a contractor's guide to managing risk · 2020. 8. 27. · napa building 5100 forbes blvd....

Special Report 193

A Contractor's Guide To Managing Risk

A Contractor's Guide To Managing Risk

NATIONAL ASPHALTPAVEMENT ASSOCIATION

This publication is provided by the Members of the National Asphalt Pavement Association (NAPA), who are the nation’s leading hot-mix asphalt (HMA) producer/contractor firms and those furnishing equipment and services for the construction of quality HMA pavements.

NAPA Members are dedicated to providing the highest quality HMA paving materials and pavements and to increasing the knowledge of quality HMA pavement design, construction, maintenance, and rehabilitation. NAPA also strongly supports the development and dissemination of research, engi-neering, and educational information that meets America’s needs in transportation, recreational, and environmental pavements.

NAPA Building ■ 5100 Forbes Blvd. ■ Lanham, MD 20706-4407Tel: 301-731-4748 ■ Fax: 301-731-4621

Toll Free: 888-468-6499www.hotmix.org

This publication is designed to provide information of interest to NAPA Members and is not to be considered a publication of standards or regulations. The views of the author expressed herein do not necessarily reflect the decision making process of NAPA with regard to advice or opinions on the merits of certain processes, procedures, or equipment.

COPYRIGHT NOTICE

Publications produced and published by the National Asphalt Pavement Association (NAPA) are copy-righted by the Association and may not be republished or copied (including mechanical reproductions) without written consent. To obtain this consent contact the Association at the address given above.

© 2006 National Asphalt Pavement Association

Special Report 193

Printed 10/06

NAPA Building ■ 5100 Forbes Blvd. ■ Lanham, MD 20706-4407Toll Free: 888-468-6499 ■ Tel: 301-731-4748 ■ Fax: 301-731-4621

www.hotmix.org ■ [email protected]

Special Report 193

A Contractor’s Guideto Managing Risk

NATIONAL ASPHALT PAVEMENT ASSOCIATION

By Cordell Parvinwww.parvinlawfirm.com

CONTENTS

I What is Happening? .......................................................................................5

II Contracts .........................................................................................................7 Existing Contracts ....................................................................................................... 7 Contractual Remedies ......................................................................................... 7 Legal Remedies in Contracts with Owner ............................................................ 8 Legal Remedies in Agreements with Suppliers ................................................. 12 Practical Advice ................................................................................................. 14

Future Contracts—What a Contractor Can Do ......................................................... 14 Owner Contracts ................................................................................................ 14 Supplier Agreements ......................................................................................... 15

III Price Adjustment Clauses ...........................................................................17 Why Price Adjustment Clauses? ............................................................................... 17

Some Contractors Do Not Want Price Adjustment Clauses ..................................... 17

FAA Will Not Entertain AC Price Adjustment Clauses .............................................. 17

FHWA and State DOT Points on Adjustment Clauses .............................................. 18

Invoice Method ................................................................................................... 18 Index Method ..................................................................................................... 18

Sample Contract Language / Price Adjustment Clauses ........................................... 19 Invoice Method Examples .................................................................................. 19 Index Method Examples .................................................................................... 19 Local Government Price Adjustment Clause Example ...................................... 23 Federal Acquisition Regulation Example ........................................................... 23 AGC Standard Form Contract ............................................................................ 24

Anti-trust Concern ..................................................................................................... 24

IV Reclaimed Asphalt Pavements (RAP) .........................................................25

V Hedge Positions ...........................................................................................27

VI Owner Supplies Liquid Asphalt ..................................................................28

VII Conclusion ....................................................................................................29

Appendix A ..........................................................................................................31 West Virginia’s Special Provision Section 109, “Measurement and Payment”

Appendix B ..................................................................................................................... 34 Sections of Federal Acquisition Regulations

Appendix C ..................................................................................................................... 45 AGC Document No. 200.1, Amendment No. 1, “Potentially Time and Price-Impacted Materials”

6 NATIONAL ASPHALT PAVEMENT ASSOCIATION • SR 193

NATIONAL ASPHALT PAVEMENT ASSOCIATION • SR 193 7

In my 34 years practicing construction law, I have never witnessed a period where con-tractors have faced greater risks due to things out of their control. The increased cost and unavailability of essential materials for highway construction is a great concern.

I have never seen the news coverage of highway industry prices that has occurred over the last year. Newspapers in large cities and small towns from Boston to Honolulu and Spokane to South Florida, have reported on the increased costs. Here is a sample of recent headlines:

Asphalt Prices Block Road Projects July 02, 2006 Colorado Springs Gazette

Road wage: Asphalt Cost Hits Planners June 26, 2006 Denver Business Journal

Asphalt Prices Soar, But Roadwork Goes On June 04, 2006 Rome (GA) News-Tribune

High Asphalt Prices Stall Roadwork June 29, 2006 Boston Globe

Builders Say They’re Getting Hammered by Skyrocketing Construction Costs: South Florida Builders Say They’re Getting Nailed May 14, 2006 South Florida Sun-Sentinel

Higher Fuel Prices Crippling Asphalt Industry June 1, 2006 Newport (TN) Plain Talk

Asphalt Prices Stalling Budgets: After Years of Stability, Paving Costs Soar June 10, 2006 Milwaukee Journal-Sentinel

Asphalt Shortage Halts Roadwork May 16, 2006 Honolulu Star Bulletin

NAPA members are acutely aware of the problem addressed in the headlines above. Many contractors are quoted in articles saying they have never witnessed anything like this in their careers. Contractors are caught in the middle of this difficult and risky situ-ation. On the one hand, they are not getting firm prices from liquid asphalt suppliers at the time of bid. On the other hand they may have entered into fixed-price contracts with no price adjustment clauses. The risk of rising liquid asphalt prices, and even availability of liquid asphalt, is quickly becoming a way of life for paving contractors and will likely remain to be a substantial risk for the foreseeable future.

What is the law covering these situations? What rights do contractors have when there is no price adjustment clause in their contract with the owner? What are the legal rules applicable to the supplier? What can a contractor do to protect himself? As shown in

I What Is Happening?


the remainder of this document there are no clear answers to these questions. The law is not the same in each state. Additionally, the law may change due to the severity of the problem.

In a nutshell, contractors today are at greater risk and if they perform business as usual, the consequences could be catastrophic. Generally, absent a price adjustment clause, contractors bear the risk of increases in the prices of materials, even when they are as dramatic as the recent liquid asphalt price increases. The courts consider this to be the very essence of a fixed-price contract. Then again, if a material is unavailable through no fault of the contractor, courts may be more likely to grant some type of relief.

Contractors are also at greater risk if they are relying on oral quotes from suppliers. Under the Uniform Commercial Code, with some exceptions that will be discussed later, oral quotes are not enforceable.

This document will give contractors strategies for managing their existing contracts, and entering into future contracts, so that the contractor’s risk is manageable. It will cover both contracts between the contractor and the supplier and contracts between the contractor and his customer, the owner.

— By Cordell Parvin


By its nature, a fixed-price contract, including a unit priced contract, allocates normal risk to the contractor. Thus, absent a contract clause favorable to the contractor, the contractor assumes the risk of increased material prices. A contractor will not be able to rewrite the contract to change the agreed-upon price to perform the work just because material price increases have increased production costs. Likewise, courts are reluctant to rewrite the contract and shift the assumption of risk between the parties without contractual or legal justification.

Existing ContractsThere are nine possible contractual or legal remedies available to the contractor for ex-isting construction contracts. The contractual remedies include: (1) Force Majeure; (2) Delay Damages (may also be a legal remedy); and (3) Reasonable Language. In contracts with owners, the legal remedies include: (1) Commercial Impracticability (impossibility or commercial senselessness); (2) Frustration of Purpose; (3) Mutual Mistake; and (4) Owner Caused Delay Damages. In agreements with suppliers, the legal remedies include: (1) Promissory Estoppel; and (2) Price Protection through Parol Evidence.

Contractual Remedies

Force Majeure

To know whether a force majeure (literally, “superior force”) clause would excuse a contractor from performance in a fixed-price construction contract, the contractor would need to review the contract’s language. A force majeure clause typically excuses all or part of contract performance by one or both parties in the event that performance is prevented by an “act of God,” provided that the event was unforeseeable and the party has not failed to avoid the effects of the event by exercising due care.

A force majeure clause is not intended to reallocate normal contract risks. Absent necessary contract language, market price fluctuations are normal risks of a fixed-price contract. Usually, force majeure clauses cover events like wars, fires, hurricanes, other natural disasters, selected government actions, some labor disputes as in strikes and lockouts, or the failure of third parties. If one of these events should occur, for example hurricanes Katrina and Rita, the contractor is allowed a time extension for performance. But, the contractor is not entitled to additional compensation for higher material prices than what the contractor had anticipated in its bid.

II Contracts


In short, without specific contract language, courts most likely will not consider material price increases to be a force majeure event.

Delay Damages

A contractor may wish to seek delay damages due to material price increases that oc-curred during a period of excusable delay in its work on a project. The delay is excus-able if it was not foreseeable at the time of contracting and was beyond the control of the contractor. A contactor should first look to the suspension of work or delay clauses in the contract that may allow for delay damages. However, the contractor may find a “no damages for delay” clause, which typically limits relief to an extension of contract time and prohibits additional compensation. Outside of relying on contract language, the contractor may want to seek judicial relief.

Reasonable

Look for contract language that includes “reasonable” as part of the conditions that allow the contractor to make a claim for additional compensation: “other reasonable grounds” or “reasonable additional compensation.” Reasonable terms may allow the owner to grant additional compensation for claims outside of the specific language of the contract, such as claims produced by sudden material price increases due to events beyond the control and foreseeability of the parties. In some situations, the owner may have additional incentive to provide the contractor with relief. However, contract language that expressly allocates the risk of other cost increases to the contractor may negate turning to the reasonable language for relief.

Legal Remedies in Contracts with Owner

When a contractor has entered into a fixed-price contract which does not provide a rem-edy for material price increases, the contractor will have to look to the courts for relief. Unfortunately, although a contractor may pursue legal relief on existing contracts, a court finding in favor of the contractor is unlikely, regardless of the legal theory asserted, unless the cost increase is exorbitant. The doctrine of commercial impracticability is the legal theory most often asserted in price escalation situations.

