The Federal Highway Administration announced April 9 it will not give retroactive price adjustments to existing contracts.
Contractors nationwide recently asked for financial relief on government contracts due to a spike in steel prices, which have, in some cases, doubled the cost of projects. In the past six months, the price of a ton of 8-pound steel beams jumped 44 percent, concrete rebar increased 28 percent and construction grade steel plate rose 41 percent. Because prices are agreed upon during the bidding process, contractors have had to foot the bill for the price increases.
Members of the American Road and Transportation Builders Association have met with the FHWA and American Association of Highway and Transportation Officials to discuss financial relief for contractors, fabricators and suppliers. ARTBA requested that the federal government participate in steel price adjustments offered by state departments of transportation on contracts awarded before March 1, and steel purchased after Jan. 1. The FHWA responded, however, that it legally could not comply with ARTBA’s request.
“We recognize that there may be cases where price adjustment clauses are needed,” a public announcement from the FHWA stated. “The office of chief counsel researched the issue and found that we are legally prohibited from approving the use of federal funds for retroactive price adjustments in existing contracts.
“Should the state wish to add retroactive price adjustments solely with state funds and have the capability to do so within state laws, regulations, etc., they can do so on federal-aid contracts on a non-participating basis. If a state wishes to add a retroactive price adjustment clause, it should consider both the precedent-setting nature of the action on firm, fixed price contracts and ways to limit the precedent.”
Most of the increases in steel prices occurred between January and March this year. The spike occurred primarily because China emerged last year as the world’s largest consumer and producer of steel. Due to China’s booming construction industry, the country has used most of its steel resources and has had to import more of the metal. Because the dollar is currently weak, China can easily afford to buy American scrap metal, which is used to make steel. The demand for steel is up, and therefore prices have drastically increased.
While the price of steel is not likely to decrease as quickly as it spiked, economists expect temporary relief for American contractors and manufacturers. Every spring, Chinese factories shut down for the monsoon season. This shutdown should provide a small slowdown until the fall. This slowdown is already evident, with the price of scrap metal decreasing by $40 a ton between March and April.