Guinn: Steel shortage problem averted

Monday, May 3, 2004 | 11:28 a.m.

CARSON CITY -- Gov. Kenny Guinn says the state has reached a deal to avoid a threatened slowdown on state construction projects due to the skyrocketing price of steel.

The governor said the state Transportation Department and the state Public Works Board will write into future contracts an "escalation clause" that will allow higher payments to contractors when the price of steel rises more than expected.

Two weeks ago representatives of the Associated General Contractors of Nevada warned Guinn that many future government projects may not receive bids because of the large jump in steel prices that rose more than 60 percent in the first three months of this year.

With the agreement, if the price of steel declines, then the state will pay less, Guinn said.

John Madole, executive director of the contractors' organization, said there is "still some risk but I think the state has attempted to balance the continuation of the job and reduce some of the exposure of some of the people bidding."

"We appreciate the fact they are attempting to address the problem so we can continue to get public works projects delivered on time and in budget," Madole said Friday.

The first state contract to have the price adjustment clause is a state Transportation Department deal to pay for the widening of U.S. 95 in Las Vegas east of Valley View Boulevard to west of Jones Boulevard.

Transportation Director Jeff Fontaine said this project includes sound walls and storm drains that use a considerable amount of reinforced steel or rebar. He said the department, using national figures, will set the "benchmark" price of steel when the bids are opened. Later when the contractor purchases the steel, the state will then examine the cost to calculate the change.

The state will pay anything above a 10 percent rise in steel prices, up to a 75 percent jump, Fontaine said. In other words, if the price of steel is 15 percent above the "benchmark" when the bids were opened, the state would pay 5 percent more.

Conversely, when the price goes down more than 10 percent, the state will pay less, using the same method, he said.

Not all state construction contracts will have a steel-price escalation clause.

On a typical highway job there is very little steel used, Fontaine said.

But there is a lot of rebar used on bridges, poles to hang signs on and sound walls.

Contractors said the price of scrap steel soared from $150 a ton last fall to more than $300 a ton. In addition, steel-producing companies added surcharges that rose from $20 a ton in January to $90 a ton in March.

The contractors complained that they would bid a project and by the time they signed the contract, the price of steel had risen far in excess of what they bid.

Guinn said existing contracts would not be changed. And he said the major bridge projects of the Transportation Department that require a lot of steel, are already under contract and will not be changed. Madole said, "We understand the difficulty of changing existing contracts" and added that national and international events have prompted the problem.

"There are some people with existing contracts that have considerable exposure," said Madole. "People who have been in the business for 50 years say they have never seen increases like we experienced between January and early April."

The governor said the price of some of the projects might rise but he did not expect it to be a budget breaker for the state.

Madole said it seems that the price of steel may have leveled off but "other critical materials such as copper have gone up." He said there is still a risk for the contractors.

Guinn also said the state will also speed up the time between the awarding of the contract and the final approval. "None of this six weeks or eight weeks to get it signed," said the governor. "We're going to get it signed immediately so they can move quicker because they set those prices weekly in the market. "