Commercial Impracticability (Impossibility or Senselessness)

Some contractors believe that “impossibility” presents a remedy where material price increases have severely impacted their performance costs. In general, a contractor may be excused from contract performance obligations when an unexpected event makes performance impossible. For example, if a contractor is waiting for special supplies from a specific factory and that factory burns to the ground, the contractor could assert the impossibility doctrine.

The Restatement (Second) of Contracts has replaced the doctrine of impossibility with the Uniform Commercial Code’s (“UCC”) doctrine of impracticability or, in the com-mercial context, commercial impracticability. The notes to Restatement 261 state that


while the rule “is sometimes phrased in terms of ‘impossibility,’ it has long been rec-ognized that it may operate to discharge a party’s duty even though the event has not made performance absolutely impossible.”

In Ace Services, Inc. v. General Services Administration, 1993 WL 59319, 93-2 BCA P 25848, GSBCA No. 11771, GSBCA No. 11830 (GSBCA 1993) the judge explained the doctrine of commercial impracticability (quotation marks and internal citations omitted):

The concept of commercial impracticability is grounded upon the assumption that in legal contemplation something is impracticable when it can only be done at an excessive and unreasonable cost. The law excuses performance (or, in the case of Government contracts, grants relief through a change order) where the attendant costs of performance amount to commercial senselessness; it does not grant relief merely because performance cannot be achieved under the most economical means.

The Restatement (Second) of Contracts explains further:

Performance may be impracticable because extreme and unreasonable difficulty, expense, injury, or loss to one of the parties will be involved. . . . However, “impracticability” means more than “impracticality.” A mere change in the degree of difficulty or expense due to such causes as increased wages, prices of raw materials, or costs of construction, unless well beyond the normal range, does not amount to impracticability since it is this sort of risk that a fixed-price contract is intended to cover. Restatement (Second) of Contracts 261 cmt. d (1979).

The judge in Ace found that Ace had not shown that the increased costs rendered per-formance commercially senseless. Ace had only shown that its own costs rose beyond what it had anticipated, and this is not sufficient to prevail. Courts look to the increased cost of performance of a contract, taken as a whole, as a guide in determining whether the rise is excessive and unreasonable.

The judge further explained that the Armed Services Board of Contract Appeals recently held that a claim of commercial impracticability was without merit because the appel-lant did not show that the increased cost was “more than a willing buyer would have paid for the work, or that it was otherwise an extreme and unreasonable expense.” In that case, the board found that performing at a cost increase that was 31 percent of the contract price was not commercially impracticable. In so doing, it cited another case where cost overruns of 50 or 70 percent were not sufficient to constitute commercial impracticability, and another case where a thirty-two percent cost increase over contract price was insufficient.

Some courts have even said that nothing less than an increase of 100 percent will suffice in determining commercial impracticability.

In Ace, the judge determined that cost increase must be viewed in light of contract costs as a whole. Small increases, as the court sees them relative to the total value of a contract, do not amount to commercial senselessness and, thus, contract performance is not impracticable.


Even though the Ace judge and other courts look for extreme and unreasonable diffi-culty, expense, injury or loss to one of the parties involved before finding performance commercially impracticable, the comments to Section 261 state that a severe shortage of raw materials or supplies due to unforeseen shutdown of major sources of supply, or the like, which either causes a marked increase in cost or prevents performance altogether may bring the case within the rule. The shutdown of some refineries from damage due to hurricane Katrina may have caused severe price increases. Consequently, contractors facing severe price increases over what they had anticipated in their bids may argue that current conditions rise to the level of raw material or supply shortages.

The current environment with steeply rising liquid asphalt prices creates a complex situation. On the one hand, convincing a court that liquid asphalt prices have risen to the level of commercial impracticability will be very difficult. On the other hand, the unprecedented rise in prices may make courts more receptive to the argument.

Frustration of Purpose

A contractor may assert the doctrine of frustration of purpose when contract performance has become prohibitively expensive, but, similar to commercial impracticability, courts will most likely disagree with the contractor. Again, like commercial impracticability, performance may remain possible but a supervening event has changed the circumstances such that the value of performance has become virtually worthless. In such a case, the parties are excused from further performance. However, the event can not be one that was caused by the party seeking to be excused from performance, nor can it be one that the parties anticipated and allocated the risk in the contract. A contractor’s claim that it will be less profitable to perform the contract, or even that performance will result in a loss to the contractor, will not be enough for a court to find frustration of purpose.

Mutual Mistake

Mutual mistake is a claim used to void all or part of the contract. In order for a claim of mutual mistake to prevail, the contractor would have to show that both parties held an erroneous belief about the same material fact that was a basic assumption on which the contract was based. The mistake must be more than a mere disagreement as to the meaning of the contract. The mistake must be common to both parties at the time of contract execution. In addition, the mistake must cause a substantial impact to the per-formance of the agreement, and the contractor did not accept the risk. A contractor’s claim of mutual mistake relative to material price increases will not be a good argument because the price escalations were not a fact at the time the contract was negotiated. A court would consider price escalations as future events and the only mistake would be one of judgment at the time of contract negotiations, which is a risk a party assumes.


Owner Caused Delay Damages

If the owner causes a delay, then a contractor can recover increased costs for the materials used during the extended period of performance. In George Hyman Construction Co., 1985 WL 164440 (Eng. B.C.A.), 85-1 BCA P 17847, ENGBCA No. 4541 the owner caused delay by lack of access to the construction site and by other problems that were not within the contractor’s or its subcontractor’s control. The contractor used Engineer-ing News Record’s price indices to calculate the material price escalations during the delay. The court ruled that the owner was not entitled to withhold any liquidated dam-ages and the contractor was entitled to contract price adjustments, including adjustments for material price increases. See also S. Leo Harmonay, Inc. v. Binks Mfg. Co., 597 F. Supp. 1014 (S.D.N.Y. 1984) where contractor’s late submission of drawings precluded the subcontractor from purchasing materials before a 12 percent price escalation. The court ruled the subcontractor was entitled to recover the consequential extra costs.

Unforeseeability

Unforeseeability is often a required element in legal remedies. The following is a dis-cussion of how courts may view unforeseeability:

Almost without exception, courts do not find price increases, even when extraordinary, to be unforeseeable. For example, a Florida court, in 1975, found that the so-called energy crisis associated with the Arab oil embargo was “reasonably foreseeable.” The court also stated that even when there is an unforeseen cost increase, before the court will relieve the party from contract performance, the increase “must be more than merely onerous or expensive. It must be positively unjust to hold the parties bound.” Consequently, the court in Eastern Airlines Inc. v. Gulf Oil Corp., 415 F. Supp. 429, 436 (S.D. Fla. 1975) did not relieve Gulf Oil from further contract performance.

There are few cases where courts have excused contract performance because the ma-terial price increase due to an unforeseen event was so extraordinary that it would be unjust to hold the party bound. Even so, the court in Aluminum Co. of America v. Essex Group, Inc. was willing to do so by giving a more expansive interpretation to commer-cial impracticability. In this case, Alcoa experienced a 500 percent variance of costs to Index as a result of increased electricity costs due to the 1973 OPEC oil embargo and unanticipated pollution control costs. Alcoa would have lost $75 million if the contract was enforced as written. The court found these occurrences unforeseeable.

In its decision to grant Alcoa relief, the court compared and contrasted the doctrines of mutual mistake, commercial impracticability and frustration. Finding a substantial area of similarity among the three doctrines, the court held for Alcoa on the bases of commercial impracticability and frustration. The court found that the non-occurrence of an extreme deviation of the price index and Alcoa’s production costs was a basic as-sumption underlying the contract. The court found that “ALCOA neither assumed nor bore the risk of the deviation beyond the foreseeable limits of risk.” The Alcoa decision has been soundly criticized.


Legal Remedies in Agreements with Suppliers

Promissory Estoppel

The application of promissory estoppel is a question of state law. When one party makes a promise to another party and that party relies on the promise in doing something, “promissory estoppel” stops the first party from reneging on its promise. A contractor intending to assert promissory estoppel should seek legal advice from an attorney for the state in question.

Usually, a contract is valid whether it is written or oral. But a major problem with oral contracts is proof. To avoid this problem, the statute of frauds requires that certain types of contracts must be in writing to be enforced. When it comes to the sale of goods, individual state law may vary but, in general, Article 2 of the Uniform Commercial Code governs the sale of goods for $5000 or more and requires a sufficient record to establish that there is a contract between the two parties. However, some states may, in situations where an oral agreement for the sale of goods is breached, apply promissory estoppel in holding the breaching party to its performance of the oral contract and avoid the requirement of the statute of fraud.

The drafters of the Restatement (Second) Contracts § 139 (1981) have taken a definite position on the availability of promissory estoppel to avoid the statute of frauds:

A promise which the promisor should reasonably expect to induce action or forbear-ance on the part of the promisee or a third person and which does induce the action or forbearance is enforceable notwithstanding the Statute of Frauds if injustice can be avoided only by enforcement of the promise. The remedy granted for breach is limited as justice requires.

The Supreme Court of Wyoming thoroughly discussed promissory estoppel in the 1992 case of B & W Glass, Inc. v. Weather Shield Mfg., Inc., 829 P.2d 809 (1992). The only question involved in this case is under the law of the State of Wyoming, may make an oral promise otherwise within the statute of frauds as pronounced in Wyo. Stat. § 34.1-2-201 [1991] and the UCC, nevertheless be enforceable on the basis of promissory estoppel? The Court held that the doctrine of promissory estoppel may be applied under some circumstances to enforce an oral promise.

The Court reviewed case law from several states and determined that the majority view is promissory estoppel avoids UCC § 2-201. However, the Court also named several states that do not apply promissory estoppel in the same way.

In the case of Lige Dickson Co. v. Union Oil Co. of California, 96 Wash.2d 291, 635 P.2d 103 (Ninth Cir. 1981) Lige Dickson Company was a general contractor in the asphalt paving business and purchased its oil based product from Union Oil. Despite oral agreements and contrary to trade usage for the area, in 1973, Union Oil raised its prices, which it applied to Lige Dickson’s then existing contracts. The Ninth Circuit held that under Washington law promissory estoppel cannot be used to defeat the statute of frauds and enforce an oral promise for the sale of goods governed by the U.C.C.


So, when it comes to the application of promissory estoppel, a contractor needs to seek advice from legal counsel for the state in question.

