HAMMMERED Major price increases for steel products have fixed-price firms in a bind. (Photo courtesy of American Bridge)

Highway contractors slammed by sharp increases in steel prices suffered another blow when the Federal Highway Administration said it cannot approve surcharges on already issued contracts. Some in industry now are looking to Congress for help.

In an April 9 e-mail message to field offices, King Gee, the agency’s associate administrator for infrastructure, said FHWA’s chief counsel’s office had determined that "we are legally prohibited from approving the use of federal funds for retroactive price adjustments in existing contracts." Gee added that FHWA does not object to states’ adding retroactive price clauses if they are using only state funds and their own laws permit it.

A survey in late March by the American Association of State Highway andTransportation Officials showed that 22 states permit price adjustments if contractors’ prices rise, but 26 states bar such changes. John Horsley, AASHTO executive director, says some states believe that if a contract was adjusted, a losing bidder "might feel that if you give the successful bidder a break that they were unfairly treated." But, "the states in general [want] the ability to make these...judgements on their own," he adds.

"We’re going to follow the code of Virginia," which generally bars retroactive price changes, says Mal Kerley, Virginia DOT chief engineer. He says VDOT has been discussing the issue with contractors and fabricators. "We don’t want people going out of business [or] major projects that are very critical...to be adversely impacted," he adds.

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The survey asked what factors FHWA and state DOTs should weigh in the current steel price situation. According to an April 8 summary, suggestions included using alternate designs, suspending steel-intensive projects, delaying non-critical ones, extending deadlines, letting contracts earlier and buying steel immediately. One said: "Do nothing, wait it out."

At the American Road & Transportation Builders Association, "we’re going to pursue it from the congressional angle at this point," says spokesman Matthew Jeanneret. He says ARTBA members were to meet with House staffers April 14 to discuss a possible legislative remedy.

"We’re glad that [FHWA officials] recognize that this is causing hardship for contractors and fabricators and that it is jeopardizing the completion of very important projects for public safety and mobility," says Ken Simonson, chief economist for the Associated General Contractors. But he says AGC has not determined what its next step will be.

While the damage from the steel price spike in the first quarter already has been done, the industry should start seeing relief soon. "By May you will start seeing official price declines and some [contractors] could already be seeing unofficial declines," says John Anton, steel analyst with Global Insights Inc., a Washington, D.C., forecasting firm.

Nucor-Yamato, the large Blytheville, Ark., minimill, has announced that it will reduce its raw-materials surcharge on steel by $30 per ton effective May 1. That cut responds to scrap metal prices that already have dropped $50 to $60 a ton since mid-March, says Anton. "That $30 price decline is only the first," he adds. "We expect across-the-board price cuts by June, with prices continuing to fall through the remainder of the year."

But AGC’s Simonson says: "I’m still hearing from members about extreme price increases, still a lot of worry about unavailability or at least delayed delivery dates." The steel price jump "is a real problem, particularly for bridge fabricators because the lead time for materials is so long," says Patrick P. Loftus, president of High Steel Structures Inc., Lancaster, Pa. He says his firm’s raw material prices have risen an average of 40% from what it expected to pay in January.

Mac Cianchette, vice president of operations for Cianbro Corp., Pittsfield, Maine, says FHWA’s statement "is disappointing but we understand the position." Cianchette says Cianbro knows it is bidding lump-sum contracts "and we’re assuming risk. On this one, it hit us....It’s difficult to deal with these types of situations but it’s the business we’re in." Cianchette hopes for future contracts "that don’t hurt either party so much."