|(Photo courtesy of The Williams Group)|
A high-stakes negotiation may soon take place in the Washington, D.C., area between contractors on one of the East Coasts biggest transportation projects and state and federal agencies. Prime contractors and their steel fabricators and erectors on the Woodrow Wilson Bridge have asked for relief from last winters sudden financial blow, when raw steel suppliers informed fabricators and erectors of sharply higher prices and limits on shipments. Rather than eat the losses, the contractors are seeking relief.
Question marks hovering over the 7.5-mile-long bridge project, which will link Maryland and Virginia across the Potomac River, have produced much anxiety. With less than half the steel delivered or in place so far on the bridge, contractors on its three key sections have asked Maryland, Virginia and U.S. transportation officials to share some of the cost increase.
Raw steel used in girders and rebar has shot from $300 per ton in the first quarter of 2003 to $493 a ton in the second quarter of 2004. None of the contractors protected itself with a price escalation clause. In their appeals, they have made it clear that the potential financial blow of eating the increases could delay their work and subsequent work by other contractors.
Aware that the transportation agencies could be stuck with damages related to a delay sustained by other contractors, officials of the Maryland Dept. of Transportation, the projects lead agency, are publicly taking a share-the-burden posture as they review requests by contractors. MDOT Administrator Neil J. Pedersen did not comment directly but an agency spokeswoman says the states "main goal is to provide some relief and to be a partner" in the cost increases. "We are working on a plan," she says.
Among firms with the most at stake is Lancaster, Pa.-based High Steel Structures Inc., whose $25-million to $30-million contract involves fabrication of steel girders on the Maryland bridge approaches. This would be the biggest tonnage of steel on the project. High Steel is a subcontactor to Potomac Constructors LLC, a joint venture based in Plain, Wis. Neither contractor could be reached for comment, but a source familiar with the negotiations says the request for relief was made "adamantly."
A preview of how such requests may be resolved exists in Virginia. That states DOT has a secondary role on the Wilson bridge but is also building the nearby interchange of Interstate 395 and the Capitol Beltway in Springfield. The key steel erector on the interchange, Williams Industries Inc., Manassas, told investors in the spring that it was unsure whether to sign its $22-million contract with project prime contractor Archer Western Contractors, Phoenix.
But Williams, which is also erecting about $30 million worth of steel for part of the Wilson bridge, recently announced that it had resolved the Springfield interchange problems and praised Virginia for its fairness. CEO Frank E. Williams III told investors he was "heartened" by the states "recognition of our problem," but gave no further details.
Virginia rules require that the state seek adequate compensation for any adjustment granted to existing contracts. So a dollar-for-dollar pass-through wont be considered, says Mal Kerley, VDOTs chief engineer. Instead, the agency may seek additional value in the form of new guarantees for portions of the work.
VDOT is reviewing 34 requests for adjustments covering existing contracts on all of the agencys projects. One of the agencys goals is "that we want to be sure we have a competitive environment for future bidding and dont want people going out of business," says Kerley, echoing Marylands position. VDOT also doesnt want delays on projects.
In future contracts, Kerley says VDOT will use a newly written escalation clause that kicks in with a price increase of 10% and is capped at 60%.