Price Protection through Parol Evidence

Even when a contract states that the price will be set at the time of delivery, other evidence may be used to show that the buyer could have expected the price as it was at the time of contracting (“price protection”). “Parol evidence” means other evidence that includes the standard practice within the industry for that area (“usage of trade”), the way the parties conducted themselves in past agreements (“course of dealing”), and how the parties have been conducting themselves in the current agreement (“course of performance”). In addition, a contractor may expect that an owner will continue to cover material price escalations, despite seemingly inconsistent contract language, if the evidence shows this action by the owner is within usage of trade or course of dealing or course of performance. The parol evidence acts to supplement or explain the terms of the contract, but it can not completely contradict clear contract language. In 1981, the Ninth Circuit decided a price-protection case in favor of an asphalt buyer based on parol evidence: Nanakuli Paving and Rock Co. v. Shell Oil, 664 F.2d 772 (9th Cir. 1981).

Nanakuli Paving entered into an agreement with Shell Oil to buy asphalt from Shell Oil. In the agreement, the price term stated that the asphalt price would be Shell’s “Posted Price” at the time of delivery. Nanakuli Paving then entered into several third-party contracts to supply them with asphalt at Shell’s “Posted Price.” Several of the third-party contracts were with government agencies that did not permit escalation clauses. Nanakuli Paving was the second largest paving company in Hawaii and for several years had purchased all of its asphalt from Shell Oil. Subsequent to this agreement, Shell Oil nearly doubled its price without notifying Nanakuli Paving prior to the increase or al-lowing it to purchase the asphalt at the old price.

Primarily based on “usage of trade,” Nanakuli Paving claimed that Shell Oil had a duty to provide Nanakuli Paving with price protection. In Hawaii, it was customary in the asphalt industry for suppliers to provide buyers with price protection. There was also evidence that the parties had practiced price protection in past agreements. However, the current contract included an integration clause expressly stating that evidence of “dealings” was disallowed. Nonetheless, the Ninth Circuit found that boilerplate merger clauses may not be enough. Consequently, the Ninth Circuit held that usage of trade and course of dealings (and even course of performance) can be used to show that a seller may have a duty to provide price protection.

Once again, in the case of Lige Dickson Co. v. Union Oil Co. of California, 96 Wash.2d 291, 635 P.2d 103 (Ninth Cir. 1981) Lige Dickson Company was a general contrac-tor in the asphalt paving business and purchased its oil based product from Union Oil. Despite oral agreements and contrary to trade usage for the area, in 1973, Union Oil raised its prices, which it applied to Lige Dickson’s then existing contracts. The Ninth Circuit held that under Washington law promissory estoppel cannot be used to defeat


the statute of frauds and enforce an oral promise for the sale of goods governed by the U.C.C. The Ninth Circuit did not allow parol evidence to be used to support Lige Dickson’s position.

So, when it comes to the use of parol evidence, a contractor needs to seek advice from legal counsel for the state in question.

Practical Advice

Regardless of what remedial justification a contractor could argue, contractual or legal, the best way to avoid a problem is to not be caught in the middle by having put a firm price in the contract with the owner without having received a firm price from the supplier. In cases where the contractor is caught in the middle, cooperative negotiations may be the best approach the contractor can take in finding relief. In fact, when there is not any contractual or legal justification to be made, a contractor may find that the owner may have either a business or policy reason for relieving the contractor of excessive costs. For example, it would not be in the owner’s interest for the contractor to go bankrupt. In addition, the owner may need to consider what impact a decision to not relieve the contractor of material price increases will have on future contracts. A bidder may decline to bid altogether, thereby reducing competition, or build large contingencies into their bid, whereby the owner may pay higher prices for material than necessary.

Other advice may include negotiating with the supplier (which is a reason to deal with reliable and reputable suppliers), notifying repeat customers of pending problems, or finding alternate sources.

Future Contracts — What a Contractor Can Do

Owner Contracts

On Private Contracts – Qualify the Bid

A contractor cannot qualify a bid on a public contract. To do so would make the bid non-responsive. Private contracts are a different matter. As a result, when possible, a contractor should include a “safety-net” in its bid. For example, include language that limits the quoted bid-price to a set number of days or limits the price as good until the material price reaches some percentage of a published price index.

Remove “No Damages for Delay” Clause

Many states do not permit “no damage for delay” clauses in public contracts. But, even in those states there could be a “no damage for delay” clause in a private contract. As discussed above, a “no damages for delay” clause will most likely limit a contractor to a time extension, rather than additional compensation, for excusable delays. Thus, it is to the contractor’s advantage to have the “no damages for delay” clause removed from


the contract. In addition, have contract language included that considers material price increases incurred during performance in later period due to the owners delay. The contractor may even want to have the owner add the “right of contractor to terminate for extended delay” to the contract. This clause would allow the contractor to terminate the agreement, with written notice, after so many days of delay, unless the owner issues a change order for increased material costs due to the delay.

Add More Contingency to Bid

Adding contingency to a bid for future increases in liquid asphalt may take the contrac-tor out of contention. However, absent a price adjustment clause (discussed below), a contractor is assuming a lot of risk in volatile, material-market conditions. History has shown that state DOTs, counties and cities that have received bids with higher contin-gencies may be more willing to add a price adjustment clause to the contract.

Negotiate a Price Adjustment Clause into the Contract

On private contracts, a contractor should consider negotiating a price adjustment clause to the contract to alleviate the unnecessary risk of price fluctuations due to volatile markets or extreme delays. See Section III. Price Adjustment Clauses for detailed discussion.

Revise Termination for Convenience Clause

A contractor will most likely not be successful in having a termination for convenience clause removed from the contract, but the contractor should have the owner revise the clause to allow the contractor to recover anticipated profits in the event the owner ex-ecutes the termination for convenience clause. The contractor’s entitlement to anticipated profits should be clearly stated in the clause.

Supplier Agreements

Get Quotes in Writing

Contractors need to get quotes in writing even if the supplier states the price will be set at time of delivery.

An e-mail message may be considered a “writing” that satisfies the UCC and the statute of frauds. The e-mail should not be ambiguous, and inferences should not be tenuous. The message should be directly applicable to the agreement and not pertain to other subjects. The e-mail should specify the terms of the agreement and the subject matter of the contract. The UCC does not require that every term be included, the UCC will provide “gap fillers” for some terms; however, the quantity term should be included. Ultimately, whether an e-mail satisfies the UCC and the statute of frauds is a matter of fact, thus, a contractor will want to consult local counsel for the state’s laws relative to relying on an e-mail as a writing.

In a situation where a contractor receives an oral quote for a good and relies on that quote in submitting a bid, if, later, the supplier does not want to honor that quote, the supplier may be forced to do so. Article 2 of the Uniform Commercial Code, if adopted


by the state, governs the sale of goods. When a contract for the sale of goods is for the price of $5000 or more, Section 2-201 requires a sufficient record to indicate a contract between the two parties. Nonetheless, in the majority of states, the contractor may assert promissory estoppel to force the supplier to honor the quote. The contractor should seek legal advice from an attorney for individual state law concerning application of the UCC and promissory estoppel. Promissory estoppel was discussed in more detail above.

Bind Your Supplier

The supplier agreement should parallel the contractor’s obligations to the owner and bind the supplier to the same material terms that the contractor is bound. The contractor’s position as middleman between the owner and supplier means the contractor should align the supplier’s quotes with the owner’s needs. The contractor should lock in the supplier’s price for the designated period. Be sure to have the supplier’s quote in writing.


III Price Adjustment Clauses

Why Price Adjustment Clauses?NAPA contractors are currently facing unprecedented increases in liquid asphalt prices and potential material unavailability. Going back to the oil embargo in the 70’s, contrac-tors have sought to protect themselves from these risks by resorting to price adjustment clauses and excusable delay clauses.

Certainly, public and private owners do not want to bear the risk of increased liquid as-phalt prices. So why should they agree to price adjustment and excusable delay causes? First, the owner may be in the best position to deal with price increases and it may be in the owner’s best interest to provide relief. The owner will not want the contractor to be driven into bankruptcy, which could cause delays, disruptions, and additional expense in finding another contractor to finish the project. In addition, the owner will want to foster an environment that maintains an adequate supply of competitors for future bids. Without a price adjustment clause, contractors will either have to refuse to bid or add a large contingency to the bid, neither of which is to the owner’s benefit. Perhaps most importantly, price adjustment clauses that fairly allocate risks or benefits to the owner reduce the risk of having to solve price adjustment claims through litigation, which is an economic risk everyone would like to avoid.

Some Contractors Do Not Want Price Adjustment ClausesNot every contractor wants an AC price adjustment clause in their contracts. Perhaps the assumption is that contractors who do not want a clause are getting fixed prices from their suppliers. For example, contractors in one state decided not to pursue an AC price adjustment clause with their state’s DOT. At that point, the contractors felt that even though there was discomfort generated with the sharp rise in prices and the volatility in AC supply, the oil suppliers were more likely to benefit from an AC price adjustment clause. It would minimize competitive opportunities among them.

FAA Will Not Entertain AC Price Adjustment ClausesThe Federal Aviation Administration does not participate in contracts with AC price adjustment clauses. However, there is language in their existing standard contract that suggests they would consider one for bitumen “in instances where short-term price


fluctuations in the market indicate the expected costs cannot be accurately estimated.” The Office of Airport Planning and Programming (APP-1) has the authority to make the decision.

The FAA has received requests from several contractors seeking an AC price adjustment clause on an existing contract. The FAA has so far declined the request.

The FAA received similar requests in the recent past from concrete contractors when the price of cement was on the rise and they said “no” then; so their position has been consistent. Apparently the FAA believes the contractor assumed this risk when they placed a bid and secured the contract for the airfield project.

Bottom-line: the FAA will not entertain AC price adjustment clauses for existing or future contracts.

FHWA and State DOT Points on Adjustment ClausesThe FHWA and state DOTs adhere to the fundamental point about price adjustment clauses expressed in Glopak Corp. v. U.S., 12 Cl.Ct. 96, (Cl.Ct. Mar 30, 1987) that the contractor should not control the basis of measurement of price fluctuations and the clause must reflect an objective standard other than the bidder’s own prices as the basis upon which the price adjustments are made. FHWA and state DOTs also want the clauses to only allow for an increase or decrease in price adjustments after the price adjustments exceed a certain percentage. Thus, most clauses measure the price increase (or decrease) against proper indexes on certain dates. To achieve the most equitable results, the clause should be neutral in utilizing indices.

