State work looks strong, but there will be fewer tons of hot mix.

Road construction contractors will find about the same dollar volume of work this year as in 2006, but higher material prices spell a drop in the quantity of new construction. Contractors expect state road funding to maintain current levels or even increase somewhat. Asphalt contractors will make sure they get escalation clauses for liquid asphalt and for diesel fuel, if possible.

At right, a bridge deck pour by Granite Construction; Senior VP Jim Roberts expects strong public construction this year.
 

Below, FNF Construction widens U.S. Superstition 60 in Arizona.


 "We expect to bid on fewer tons of hot-mix asphalt in 2007," says David M. Howard, president of Koss Construction, Topeka, Kansas. The company paves with both asphalt and concrete, and does milling and in-place asphalt recycling. Howard says hot-mix asphalt bidding opportunities declined in 2006 versus 2005. Similarly, he says the market for pavement products that are reliant on hot-mix asphalt overlays will drop in 2007, just as they did last year. Such products include cold milling and cold in-place recycling of asphalt pavements. Many owners are turning to shorter term solutions such as hot in-place recycling, slurry seals, and chip seals, he says.

"We expect the concrete paving market in the Midwest to remain fairly constant," says Howard. "This is positive, given the inflationary pressures on the highway market as a whole. In aggregate, there is simply less cement, asphalt, rock, sand, and steel being delivered because the prices of these products have escalated beyond what the owners had budgeted for these products. The owners’ purchasing power is just not what it was a couple of years ago."

Koss Construction Co. (above and below) expects fewer tons of hot-mix paving to be available this year.

Howard says he sees an upswing in the number of small concrete paving projects being let for bid. Plus, he heard that the Missouri Department of Transportation is proposing to let a 40-mile project, formerly scheduled as an asphalt overlay, as alternate sections of asphalt and concrete. "And we are reviewing an upcoming concrete paving project on an Oklahoma Interstate that was, I believe, originally scheduled as an asphalt overlay," says Howard.

Koss’ business last year was very strong in both airfield and highway paving, Howard says. And he sees especially good opportunities in military construction at Fort Riley, Kansas. Overall, though, Howard says Koss will not work up to its capacity this year because the price of road construction products has become so expensive.

Mac Badgett, a senior vice president at Vulcan Materials’ home office in Birmingham, Alabama, has responsibility for aggregate sales in 20 states, most of them in the Midwest and South. "Most state DOT budgets seem to be in better shape than they were five years ago," Badgett says. "Tax receipts have been up, and they’ve been trending upward over the past three years. So I expect road construction to be moderately up in 2007."

The increase in asphalt prices will hurt asphalt resurfacing projects more directly than overall new highway construction, he says, because the price of new roads includes items such as grading, base aggregates, and utility construction.

Where to look

What states look promising for road construction this year? "We expect California, Texas, Florida, and Georgia to be especially strong," says Badgett. "They seem to be very well funded and are issuing lots of contracts. California has passed some bond issues and has the funds to reinvigorate their highway program." By contrast, he sees weakness in highway markets in Tennessee and Virginia. In Illinois, Wisconsin, the Carolinas, and the Deep South, Badgett forecasts level highway funding for this year.

Koss Construction, above, applies curing compound to PCC pavement; the company expects Midwest concrete paving to remain constant. Right photo shows a Koss concrete batch plant.

If 2007 holds a challenge, Badgett says it will be to deal with a general economic decline that would be led by homebuilding. If that happens, he says Vulcan simply slows aggregate plants and cuts production.

All state transportation departments in the West are providing "a strong agenda of work," says Jim Roberts, a senior vice president at Granite Construction, Watsonville, California. Granite’s annual construction and materials revenues run about $2.7 billion. The company’s Branch Division garners highway construction and materials revenue of more than $1.6 billion, nearly all from states west of the Rockies. Granite does earthmoving, paves with both asphalt and concrete, and operates 57 asphalt plants.

Last fall, Granite projected that 2006 revenues would exceed those of 2005. Roberts was optimistic that publicly funded construction would show continued strength in 2007, but said private sector work slowed last year. Meanwhile, the prices Granite pays for cement and asphalt had leveled off, said Roberts, who is also the current chairman of the National Asphalt Pavement Association.

