LP filed for bankruptcy. SemMaterials, a division of SemGroup, is one of the few producers of the petroleum-based tar, which is a key ingredient for making asphalt, in the West. After they filed for bankruptcy, the supply of the product dropped significantly and has caused a severe spike in prices.
The shortage has trickled down to contracting companies because asphalt suppliers can't guarantee prices beyond a month. In previous years suppliers were able to guarantee pricing for a longer periods, which allowed contractors to be more accurate in their bids for certain jobs.
"(These contractors) were willing to share some financial information, confidentially, with the mayor and I," Councilman Dale Gunther said. "These contractors bid these projects below their direct cost plus their overhead. If the job came in like they estimated it, it would not cover their direct cost plus their overhead cost. So when we met with them we said that we need to be fair to the contractors, but we need to be fair to the citizens too."
A few options were discussed but the council voted unanimously to cover 90 percent of the overages, which project manager John Schiess reminded them was the bare increase with no additional overhead or add-ons. The city currently has five contractors working on the first phase of the new pressurized irrigation system.
Up until now, the main concern has been replacing asphalt on roads after the pipe is laid in those neighborhoods. The complex project, which has several phases, won't be completed until 2010, but for now things seem to be on target.
"I think we are about on schedule," public works director Howard Denney said. "We have two more contracts, which are for lower parts of the city, which are being put out to bid but I think we are fairly close to being on schedule. There may be a slippage of a month or two but that is to be expected with such a large project."As part of the agreement, the council will monitor the cost of producing asphalt monthly to keep updated on the total increase.