No one in the paving and pavement maintenance industry needs to be told of the unexpectedly sharp increases in the costs of fuel, asphalt, or hot mix. But what might be surprising is that because of this price volatility contractors are facing possibly the riskiest business environment they've faced in years. Plenty of work (which seems to be the case in most areas of the country) combined with uncertain materials prices threaten many businesses because contractors have to provide hard number bids based on volatile costs. We know of one paving job quoted in 2005 at $254,000. When the owner decided to go ahead with the job last spring, he called the contractor on a Thursday and was told the contractor couldn't honor that price; the new price was $345,000. Surprised (shocked is probably more like it), he wanted to shop price a little. The owner called back Monday and was told, sorry, the contractor had received a price increase from the hot mix supplier and the bid was now $390,000. To many paving contractors this is not an unusual 2006 scenario. Add in fuel costs and shipping costs and every contractor is affected to some degree.
So now is the perfect environment for you to examine your job costs and learn what it costs you to send your paving (or striping or sealcoating) crew out for a Wendy's job, then make sure you price your work accordingly. Because that's the real risk here. Contractors who base bids on what the competition charges or, worse yet, just to get the work, could soon find themselves with plenty of work to do at prices that don't even cover the cost of the job. That's a certain road to ruin. So as you battle the volatile materials market, make sure you know what it costs you to perform each job – and base your bid on your costs. Then make sure your contract enables you to adjust your pricing if your materials costs change, or at the very least make sure you don't guarantee your bid for too long. What would have happened to the paving contractor above had he been locked in to the original $254,000 contract?
But as one contractor told us, with risk comes opportunity: By knowing your costs more accurately and pricing your work accordingly, you just might be able to become a more profitable business. So base your bid on your costs and modify your contracts to protect yourself. Anything less and you are putting your business at risk.