What’s Granite’s strategy for 2007? "We attack most projects that come our way," Roberts said. "We’ll do everything from a driveway to a highway project running into hundreds of millions of dollars." How are margins? Not good, if you got caught without escalation clauses. For most public sector work, he says agencies offer escalation clauses to cover liquid asphalt, and some have such clauses for diesel fuel as well.

A concrete paving project by Koss Construction, where president David Howard says the company will not work up to capacity this year.

Meanwhile, Granite’s backlog is healthy. In California, for example, the company is building a $400-million highway project in Orange County, an $80-million road project in Oroville, and a $70-million highway job in Merced.

Roberts said California recently began allowing 15% recycled asphalt pavement in many mixes, "and that was a great hurdle." He said the move is very positive from both environmental and economic standpoints.

In Georgia, Blount Construction annually performs about $12 million of full-depth in-place asphalt recycling, including some of the overlays that go with it. This year should see a 5% increase — possibly 10% — in full-depth recycling, says Blount president Garry Holton. The company works in Georgia, Florida, Alabama, Mississippi, and the Carolinas. "We go where the work is, because we’ve promoted this process over the years," Holton says.

Increased asphalt prices have not prompted the current strength in full-depth recycling business, he asserts. "People have become familiar with the process and they realize the savings they can gain from in-place recycling as opposed to complete removal and replacement," he says.

Alpha Milling, Denver, runs 10 Wirtgen milling machines, and will consider buying another mill for next year, says Larry J. Ware, president of the company. Last fall, he predicted that 2006 volume would rise to $7 million from $6 million in cold milling — and he hopes 2007 will be an $8 million year.

Ware agrees with Koss’s Howard that road agencies will not be able to afford the volume of work in 2007 that they did last year. "Dollar-wise, they’ll still be close to what they did in 2006," says Ware.  

Finding Answers to the High Cost of Binder

Rising asphalt cement prices are a nationwide problem. In Arizona, Governor Janet Napolitano has created a Material Shortage Working Group, co-chaired by Jed Billings, CEO of FNF Construction, to "help placate the sharp price increases seen in the industry lately." And in November, the National Asphalt Pavement Association convened a two-day national conference in Indianapolis to address the issue.

"We are working to convince owners to use more recycled asphalt to conserve virgin asphalt cement," says Deena Billings, business development manager at FNF Construction, a contractor based in Tempe, Arizona.

The use of reclaimed asphalt pavement can be a powerful way to stretch asphalt dollars. In a technical paper on the subject, J. Don Brock, CEO of Astec Industries, and co-author Jeff L. Richmond, Sr. cite some numbers to prove their point.

For example, assume that virgin mix costs to $21.40 per ton. Further assume that the only cost of RAP is $3.40 per ton for processing and trucking. The math will show that if you run a mix with 20% RAP, the producer would save $3.60 per ton of mix. But if you run 50% RAP, the savings are $9 per ton of mix — a substantial percentage of the material’s cost.

Another way to stretch hot-mix dollars is to reduce overlay thicknesses. This can work for aged pavement surfaces where you’re not trying to add structural capacity, says Brian Prowell, assistant director of the National Center for Asphalt Technology. However, as you reduce lift thickness, you need to reduce nominal maximum aggregate size to maintain a ratio of lift thickness to nominal maximum aggregate size of 3 to 4, and smaller aggregates typically require higher percentages of asphalt cement.

A hot-mix asphalt project by Koss Construction; recycling more asphalt can stretch hot-mix dollars.

For example, if you’re currently using a 1.5-inch lift with a 0.5-inch nominal maximum-size aggregate, Prowell says you can save liquid AC by going to a 1-inch lift with a 0.375-inch topsize aggregate. Or, you can even run a 0.75-inch lift with a topsize aggregate of 0.1875-inch. In Europe, these are called ultra-thin overlays and are typically proprietary to the contractor.

"You’ll use less mix and have about the same laydown costs," says Prowell. "That is an approach we would support, not simply reducing overlay thickness with the same nominal maximum aggregate size."