Price Adjustment Clauses are of two general types:

Invoice MethodAdjustments are based on actual, verified invoices for final material payment costs compared to the material bid price quotes or published industry prices at the time of contract. To circumvent fraud, either the quotes and costs need to be certified or the material suppliers need to provide an anti-collusion affidavit. Many consider this method to be the fairest method but there is concern of manipulation of the system. Contractors would need to keep detailed purchase documents and be willing to have them inspected.

Index MethodAdjustments are tied to an industry or governmental published cost index for mate-rial. The publication should be specifically identified in the contract. Although this method may be less administratively burdensome, it may not accurately compare costs for localized price fluctuations.


Sample Contract Language / Price Adjustment Clauses

Invoice Method Examples

Example 1

Notwithstanding any provision herein to the contrary, in the event that, during the performance of this agreement, the price of asphalt significantly increases, through no fault of the contractor, the price of asphalt furnished under this agreement shall be eq-uitably adjusted by an amount reasonably necessary to cover any such significant price increases. As used herein, a significant price increase shall mean any increase in price exceeding ____________ percent (___%) experienced by the contractor from the date of the execution of this agreement. Such price increases shall be documented through commercial quotes, invoices, receipts or other such documentation. Where the delivery of asphalt is delayed, through no fault of the contractor, as a result of the shortage or unavailability of asphalt or components thereof, the contractor shall not be liable for liquidated damages or any other damages associated with such delay.

Example 2

The asphalt paving industry currently is experiencing rapidly escalating prices and material availability problems relating to liquid asphalt products based on rising petro-leum prices. The rising prices and availability and pricing of liquid asphalt have created unprecedented risk beyond the control of, and without the fault of construction con-tractors. Because of the difficulty in obtaining firm prices of petroleum-based products from suppliers, and because of the potential unavailability of liquid asphalt, the Paving Contractor cannot provide fixed, firm prices for this contract. If there is an increase in the price of liquid asphalt subsequent to the date of this contract, the price set forth in this contract shall be increased to reflect the additional cost to Paving Contractor upon the Paving Contractor’s submittal of written documentation of the increased charges. If there is a delay in construction caused by the Paving Contractor’s inability to obtain liquid asphalt, the Contractor shall not be liable for liquidated damages or other delay damages.

Index Method Examples

Example 1 (from Glopak Corp. v. U.S., 12 Cl.Ct. 96, (Cl.Ct. Mar 30, 1987))

ECONOMIC PRICE ADJUSTMENT

(a) The unit price(s) of all items which are purchased under this contract are subject to price adjustment, upward or downward, by the application of the formula set forth in (b) below. The index to be used in the computation of the price adjustment(s) shall be _____________ as quoted in the monthly publication “_____________” which is issued by the _____________.


(b) The indexes published for the month of ________ shall be used as the base for determining price adjustments. The indexes for the third, sixth, and ninth succeed-ing months of the contract period shall be used in determining the adjusted contract price(s) for the respective ensuing three month period. Contract price adjustments shall be determined by the following formula: (Unit price x material cost factor(s) set forth below) x % change in the said index = amount of price increase, provided that no price adjustment shall be made unless such index increase or decrease is _____ percent or greater. Whenever a price adjustment is made pursuant to this clause, the index which was used for computing the adjustment shall become the new base index for determin-ing further adjustments.

(c) The contractor shall submit a written request for price adjustment and such request shall include the new price(s) and the basis for the determination. In the event of a de-crease, the Government has the right to unilaterally adjust the contract price(s).

(f) The aggregate of the increase in any contract unit price made under this clause shall not exceed 30 percent of the original unit price. There is no percentage limitation of the amount of decrease made under this clause.

Example 2 (from WVDOH Special Provision)

The following explanation of the West Virginia Department of Highways (WVDOH) AC Price Adjustment clause comes from Pat Parsons with The Asphalt Pavement As-sociation of West Virginia:I am happy to provide you more information on our fuel and asphalt indexes. We have had an index for many, many years and have refined it several times. We made some significant changes over the last year including changing the fuel index to OPIS (previously Platts); eliminated fuel index for gasoline; changed usage rates for some categories to reflect more fuel efficient equipment; eliminated use of all “triggers” so that every item (ton, cy, etc.) is adjusted regardless of quantity or percentage of change and we removed the index from proposals and went to an internet posting. We also use the asphalt index in our asphalt purchase order program. The elimination of triggers was made possible by the WVDOH moving to a completely electronic calculation and adjustment of bid items on monthly estimates. The triggers, especially regarding our percentage change requirement, were in place to eliminate time consuming manual calculations. You will see in our spec that the monthly index is used for both bidding and placement.We publish the current index and archive on our website at www.asphaltwv.com under the “NEWS” menu option. It is also posted on the DOH website but they do not publish the individual sources for the asphalt index that you will find on our site. You will see both “new” and “old” index listed—we must track more than one index at times to reflect the use of an updated specification/index. We can make source changes under the asphalt index, however, without a specification change. We have found this to be important language as there have been source name changes, mergers, business closures, etc. I feel fortunate to work in a state where both the owner and contractor recognize that it is good business practice to manage this risk by the use of an index.

Refer to Appendix A for the Special Provision Section 109 “Measurement and Payment.”


Example 3 (New York Specification)

Section 698 - Price Adjustments698-1 Description

698-1.01 General. This section will provide for additional compensation to, or repayment by, the Contractor for increases or decreases in the price of asphalt or fuel throughout the life of the Contract. This adjustment will be computed within the prescribed conditions and in conformance with the written procedures of the Department.

698-1.02 Eligible Work. Price adjustments will be determined for eligible work listed in the proposal. No adjustment will be provided for any new work incorporated into the work by orders-on-contract or those items paid for under force account or agreed unit prices. In addition, work ordered by the Engineer and performed by the Contractor at its own expense will not be eligible for price adjustment.

698-1.03 Method of Computation. The method of computations is given below:

A. Asphalt Price Adjustment

1. The quantity of asphalt (metric tons) considered for adjustment will be determined by multiplying the quantity of eligible work placed by their conversion factors which are indicated in the Proposal asphalt price adjustment note.

2. Asphalt price adjustment will be based on the following formulae:

a. When price increases: Price Adjustment = Quantity of Asphalt X (Average Posted Price - PGB Index Price - $10.00)

Example 4 (New Jersey Specification)

Section 404 - Hot Mix Asphalt (HMA)Compensation404.25 Method of Measurement.

Asphalt price adjustment for asphalt binder will be determined on a monthly basis by the following formula:

A = (MA - BA) x T

where: A = Asphalt Price AdjustmentMA = Monthly Asphalt Price IndexBA = Basic Asphalt Price IndexT = Tons of New Asphalt Binder (see Note)

Note: The weight of asphalt binder eligible for price adjustment will be determined by multiplying the percentage of new asphalt binder in the approved job mix formula by the weight of HMA.


Asphalt price adjustment for tack coat and prime coat will be determined on a monthly basis by the following formula:

A = (B) x (I) x (C) x (M) x (G)

where: A = Asphalt Price Adjustment

B = Bid Price for Tack Coat/Prime Coat

I = Asphalt Price Adjustment Factor (see Note)

C = Petroleum Content of the Tack Coat and Prime Coat in Percent by Volume:

Use 100% for cutbacks

90% for inverted emulsions

60% for RS or similar type emulsions

M = Percentage of Bid Price Applicable to Materials Only: Use 82%

G = Gallons of Tack Coat and Prime Coat Furnished and Applied

Note: Asphalt price adjustment factor for a given month will be a percentage increase or decrease determined by comparing that month’s monthly asphalt price index with the basic asphalt price index.

The monthly asphalt price index will be the average of quotations from suppliers serving the area in which the Project is located, and will be determined by the Department each month. For that part of the State north of and including Route 195, the asphalt price index will be based on quotations from Chevron, Citgo, and Valero Refining Company New Jersey. For that part of the State south of Route 195, the index will be based on quotations from Coastal, Chevron, Citgo, and Valero Refining Company New Jersey.

The basic asphalt price index will be the most recent monthly asphalt price index before receipt of bids.

Should a monthly asphalt price index increase 50 percent or more over the basic asphalt price index, no additional HMA shall be furnished for the Project without written ap-proval from the Director of Construction Services and Materials.

Should a monthly asphalt price index decrease from the basic asphalt price index, pay-ments will be decreased accordingly.

Asphalt price adjustment for work performed after the time of completion, as specified in Subsection 108.10, will be based on the asphalt price index for the month in which the work was to be completed, except if the monthly asphalt price index decreases after the completion date, the asphalt price adjustment will be decreased accordingly.

Asphalt price adjustment will be on a lump sum basis, and an estimated amount to cover the asphalt price adjustment will be included in the Proposal. Payments for increases will be made from this amount.

Asphalt price adjustments will not be made in those months for which the monthly asphalt price index has changed by less than five percent from the basic asphalt price index.


Local Government Price Adjustment Clause Example

Example (City of Albuquerque’s Request for Bid)

Price Escalation:

This offer may be considered for escalation under the following conditions:

a. offered prices must be firm for a least ninety (90) calendar days after written notifica-tion of a contract.

b. all price increases shall be accompanied by a certified letter from the offeror’s sup-plier showing the price increase to the offeror.

c. all invoices of the offered items, from suppliers to the offeror, shall be subject to auditing by the city and furnished without delay upon request.

d. the city reserves the right to cancel a contract resulting from this request and solicit a new contract if the escalated price is above the current open market price for the same commodity. Cancellation of the contract shall not affect any outstanding orders.

e. all revisions of the price list shall become effective when they are received, in writing, and accepted, by the purchasing office of the city, provided that they do not conflict with item (f.) of this paragraph.

f. all approved price changes resulting from this escalation clause shall be firm for a period of ninety (90) calendar days after acceptance in writing by the city.

g. the offeror shall be limited to a maximum of two price escalations per contract period unless otherwise specified in this request.

h. the offeror shall provide to the city written notice of any requested price changes which become effective upon written acceptance by the city purchasing office.

i. if the offeror receives any price de-escalations from the supplier of goods sold to the city through a contract resulting from this request, the offeror is responsible for notifying the city within twenty-four (24) hours of such de-escalations, and passing those price changes on to the city immediately.

