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Call for consistent price increase mechanisms across industry

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    08 March 2012 - 16:59

    Volatile and unpredictable increases in bitumen costs should be acknowledged in highways contracts, say Tarmac

    RISING bitumen prices driven by a major decrease in European refinery production are making it extremely difficult for highways contractors to tender for work as current price fluctuation mechanisms do not accurately compensate for these significant increases in input costs, says Tarmac National Contracting, in a call for greater industry consistency.

    The firm says that, after two years of price rises – which seem set to continue – price increase indices should be consistent and appropriate across highways contracts, to help the entire industry accurately forecast the cost of road construction and maintenance.

    While appropriate price fluctuation mechanisms have been embraced on some major contracts, such as the Highways Agency’s Category Management Contracts and a minority of council tenders, they are not being consistently applied across all national network and local authority road contracts.

    Tarmac contend that the unsustainable and continued increase in the price of bitumen is causing major issues for clients and suppliers alike on roads contracts. Bitumen, which accounts for around a third of the cost of constructing a new road, has increased in price by nearly 60% over the last two years.

    The company is continuing to work with its customers to mitigate the cost of bitumen on resurfacing projects by promoting the use of recycled asphalt. It is also turning to alternative road construction methods, as bitumen price hikes drive a strong move toward composite road construction on new build schemes. These roads are constructed using cement-bound pavements surfaced with a thin layer of asphalt.

    Paul Fleetham (pictured), managing director of Tarmac National Contracting and Middle East, said: ‘The high price of bitumen is not directly linked to the price of oil, which is currently relatively low. Bitumen costs are increasing because refineries are being converted to allow them to produce higher-value products such as diesel from the bituminous grades.

    ‘With one of the largest UK refiners, Petroplus, entering administration last month, the general trend is for less bitumen to be available, exerting additional cost pressures.

    ‘As a business, we are already investing time and resource into developing bitumen replacement technologies, however our options are limited. The industry is at a tipping point as it tries to recover these exceptional increases on existing contracts and anticipate the negative impact these may have when tendering for future long-term highway works.’

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