Oil costs hurt subcontractors
By Emily Belz
Posted: July 23, 2008
The price of oil has affected people’s driving habits, but it also affects the pavement they drive on.
Crude oil is an ingredient in asphalt, and its rocketing price this year has put the heat on some pavers. Grady Brothers, based in Indianapolis, has a $1 million paving contract at Monon Trail Elementary, a new school being built in Westfield, and estimates it is losing 10-15 percent on the job.
“A lot of good companies are going out of business, and we may be one of them,” said Mike McGill, estimator and project manager for Grady Brothers, a 75-year-old company. “We did consider escalating costs for this year, but we did not expect anything like this.”
A liquid ton of asphalt cost $366.41 a year ago. Now it costs $686.41, according to McGill. For public projects like schools, pavers will submit bids to contractors based on price projections. Once the bid is accepted, they typically have to stick with the contract, accepting the risk of prices going higher than their projections.
“The school has a budget too,” said Nick Verhoff, business director for Westfield Washington Schools. “We’re very handcuffed with what we’re allowed to do. It’s unlikely that we would turn around and subsidize a subcontractor.”
Phil Passen, with Fishers-based Meyer Najem Corp., is the construction manager for the new elementary. Subcontractors, he said, would be compensated only if the contract allowed it and if they presented sufficient justification.
“We’re not just going to give money away,” Passen said. “A contract’s a contract. If prices had gone down, they wouldn’t be coming to us with a credit.”
McGill said the pavers, at least, have given money back for certain jobs when prices went down.
The problem contractors and subcontractors alike are dealing with is less demand for building in certain sectors, especially the public, which Passen partly attributes to the property tax issue in Indiana this year, as well as the growing costs of construction.
From bids he has seen on projects, the prices of commodities have gone up about 10 percent over the last couple years. But a place like Westfield can’t opt out of building schools because of population growth, he said.
The Westfield Washington school district is building the new elementary as well as completing additions to Carey Ridge Elementary. The kindergarten wing is expected to open in time for school. Monon Trail Elementary should be completed sometime next year.
But McGill said Grady Brothers might close before the elementary opens if business doesn’t get better.
“People aren’t paving,” McGill said. “Something’s gonna have to change . . . this has gotten way out of control.”
Source: http://www.indystar.com/apps/pbcs.dll/article?AID=/20080723/LOCAL0103/807230342/1304/LOCAL