Another local government, Frederick, MD, in its “Revised Bid Form” has the bidder bid the percentage of the maximum escalation:

In accordance with Special Conditions, Section 2.1 Term of Contract, it is hereby stated that the Escalation Factor for extension of this contract for years one, two and three, shall not exceed ___ percent, per extension year, which will be applied to each Bid Item. Note: Justification will need to be submitted with each escalation request per each extension year.

Federal Acquisition Regulation ExampleThe Federal Acquisition Regulations provide that “fixed-price contracts with economic price adjustments can be used when there is serious doubt concerning the stability of the market or labor conditions that will exist during an extended period of contract perfor-mance.” FAR § 16.203-2. FAR § 16.203-1 identifies three types of price adjustment clauses: established prices, actual costs, and cost indexes. A contracting officer has the


discretion to include one of these price adjustment clauses in contracts. A contractor may request one of these clauses be included in the contract documents.

Refer to for Appendix B the FAR sections.

AGC Standard Form Contract

The Associated General Contractors of America (AGC) drafted a standardized amend-ment to its fixed-price owner-contractor agreement and general conditions, AGC Docu-ment No. 200, 2000 Edition. The amendment addresses market fluctuations and calls for price and time for delivery adjustments.

Refer to Appendix C for AGC Document No. 200.1, Amendment No. 1, “Potentially Time and Price-Impacted Materials.”

Anti-trust ConcernWhenever contractors discuss prices, there is a potential risk of antitrust violations. As a result, contractors need to be careful in their discussions with competitors.


One answer to rising prices and asphalt material shortages is to use more RAP. Contrac-tors are already reusing millions of tons of asphalt paving each year. However, transpor-tation engineers have effectively put a lid on contractors using even higher percentages of RAP. Typically, hot-mix asphalt contains no more than 15% RAP. Transportation engineers could raise the percentage to at least 50% RAP. That would make a dramatic difference on the current situation.

In Minnesota, contractors want to add the salvage value of the RAP in the bid and let the cost rise and fall with the AC price adjustment. Those contractors believe it would simplify the paperwork for the DOT and encourage the state, local government, and county engineers to write RAP into the bids, which would help the industry compete with concrete. It would also encourage the state to utilize more RAP.

Apparently, MnDOT is receptive. During a June 14, 2006, agency industry escalation/de-escalation task force committee meeting, MnDOT requested industry to supply some reasons for the old oil (AC) in the RAP to be considered. Contractors believe:

1. MnDOT could continue to provide innovative national leadership for conserving natural resources and provide a model for national and local steps toward less dependency on foreign oil.

2. Acknowledging the old AC would also create more competition in the refinery/supply community just as the recycling technology has in the virgin vs. recycle aggregate and, thus, stretched available funds further to meet demands.

3. Allows the contractor, cost considerations in areas of back haul which would be reflected in the bidding process, reduced handling, reduced storage costs, aggregate reprocessing costs, total energy construction costs, reduced binder demands and environmental costs associated with materials and permitting.

4. Allows the contractor opportunities to amortize additional costs for specifier quality assurance that he/she may have for both the salvage oil and the aggregate stockpile management over a larger number of produced tons (e.g., fractionation of materi-als, etc)., therefore, bidders are less dependent on new oil demand to provide more competitive bids.

5. If no escalation/de-escalation on the old salvage oil, there would be a tendency to save or utilize the RAP for other (nonDOT) work since there would be only compensation on the basis of new oil.

6. If RAP oil is subject to escalation/de-escalation it would discourage specifiers from “wasting” RAP by using it as say shouldering material or making the salvage oil unaccessible for future reuse, etc. Why use RAP worth $10/ton on shoulders when

IV Reclaimed Asphalt Pavements (RAP)


CL 1 with mulch type 2 can be done at a fraction of the cost? The old oil can have a higher value than the aggregate/ton. An incentive for use of the oil (new and old) in the market place should be encouraged to reduce overall costs for the specifier community.

7. RAP oil is currently permissive by MnDOT Standard Specifications, therefore, the philosophy would be uniform and consistent with the current specification.

In summary, old oil and new oil have the same liquid value in the end product.


V Hedge Positions

A few years ago, Southwest Airlines bet that oil prices would rise. It set hedge positions, allowing it to pay close to 2002 prices for jet fuel purchased today. For the last nine months of 2006, Southwest has locked in prices for over 70 percent of anticipated fuel usage, set at crude oil prices of $36 per barrel. Those low costs have allowed Southwest Airlines to undercut its competitors. There may already be some large asphalt pavers creating hedge positions.


VI Owner Supplies Liquid Asphalt

Given the volatile market conditions, one could easily envision state DOTs actually purchasing the liquid asphalt in large quantities and providing it to contractors. This will be a more likely possibility if states believe they can get a firm price while contractors cannot get a firm price.


VII Conclusion

The current volatile market conditions threaten to impact contractors’ bottom lines on both present and future contracts. Contractors must be aware of the risks associated with fixed-priced contracts. As a practical matter, cooperative negotiation with suppliers and owners may be the best approach to try to mitigate the effect of material price increases. A contractor should be aware of his legal obligations to the owner when negotiating with suppliers. When a contractor can not get firm quotes from a supplier, it is particu-larly important that a contractor who is free to negotiate the terms of the contract insist a price adjustment clause be included, which will reduce the risk to the contractor and even benefit the owner in the long run.

If a contractor has already entered into a fixed-price contract, the contractor may turn to whatever contractual and legal remedies are available. Contractual remedies are based on contract terms and may include force majeure, delay damages (which may also be a legal remedy), and “reasonable” language. Legal remedies include commercial im-practicability (impossibility or commercial senselessness), frustration of purpose; and mutual mistake.

However, courts are unlikely to offer legal relief. Consequently, when a contractor is already in a fixed-price contract, the contractor will want to pursue mutual cooperation with owners and suppliers in finding the best solution for all involved.


West Virginia DOT’s Price Adjustment Clause

SPECIAL PROVISIONSECTION 109MEASUREMENT AND PAYMENT

109.10 - PRICE ADJUSTMENT OF ASPHALT CEMENT:

Because of the uncertainty in estimating the cost of petroleum products that will be used during the life of this contract, adjustment in compensation for certain contract items is provided for as follows:

The contract items listed in the Proposal in the TABLE OF MATERIALS TO BE ADJUSTED FOR PRICE OF ASPHALT AT THE TIME OF PLACEMENT will be adjusted in accordance with the Division’s indices for asphalt cement. The bidding index (Ib) for asphalt cement will be equal to the placement index for the month im-mediately prior to the month in which the project is bid. The placement index (Ip) will be the price in effect for the month in which the specified adjustable material was actually placed. Both the bidding index (Ib) and the placement index (Ip) will be based on the average of the posted prices of PG 64-22 asphalt cement per ton/megagram as reported from the following sources:

Marathon Ashland Petroleum, LLC, Catlettsburg, Kentucky Marathon Ashland Petroleum, LLC, Floreffe, Pennsylvania Asphalt Materials, Marietta, Ohio Citgo Asphalt Refining Company, Baltimore, Maryland Chevron Corporation, Baltimore, Maryland

The bidding index (lb) and the placement index (Ip) may be found posted at the Division’s Internet website www.wvdot.com by selecting the ‘Contractors’ link under ‘Doing Busi-ness’ and then by choosing the ‘Fuel and Asphalt Prices’ option from the ‘Contractors Resource Center’ drop down menu.

If one of the sources listed above changes ownership and/or name the posted price for that terminal will continue in use as though the ownership and/or name change had not occurred.

If one of the sources used for determining either the bidding index or the placement index goes out of business, any future index will be based on the average of the remain-ing sources. Thus, the bidding index (Ib) could be based on the average of five sources and the placement index (Ip) on the average of four sources or vice-versa. If a source that goes out of business reopens at a later date, the placement index would once again be based on the average of five sources as indicated above.

The posted price for each source will be compared to the average of all sources. If the difference between the average and the individual price is greater than 25 % of the av-erage, that individual source will be excluded from the calculation of the average price (Ib) or (Ip) and a new average will be calculated using the remaining sources.

Appendix AWest Virginia’s Special Provision Section 109, “Measurement and Payment”


The portion of the contract unit price which reflects the cost of the specified material will be adjusted for the change in accordance with the following formulae:

Pa = [(Ip ÷ Ib) – 1.00] x Q x Applicable “C” Factor (C, C1 or C2)

Where:Pa = Price AdjustmentIp = Price Index at time of placementIb = Price Index for BiddingC1, C2 = Adjustable Material Cost per Unit of Contract Item BidQ = ”As Constructed” Quantity

The price index for determining price adjustments for all work performed after the contract completion date, as revised by approved time extensions, will be determined as follows: The price index (Ip) shall be for the month in which the contract comple-tion date (as extended) alls, or the price index for the month in which the work was performed, whichever is less.


NOTICE TO BIDDERS

TABLE OF MATERIALS TO BE ADJUSTED FORPRICE OF ASPHALT AT THE TIME OF PLACEMENT(English & Metric)

Adjustable Material Bidding Adjustable Material Cost (C), (C1)

Index (Ib) or (C

2) Dollars Per Unit of Asphalt

Mixture or Per Gallon (Liter) of of Liquid Asphalt Material

Asphalt Cement under Sections 401 and 402 * C1

Asphalt Cement under Section 311 * C

2

*The bidding Indexes (Ib) and the placement indexes (Ip) may be found posted at the Division’s Internet website www.wvdot.com by selecting the ‘Contractors’ link under ‘Doing Business’ and then by choosing the ‘Fuel and Asphalt Prices’ option from the ‘Contractors Resource Center’ drop down menu.

The bidding index for asphalt cement will be the price in effect for the month prior to the month in which this contract is let.

**In order to determine the applicable adjustable material cost (“C”) factor for bitumi-nous material under sections 405 and 636, multiply the bidding Index (Ib) by 0.0027 for English or 0.001 for metric.

The “C” value given per gallon of Liquid Asphalt Material is based on the use of an emulsion which is assumed to contain 65% asphalt cement and a gallon of emulsion weighs 8.43 pounds or a liter of emulsion weighs 1.00 kg. If cut-back asphalt is used, “C” as given in the above table must be multiplied by 1.54 to arrive at a modified “C” factor for use in the formula. No change will be made in the Adjustable Material Cost (C) for variations between these assumptions and actual factors.

