New Jersey Price Escalation Statute Enacted   by Stephen Winkles

in Real Estate / Construction    (submitted 2010-12-07)

Effective January 12, 2010, a new law was enacted that impacts the Local Public Contracts Law. It includes a provision for asphalt and fuel price escalation. The legislation attempts to resolve a long standing problem that exists due to extreme price fluctuations for the supply of oil during certain periods of shortage.

Any bid specifications prepared under the Local Public Contracts Law that includes the use of 1,000 or more tons of hot mixed asphalt shall include a pay item for any asphalt price adjustment reflecting changes in the cost of asphalt cement. Similar legislation applies for a fuel price adjustment.

In the past, public entities have been extremely reluctant to provide contractors with change orders due to price escalations. Public entities have a need to predict and ensure that costs will not escalate during the course of a project. However, since the year 2000 energy prices have fluctuated and accelerated at different intervals, causing much uncertainty in public bidding. Affecting everything from the price of oil to asphalt, contractors that committed to long term projects were susceptible to the swings of the commodities markets. With public entities routinely denying requests for additional compensation due to unforeseen and dramatic increases in the energy markets, many contractors faced losing money on projects, or even going out of business. The new statute looks to resolve these issues.

This legislation is particularly important to utility and site work contractors that typically have asphalt restoration as part of their work. The UTCA was instrumental in having the legislation passed as a majority of their contractors are often hit by fuel and asphalt price fluctuations. This is especially so during periods of oil shortages and supply interruptions worldwide, where prices have been known to increase upwards of 300%.

The legislation is effective May 1, 2010.

About the Author

Mr. Winkles has broad experience representing owners, construction managers, general contractors and trade contractors in all stages of the construction process. This experience includes familiarity with contract negotiation and drafting, contract administration, construction litigation and and dispute resolution. Mr. Winkles has argued appeals on construction and bidding issues in New Jersey and in New York, and has handled litigations in the Federal Courts.