WWW.ACPA.ORG 13 SPRING // 2024 BID ENVIRONMENTS pavements. Similarly, the amount of intra-industry competition (competition among firms that pave with the same material) is not as high as it could be. Some states often had only one or two bidders for many of their projects. Yet the key to competition is having a healthy multi-bidder environment. Next, MIT evaluated and analyzed the bid results for the given time period, comparing weighted unit costs versus a five-year average balance of DOT pavement type usage for both asphalt and concrete pavements. The analysis involved developing statistical models to determine what factors have a significant influence on paving material costs, including items like project size, the amount of paving material used, the number of bidders (a metric of intra-industry competition) and the average share of spending in a state on concrete (a metric of inter-industry competition). Bid costs were adjusted to account for year-toyear cost changes. For asphalt paving, the most influential factors impacting unit costs are project size followed by inter-industry competition. For concrete paving, the most influential factors are inter-industry competition followed by project size. The fact that inter-industry competition was the first or second most influential item clearly shows that when competition between paving industries increases, with asphalt and concrete applications being more evenly split, there is a clear trend toward lower unit costs for both concrete and asphalt pavements. Results also showed a decrease in variability in unit costs for both materials that accompanied increasing levels of inter-industry competition. It is important to note that states with higher levels of competition tended to be the states with stable and predictable paving programs, which implies that sustained programs, for both concrete and asphalt, are important in maintaining predictable and low unit costs. Once researchers determined the key factors, they again used statistical modeling to estimate how increasing inter-industry competition would impact paving costs. Overall, they found that as inter-industry competition increased, the unit costs of both concrete and asphalt paving materials fell significantly—particularly those of concrete. For example, if a state with a low concrete market share (e.g., 1%) were to increase its concrete market share to 25%, it would lower concrete and asphalt paving material unit costs by around 29% and 8%, respectively, which would allow the state to buy more paving materials. The Unchecked Rise in Prices Data from the Bureau of Labor Statistics (BLS) (See Fig. 1) show that the 50-year price trend for paving with asphalt has gone up starkly when compared to general inflation rates and concrete. This is unsurprising as the price for liquid asphalt (a key ingredient in HMA) is very volatile, with yearly swings often exceeding 40%. On top of this, when only one material is being used, demand causes saturation, which causes the price to increase further. Particularly when it comes to a high-demand product like asphalt, when all of the asphalt plants become engaged, saturation occurs and prices will rise in the absence of new entrants or alternative materials to compete and drive prices back down. These asphalt price change drivers can be offset if there are alternative materials in the market. When they do choose concrete pavement, agencies often make the selection based on concrete’s durability and longevity (qualities which contribute to cost reduction when life cycle cost analysis is employed). Recent bids across the United States, however, have illustrated that concrete can also be successful on an initial cost basis—and this has been the case even with accelerated construction projects. The key is to make materials decisions early and create continues on page 14 » For example, if a state with a low concrete market share (e.g., 1%) were to increase its concrete market share to 25%, it would lower concrete and asphalt paving material unit costs by around 29% and 8%, respectively, which would allow the state to buy more paving materials.
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