The adjustable materials costs C 1 and C

2 are based on the approved job mix formula for

the specific asphalt concrete being placed in accordance with the following formulae:

C1 = Ib x Ac x 1 ton or C1 = Ib x Ac x 1 megagram

where Ac equals the approved asphalt content expressed in decimals, i.e. 5.8% asphalt

content equals 0.058. When recycled asphalt concrete is used in the mix, Ac is the % virgin or new asphalt added to the mix.

C2 = Ib x Ac x 1.6 tons/cy x 1 cy or C2 = Ib x Ac x 1.9 mg/m3 x 1 meter3

where Ac equals approved asphalt content expressed in decimals and it is assumed

that a cubic yard of asphalt treated open-graded free draining base weighs 1.6 tons or 1.9 Mg. No change will be made in C

2 for variations between this assumption and the

actual factor.


48 C.F.R. 16.203-1

Code of Federal RegulationsTitle 48. Federal Acquisition Regulations SystemChapter 1. Federal Acquisition RegulationSubchapter C. Contracting Methods and Contract TypesPart 16. Types of ContractsSubpart 16.2 Fixed-Price Contracts16.203 Fixed-Price Contracts with Economic Price Adjustment

16.203-1 Description.

(a) A fixed-price contract with economic price adjustment provides for upward and downward revision of the stated contract price upon the occurrence of specified contin-gencies. Economic price adjustments are of three general types:

(1) Adjustments based on established prices. These price adjustments are based on increases or decreases from an agreed-upon level in published or otherwise established prices of specific items or the contract end items.

(2) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified costs of labor or material that the contractor actually experiences during contract performance.

(3) Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract.

(b) The contracting officer may use a fixed-price contract with economic price adjustment in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains fixed-price with economic price adjustment when used with these incentives.

SUBPART 216.2—FIXED-PRICE CONTRACTS(Revised January 15, 1999)

216.203 Fixed-price contracts with economic price adjustment.

216.203-4 Contract clauses.

(a) Adjustment based on established prices--standard supplies. Generally, use the clause at FAR 52.216-2, Economic Price Adjustment--Standard Supplies, only when—

(i) The total contract price exceeds the simplified acquisition threshold; and(ii) Delivery will not be completed within six months after the contract date.

(b) Adjustment based on established prices--semistandard supplies. Generally, use the clause at FAR 52.216-3, Economic Price Adjustment--Semistandard Supplies, only when—

(i) The total contract price exceeds the simplified acquisition threshold; and(ii) Delivery will not be completed within six months after the contract date.

Appendix BSections of Federal Acquisition Regulations


(c) Adjustments based on actual cost of labor or material.(2) Limit use of the clause at FAR 52.216-4, Economic Price Adjustment--Labor and Material, to contracts in which the price exceeds $50,000 and the period of performance exceeds six months, unless otherwise approved by the chief of the contracting office. Use an appropriate modification of the clause in sealed bid-ding.(4) Apply the full amount of the decrease in the labor rates and fringe benefits or unit prices for materials.

(d) Adjustments based on cost indexes of labor or material. Use the following guidelines—(i) Do not make the clause unnecessarily complex.(ii) Normally, the clause should not provide either a ceiling or a floor for adjust-ment unless adjustment is based on indices below the four digit level of the Bureau of Labor Statistics— (A) Producer Price Index;

(B) Employment Cost Index for wages and salaries, benefits, and compensation costs for aerospace industries; or

(C) Wage and Income Series by Standard Industrial Classification (Labor).

(iii) Normally, the clause should cover all potential economic fluctuations within the original contract period of performance.

(iv) The clause must accurately identify the index(es) upon which adjustments will be based.

(A) It must provide for a means to adjust for appropriate economic fluctuation in the event publication of the movement of the designated index is discontinued. This might include the substitution of another index if the time remaining would justify doing so and an appropriate index is reasonably available, or some other method for repricing the remaining portion of work to be performed.(B) Normally, there should be no need to make an adjustment if computation of the identified index is altered. However, it may be appropriate to provide for adjustment of the economic fluctuation computations in the event there is such a substantial alteration in the method of computing the index that the original intent of the parties is negated.(C) When an index to be used is subject to revision (e.g., the Bureau of Labor Statistics Producer Price Indexes), the economic price adjustment clause must specify that any economic price adjustment will be based on a revised index and must identify which revision to the index will be used.

(v) Construct the index to encompass a large sample of relevant items while still bearing a logical relationship to the type of contract costs being measured. The basis of the index should not be so large and diverse that it is significantly af-fected by fluctuations not relevant to contract performance, but it must be broad enough to minimize the effect of any single company, including the anticipated contractor(s).

(vi) Construction of an index is largely dependent upon three general series pub-lished by the U.S. Department of Labor, Bureau of Labor Statistics (BLS). These are the—


(A) Industrial Commodities portion of the Producer Price Index;(B) Employment Cost Index for wages and salaries, benefits, and compensation costs for aerospace industries; and(C) Wage and Income Series by Standard Industrial Classification (Labor).

Since there is no BLS published series currently available that relates directly to total prices of delivered DoD aircraft, ships, missiles, electronics, etc., it will be necessary to construct composite indices from major portions of the three series identified.

(vii) Normally, do not use more than two indices, i.e., one for labor (direct and indirect) and one for material (direct and indirect).

(viii) The clause must establish and properly identify a base period comparable to the contract periods for which adjustments are to be made as a reference point for application of an index.

(ix) The clause should not provide for an adjustment beyond the original contract performance period, including options. The start date for the adjustment may be the beginning of the contract or a later time, as appropriate, based on the projected rate of expenditures.

(x) The expenditure profile for both labor and material should be based on a pre-determined rate of expenditure (expressed as the percentage of material or labor usage as it relates to the total contract price) in lieu of actual cost incurred.

(A) If the clause is to be used in a competitive acquisition, determine the labor and material allocations, with regard to both mix of labor and material and rate of expenditure by percentage, in a manner which will, as nearly as possible, approximate the average expenditure profile of all companies to be solicited so that all companies may compete on an equal basis.(B) If the clause is to be used in a noncompetitive acquisition, the labor and material allocations may be subject to negotiation and agreement.(C) For multiyear contracts, establish predetermined expenditure profile tables for each of the annual increments in the multiyear buy. Each of the second and subsequent year tables must be cumulative to reflect the total expenditures for all increments funded through the latest multiyear funding.

(xi) The clause should state the percentage of the contract price subject to price adjustment.

(A) Normally, do not apply adjustments to the profit portion of the contract.(B) Examine the labor and material portions of the contract to exclude any areas that do not require adjustment. For example, it may be possible to exclude—

(1) Subcontracting for short periods of time during the early life of the contract which could be covered by firm-fixed-priced subcontracting;(2) Certain areas of overhead, e.g., depreciation charges, prepaid insurance costs, rental costs, leases, certain taxes, and utility charges;(3) Labor costs for which a definitive union agreement exists; and(4) Those costs not likely to be affected by fluctuation in the economy.


(C) Allocate that part of the contract price subject to adjustment to specific periods of time (e.g., quarterly, semiannually, etc.) based on the most probable expenditure or commitment basis (expenditure profile).

(xii) The clause should provide for definite times or events that trigger price adjust-ments. Adjustments should be frequent enough to afford the contractor appropriate economic protection without creating a burdensome administrative effort. The adjustment period should normally range from quarterly to annually.

(xiii) When the contract contains cost incentives, any sums paid to the contractor on account of economic price adjustment provisions must be subtracted from the total of the contractor’s allowable costs for the purpose of establishing the total costs to which the cost incentive provisions apply. If the incentive arrangement is cited in percentage ranges, rather than dollar ranges, above and below target costs, structure the economic price adjustment clause to maintain the original contract incentive range in dollars.

(xiv) The economic price adjustment clause should provide that once the labor and material allocations and the portion of the contract price subject to price ad-justment have been established, they remain fixed through the life of the contract and shall not be modified except in the event of significant changes in the scope of the contract. The clause should state that pricing actions pursuant to the Changes clause or other provisions of the contract will be priced as though there were no provisions for economic price adjustment. However, subsequent modifications may include a change to the delivery schedule or significantly change the amount of, or mix of, labor or material for the contract. In such cases, it may be appro-priate to prospectively apply economic price adjustment coverage. This may be accomplished by—

(A) Using an economic price adjustment (EPA) clause that applies only to the effort covered by the modification;(B) Revising the baseline data or period in the EPA clause for the basic contract to include the new work; or(C) Using an entirely new EPA clause for the entire contract, including the new work.

(xv) Consistent with the factors in paragraph (d)(i) through (xiv) of this subsec-tion, it may also be appropriate to provide in the prime contract for similar eco-nomic price adjustment arrangements between the prime contractor and affected subcontractors to allocate risks properly and ensure that those subcontractors are provided similar economic protection.

(xvi) When economic price adjustment clauses are included in contracts that do not require submission of cost or pricing data as provided for in FAR 15.403-1, the contracting officer must obtain adequate information to establish the baseline from which adjustments will be made. The contracting officer may require verification of the data submitted to the extent necessary to permit reliance upon the data as a reasonable baseline.


216.203-4-70 Additional clauses.(a) Price adjustment for basic steel, aluminum, brass, bronze, or copper mill prod-ucts.

(1) The price adjustment clause at 252.216-7000, Economic Price Adjustment--Basic Steel, Aluminum, Brass, Bronze, or Copper Mill Products, may be used in fixed-price supply contracts for basic steel, aluminum, brass, bronze, or copper mill products, such as sheets, plates, and bars, when an established catalog or market price exists for the particular product being acquired.(2) The 10 percent figure in paragraph (d)(1) of the clause shall not be exceeded unless approval is obtained at a level above the contracting officer.

(b) Price adjustment for nonstandard steel items.(1) The price adjustment clause at 252.216-7001, Economic Price Adjustment--Nonstandard Steel Items, may be used in fixed-price supply contracts when—

(i) The contractor is a steel producer and actually manufacturers the standard steel mill item referred to in the “base steel index” definition of the clause; and(ii) The items being acquired are nonstandard steel items made wholly or in part of standard steel mill items.

