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One of the most difficult aspects of running a construction contracting business is estimating costs with enough accuracy to submit a winning bid that provides a comfortable profit margin. The challenge is that the prices of building materials are dynamic, often changing in ways that are difficult to predict. The price of asphalt is one such moving target.
It’s easy enough to figure out how much the asphalt for a certain project will cost at the time a bid is submitted. But months can go by between the time a winning bidder is chosen and the time the project breaks ground. And during those intervening months, the price the contractor must pay for asphalt may have changed significantly.
One person with more than 30 years of experience in highway and heavy construction decided to do something to make it easier to predict the price of asphalt. Brian Lawrence recognized the inherent difficulty of predicting what the price of asphalt will be at a given point in the future. Now the owner, president, and CEO of Asphalt Unlimited, he developed an app—The Asphalt App—that uses a proprietary algorithm. A key factor in that algorithm is the daily closing prices of a variety of energy products drawn from the New York Mercantile Exchange.
The Asphalt App’s algorithm (called The Synthetic) produces a projection of retail asphalt prices and mirrors the coker values of asphalt. Lawrence subjected the app’s predictions to back testing against published coker values over a period of 13 years and found a near perfect correlation (0.988041). At no point in the testing did the app ever predict a value lower than the published value.
To obtain a price range prediction, the user moves a slider bar to select the desired time period, up to 18 months into the future, and then selects the geographic region. The app provides predictions for the 48 contiguous states, but does not cover Alaska or Hawaii.
If you’re interested in giving it a try, The Asphalt App can be downloaded from the Apple App Store or, for Android users, from the Google Play Store. It’s offered on a subscription basis. Those who opt for an annual subscription can also receive unlimited private consultations with Brian Lawrence and benefit from his expertise in buying, selling, bidding, and pricing liquid asphalt for no additional charge.
Upswing in Projects Using Asphalt
The Infrastructure Improvement and Jobs Act signed into law in 2021 has allocated massive amounts of money for repair and upgrades to existing highways, bridges, airports, and other transportation-related projects at the state level. The result is a large upswing in the number of such projects sponsored by various state agencies and public/private partnerships, some of them already underway, but many still in the planning and contractor selection stages. There is a lot at stake for contractors bidding on these projects, many of which involve the use of asphalt.
Consequences of Inaccurate Projections
Suppose that after winning a bid on an IIJA-funded project, you realize that you seriously underestimated what the price of liquid asphalt will be by the time the project gets off the ground, seriously reducing the project’s profitability. You might be able to withdraw your bid if the problem was the result of a clerical error, such as transposing a couple of digits or misplacing a decimal point. However, if an error in judgment was to blame, you’re unlikely to be allowed to withdraw your bid after the bid deadline. The best you could hope for probably would be permission to withdraw your bid on the condition of paying a high penalty.
In the worst-case scenario, you might be required to pay the difference between your bid and the next lowest bidder’s. And if you didn’t discover the error until the project was underway, a truly serious underestimation could make it difficult to pay suppliers or complete the project on time. That could, in turn, result in claims against your payment bond or performance bond, which ultimately could affect how sureties view your company’s management and financial strength and even impact your future bonding capacity.
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