(2) When this clause is included in invitations for bids, omit Note 6 of the clause and all references to Note 6.(3) Solicitations shall instruct offerors to complete all blanks in accordance with the applicable notes.(4) When the clause is to provide for adjustment on a basis other than “established price” (see Note 6 of the clause), that price must be verified.(5) The 10 percent figure in paragraph (e)(4) of the clause shall not be exceeded unless approval is obtained at a level above the contracting officer.

(c) Price adjustment for wage rates or material prices controlled by a foreign govern-ment.

(1) The price adjustment clause at 252.216-7003, Economic Price Adjustment–Wage Rates or Material Prices Controlled by a Foreign Government, may be used in fixed-price supply and service contracts when�

(i) The contract is to be performed wholly or in part in a foreign country; and(ii) A foreign government controls wage rates or material prices and may, during contract performance, impose a mandatory change in wages or prices of material.

(2) Verify the base wage rates and material prices prior to contract award and prior to making any adjustment in the contract price.


48 C.F.R. 52.216-2

Code of Federal RegulationsTitle 48. Federal Acquisition Regulations SystemChapter 1. Federal Acquisition RegulationSubchapter H. Clauses and FormsPart 52. Solicitation Provisions and Contract ClausesSubpart 52.2 Texts of Provisions and Clauses52.216-2 Economic Price Adjustment--Standard Supplies.

As prescribed in 16.203-4(a), insert the following clause. The clause may be modified by increasing the 10 percent limit on aggregate increases specified in subparagraph (c)(1), upon approval by the chief of the contracting office.

ECONOMIC PRICE ADJUSTMENT--STANDARD SUPPLIES (JAN 1997)

(a) The Contractor warrants that the unit price stated in the Schedule for .................................................. [offeror insert Schedule line item number] is not in excess of the Contractor’s applicable established price in effect on the contract date for like quantities of the same item. The term “unit price” excludes any part of the price directly resulting from requirements for preservation, packaging, or packing beyond standard commercial practice. The term “established price” means a price that (1) is an established catalog or market price for a commercial item sold in substantial quantities to the general pub-lic, and (2) is the net price after applying any standard trade discounts offered by the Contractor.

(b) The Contractor shall promptly notify the Contracting Officer of the amount and ef-fective date of each decrease in any applicable established price. Each corresponding contract unit price shall be decreased by the same percentage that the established price is decreased. The decrease shall apply to those items delivered on and after the effec-tive date of the decrease in the Contractor’s established price, and this contract shall be modified accordingly.

(c) If the Contractor’s applicable established price is increased after the contract date, the corresponding contract unit price shall be increased, upon the Contractor’s written request to the Contracting Officer, by the same percentage that the established price is increased, and the contract shall be modified accordingly, subject to the following limitations:

(1) The aggregate of the increases in any contract unit price under this clause shall not exceed 10 percent of the original contract unit price.(2) The increased contract unit price shall be effective (i) on the effective date of the increase in the applicable established price if the Contracting Officer receives the Contractor’s written request within 10 days thereafter or (ii) if the written request is received later, on the date the Contracting Officer receives the request.(3) The increased contract unit price shall not apply to quantities scheduled under the contract for delivery before the effective date of the increased contract unit price, unless failure to deliver before that date results from causes beyond the control and without the fault or negligence of the Contractor, within the meaning of the Default clause.


(4) No modification increasing a contract unit price shall be executed under this paragraph (c) until the Contracting Officer verifies the increase in the applicable established price.(5) Within 30 days after receipt of the Contractor’s written request, the Contract-ing Officer may cancel, without liability to either party, any undelivered portion of the contract items affected by the requested increase.

(d) During the time allowed for the cancellation provided for in subparagraph (c)(5) above, and thereafter if there is no cancellation, the Contractor shall continue deliver-ies according to the contract delivery schedule, and the Government shall pay for such deliveries at the contract unit price, increased to the extent provided by paragraph (c) above.

48 C.F.R. 52.216-3Code of Federal Regulations Title 48. Federal Acquisition Regulations SystemChapter 1. Federal Acquisition RegulationSubchapter H. Clauses and FormsPart 52. Solicitation Provisions and Contract Clauses Subpart 52.2 Texts of Provisions and Clauses52.216-3 Economic Price Adjustment--Semistandard Supplies.

As prescribed in 16.203-4(b), insert the following clause. The clause may be modified by increasing the 10 percent limit on aggregate increases specified in subparagraph (c)(1), upon approval by the chief of the contracting office.

ECONOMIC PRICE ADJUSTMENT–SEMISTANDARD SUPPLIES (JAN 1997)(a) The Contractor warrants that the supplies identified as line items .................... [of-feror insert Schedule line item number] in the Schedule are, except for modifications required by the contract specifications, supplies for which it has an established price. The term “established price” means a price that (1) is an established catalog or market price for a commercial item sold in substantial quantities to the general public, and (2) is the net price after applying any standard trade discounts offered by the Contractor. The Contractor further warrants that, as of the date of this contract, any difference between the unit prices stated in the contract for these line items and the Contractor’s established prices for like quantities of the nearest commercial equivalents are due to compliance with contract specifications and with any contract requirements for preservation, pack-aging, and packing beyond standard commercial practice.

(b) The Contractor shall promptly notify the Contracting Officer of the amount and ef-fective date of each decrease in any applicable established price. Each corresponding contract unit price (exclusive of any part of the unit price that reflects modifications resulting from compliance with specifications or with requirements for preservation, packaging, and packing beyond standard commercial practice) shall be decreased by the same percentage that the established price is decreased. The decrease shall apply to those items delivered on and after the effective date of the decrease in the Contractor’s established price, and this contract shall be modified accordingly.


(c) If the Contractor’s applicable established price is increased after the contract date, the corresponding contract unit price (exclusive of any part of the unit price resulting from compliance with specifications or with requirements for preservation, packag-ing, and packing beyond standard commercial practice) shall be increased, upon the Contractor’s written request to the Contracting Officer, by the same percentage that the established price is increased, and the contract shall be modified accordingly, subject to the following limitations:

(1) The aggregate of the increases in any contract unit price under this clause shall not exceed 10 percent of the original contract unit price.(2) The increased contract unit price shall be effective (i) on the effective date of the increase in the applicable established price if the Contracting Officer receives the Contractor’s written request within 10 days thereafter or (ii) if the written request is received later, on the date the Contracting Officer receives the request.(3) The increased contract unit price shall not apply to quantities scheduled under the contract for delivery before the effective date of the increased contract unit price, unless failure to deliver before that date results from causes beyond the control and without the fault or negligence of the Contractor, within the meaning of the Default clause.(4) No modification increasing a contract unit price shall be executed under this paragraph (c) until the Contracting Officer verifies the increase in the applicable established price.(5) Within 30 days after receipt of the Contractor’s written request, the Contract-ing Officer may cancel, without liability to either party, any undelivered portion of the contract items affected by the requested increase.

(d) During the time allowed for the cancellation provided for in subparagraph (c)(5) above, and thereafter if there is no cancellation, the Contractor shall continue deliver-ies according to the contract delivery schedule, and the Government shall pay for such deliveries at the contract unit price, increased to the extent provided by paragraph (c) above.

48 C.F.R. 52.216-4Code of Federal Regulations Title 48. Federal Acquisition Regulations SystemChapter 1. Federal Acquisition RegulationSubchapter H. Clauses and FormsPart 52. Solicitation Provisions and Contract ClausesSubpart 52.2 Texts of Provisions and Clauses52.216-4 Economic Price Adjustment--Labor and Material.

As prescribed in 16.203-4(c), when contracting by negotiation, insert a clause that is substantially the same as the following clause in solicitations and contracts when the conditions specified in 16.203-4(c)(1)(i) through (iv) apply (but see 16.203-4(c)(2)). The clause may be modified by increasing the 10-percent limit on aggregate increases specified in subparagraph (c)(4), upon approval by the chief of the contracting office.


ECONOMIC PRICE ADJUSTMENT–LABOR AND MATERIAL (JAN 1997)

(a) The Contractor shall notify the Contracting Officer if, at any time during contract performance, the rates of pay for labor (including fringe benefits) or the unit prices for material shown in the Schedule either increase or decrease. The Contractor shall furnish this notice within 60 days after the increase or decrease, or within any additional period that the Contracting Officer may approve in writing, but not later than the date of final payment under this contract. The notice shall include the Contractor’s proposal for an adjustment in the contract unit prices to be negotiated under paragraph (b) below, and shall include, in the form required by the Contracting Officer, supporting data explain-ing the cause, effective date, and amount of the increase or decrease and the amount of the Contractor’s adjustment proposal.

(b) Promptly after the Contracting Officer receives the notice and data under paragraph (a) above, the Contracting Officer and the Contractor shall negotiate a price adjustment in the contract unit prices and its effective date. However, the Contracting Officer may postpone the negotiations until an accumulation of increases and decreases in the labor rates (including fringe benefits) and unit prices of material shown in the Schedule results in an adjustment allowable under subparagraph (c)(3) below. The Contracting Officer shall modify this contract (1) to include the price adjustment and its effective date and (2) to revise the labor rates (including fringe benefits) or unit prices of material as shown in the Schedule to reflect the increases or decreases resulting from the adjustment. The Contractor shall continue performance pending agreement on, or determination of, any adjustment and its effective date.

(c) Any price adjustment under this clause is subject to the following limitations:(1) Any adjustment shall be limited to the effect on unit prices of the increases or decreases in the rates of pay for labor (including fringe benefits) or unit prices for material shown in the Schedule. There shall be no adjustment for (i) supplies or services for which the production cost is not affected by such changes, (ii) changes in rates or unit prices other than those shown in the Schedule, or (iii) changes in the quantities of labor or material used from those shown in the Schedule for each item.(2) No upward adjustment shall apply to supplies or services t7hat are required to be delivered or performed before the effective date of the adjustment, unless the Contractor’s failure to deliver or perform according to the delivery schedule results from causes beyond the Contractor’s control and without its fault or negligence, within the meaning of the Default clause.(3) There shall be no adjustment for any change in rates of pay for labor (including fringe benefits) or unit prices for material which would not result in a net change of at least 3 percent of the then-current total contract price. This limitation shall not apply, however, if, after final delivery of all contract line items, either party requests an adjustment under paragraph (b) above.(4) The aggregate of the increases in any contract unit price made under this clause shall not exceed 10 percent of the original unit price. There is no percentage limita-tion on the amount of decreases that may be made under this clause.


(d) The Contracting Officer may examine the Contractor’s books, records, and other supporting data relevant to the cost of labor (including fringe benefits) and material during all reasonable times until the end of 3 years after the date of final payment un-der this contract or the time periods specified in Subpart 4.7 of the Federal Acquisition Regulation (FAR), whichever is earlier.

48 C.F.R. 252.216-7000

Code of Federal RegulationsTitle 48. Federal Acquisition Regulations SystemChapter 2. Defense Acquisition Regulations System, Department of Subchapter H. Clauses and Forms252.2 Text of Provisions and Clauses252.216-7000 Economic price adjustment--basic steel, aluminum, brass, bronze, or copper mill products.

As prescribed in 216.203-4-70(a), use the following clause:Economic Price Adjustment-Basic Steel, Aluminum, Brass, Bronze, or Copper MillProducts (Jul 1997)

(a) Definitions.

As used in this clause--

Established price means a price which is an established catalog or market price for a commercial item sold in substantial quantities to the general public.

Unit price excludes any part of the price which reflects requirements for preservation, packaging, and packing beyond standard commercial practice.

(b) The Contractor warrants that the unit price stated for (Identify the item) is not in excess of the Contractor’s established price in effect on the date set for opening of bids (or the contract date if this is a negotiated contract) for like quantities of the same item. This price is the net price after applying any applicable standard trade discounts offered by the Contractor from its catalog, list, or schedule price.

(c) The Contractor shall promptly notify the Contracting Officer of the amount and ef-fective date of each decrease in any established price.

(1) Each corresponding contract unit price shall be decreased by the same percent-age that the established price is decreased.(2) This decrease shall apply to items delivered on or after the effective date of the decrease in the Contractor’s established price.(3) This contract shall be modified accordingly.

(d) If the Contractor’s established price is increased after the date set for opening of bids (or the contract date if this is a negotiated contract), upon the Contractor’s written request to the Contracting Officer, the corresponding contract unit price shall be increased by the same percentage that the established price is increased, and this contract shall be modified accordingly, provided–


(1) The aggregate of the increases in any contract unit price under this contract shall not exceed 10 percent of the original contract unit price;(2) The increased contract unit price shall be effective on the effective date of the increase in the applicable established price if the Contractor’s written request is received by the Contracting Officer within ten days of the change. If it is not, the effective date of the increased unit price shall be the date of receipt of the request by the Contracting Officer; and(3) The increased contract unit price shall not apply to quantities scheduled for delivery before the effective date of the increased contract unit price unless the Contractor’s failure to deliver before that date results from causes beyond the control and without the fault or negligence of the Contractor, within the meaning of the Default clause of this contract.(4) The Contracting Officer shall not execute a modification incorporating an increase in a contract unit price under this clause until the increase is verified.

(e) Within 30 days after receipt of the Contractor’s written request, the Contracting Of-ficer may cancel, without liability to either party, any portion of the contract affected by the requested increase and not delivered at the time of such cancellation, except as follows--

(1) The Contractor may, after that time, deliver any items that were completed or in the process of manufacture at the time of receipt of the cancellation notice, provided the Contractor notifies the Contracting Officer of such items within 10 days after the Contractor receives the cancellation notice.(2) The Government shall pay for those items at the contract unit price increased to the extent provided by paragraph (d) of this clause.(3) Any standard steel supply item shall be deemed to be in the process of manu-facture when the steel for that item is in the state of processing after the beginning of the furnace melt.

(f) Pending any cancellation of this contract under paragraph (e) of this clause, or if there is no cancellation, the Contractor shall continue deliveries according to the delivery schedule of the contract. The Contractor shall be paid for those deliveries at the contract unit price increased to the extent provided by paragraph (d) of this clause.


This Amendment No. 1 made this ___________________ day of ____________________ in the year _______________

is made contemporaneous with and modifies the Agreement dated ____________________________________ between

_____________________________________________________________________________________ OWNER and

___________________________________________________________________________________ CONTRACTOR

for the following __________________________________________________________________________ PROJECT.

Terms used in this Amendment, unless otherwise defined, shall have the same meaning as defined in the Agreement.

THE ASSOCIATED GENERAL CONTRACTORS OF AMERICAFor Use with AGC Document 200, Standard Form of Agreement and General Conditions Between Owner and Contrator(Where the Contract Price is a Lump Sum)

AGC DOCUMENT NO. 200.1

AMENDMENT NO. 1

POTENTIALLY TIME AND PRICE-IMPACTED MATERIALS

1. POTENTIALLY TIME AND PRICE-IMPACTED MATERIAL As of the date of this Amendment, certain markets providing essential materials to the Project are experiencing or are expected to experience signifi-cant, industry-wide economic fluctuation during the performance of this Agreement that may impact price, availability and delivery time frames (“Potentially Time and Price-Impacted Material”). This Amendment provides for a fair allocation of the risk of such market conditions between the Owner and the Contractor and shall only apply to the Potentially Time and Price-Impacted Material(s) listed in Schedule A to this Amendment.

2. BASELINE PRICE AND TIME Owner and Contractor shall agree upon a method for establishing the market price as of the date of this Amendment (“Baseline Price”) and the method for calculating an adjustment in the pricing for a Potentially Time and Price-Impacted Material listed in Schedule A to this Amendment.

2.1 Compensation for any Potentially Time and Price-Impacted Material shall not be duplicated in any con-tingency amounts established under the terms of the Agreement.

3. ADJUSTMENT IN BASELINE PRICE If during the course of the Project a Potentially Time and Price-Impacted Material item experiences an increase or decrease in its Baseline Price, either party may notify the other in writing within thirty (30) days from the date the basis for an equitable adjustment to the Con-tract Price, pursuant to Article 8 of the Agreement, arises and shall provide appropriate documentation substantiating such adjustment. An adjustment in the pricing for a Potentially Time and Price-Impacted Material shall not include any amount for overhead and profit.

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Appendix CAGC Document No.200.1, Amendment No.1, “Potentially Time and Price-Impacted Materials”

AGC DOCUMENT NO. 200.1 • Amendment No. 1 - Potentially Time and Price-Impacted Materials© 2004, The Associated General Contractors of America. All rights reserved.

To order AGC contract documents, phone 1-800-AGC-1767. These documents are also available in electronic form through AGC DocuBuilder® software by going to www.agcdocubuilder.org.

The materials shown here are displayed with the express written permission of the Associated General Contractors of America under License No. 129.


3.1 In the event of a decrease in a Baseline Price, the Contract Price shall be equitably adjusted to reflect such decrease, subject to Paragraph 3.3 of this Amendment, but only for those Potentially Time and Price-Impacted Materials delivered on or after the date on which written notice of the adjustment in Baseline Price is given.

3.2 In the event of an increase in a Baseline Price, the Contract Price shall be equitably adjusted to reflect such increase, subject to Paragraph 3.3 of this Amendment, but only for those Potentially Time and Price-Impacted Materials delivered on or after the date on which written notice of the adjustment in Baseline Price is given.

3.3 The Contract Price shall not be adjusted by more than ___________________ ( _________%) percent of the original Contract Price for the aggregate of the increases or decreases in Baseline Prices for Potentially Time and Price-Impacted Materials.

3.4 No adjustment shall be made for any quantities of Potentially Time and Price-Impacted Materials scheduled for delivery under the terms of the Agreement prior to the date on which written notice of the adjustment in Baseline Price is given, unless the failure to deliver such quantities before that date is beyond the control of and without the fault of the Contractor, its Subcontractors and Material Suppliers.

3.5 Payment, if any, for an adjustment shall be made in accordance with the terms of the Agreement.

4. TIME-IMPACT AND AVAILABILITY If the Contractor is delayed at any time in the commencement or progress of the Work due to a delay in the delivery of, or unavailability of, a Potentially Time and Price-Impacted Material, beyond the control of and without the fault of the Contractor, its Subcontractors and Material Suppliers, the Contractor shall be entitled to an equitable extension of the Contract Time and an equitable adjustment of the Contract Price in accordance with Paragraph 6.3 of the Agreement. The Owner and Contractor shall undertake reasonable steps to mitigate the effect of such delays. Notwithstanding any other provision to the contrary, the Contractor shall not be liable to the Owner for any expenses, losses or damages arising from a delay in the delivery of a Potentially Time and Price-Impacted Material item not the fault of the Contractor, its Subcontractors and Material Suppliers.

OWNER: ________________________________ ◆ CONTRACTOR: _________________________ ◆

By: _____________________________________ ◆ By:____________________________________ ◆


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SCHEDULE ATO

AGC DOCUMENT NO. 200.1AMENDMENT NO. 1

POTENTIALLY TIME AND PRICE-IMPACTED MATERIALS

Potentially Time and Price-Impacted Materials should be identified and described with specificity. The methods for establishing the Baseline Price for a Potentially Time and Price-Impacted Material should be based upon an objective standard and include: 1) established market or catalog prices; 2) actual material costs; 3) material costs indices; or, 4) such other mutually agreed upon method. Pricing based on material costs indices must identify the index category or subcategory that most accurately reflects the Potentially Time and Price-Impacted Material specified.

1. Potentially Time and Price-Impacted Material: _____________________________________________________________________________________________________________________________________________

(Provide detailed description of material)

Baseline Price: $ ____________________________________/_________________________________ (unit) Pricing Method: ___________________________________________________________________________ ________________________________________________________________________________________

(Specify material price index or other method used)

2. Potentially Time and Price-Impacted Material: ___________________________________________________ _________________________________________________________________________________________


Baseline Price: $ ____________________________________/_________________________________ (unit) Pricing Method: ___________________________________________________________________________ ________________________________________________________________________________________


3. Potentially Time and Price-Impacted Material: ___________________________________________________ _________________________________________________________________________________________


Baseline Price: $ ____________________________________/_________________________________ (unit) Pricing Method: ___________________________________________________________________________ _________________________________________________________________________________________


4. Potentially Time and Price-Impacted Material: ___________________________________________________ _______________________________________________________________________________________


Baseline Price: $ ____________________________________/_________________________________ (unit) Pricing Method: ___________________________________________________________________________ _________________________________________________________________________________


(Attach additional sheets as necessary)

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MG10061M

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