Fuel costs, funding gap, strain road builders as construction season comes to a close
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LANSING - Rising oil and gas prices - along with long-running funding gaps - continue to strain Michigan's road contractors.
Lance Binoniemi, the vice president of government affairs at the Michigan Infrastructure and Transportation Association, said contractors already faced sharp price increases that started with the COVID-19 pandemic in 2020 and trended high through 2023.
Based on his estimates, he said prices have flattened since then.
The association represents over 600 companies that build roads, bridges, water lines and sewers. Its members include small local operators and some of the state's largest construction firms.
Higher costs have not stopped projects, Binoniemi said. But they have slowed some of them as some work now spills into the following year.
Despite recent increased tariffs on steel and aluminum, the biggest financial pressure comes from fuel, Binoniemi said.
"Our members use a lot of oil through the [construction] process, whether it's running equipment or transporting materials back and forth to the job sites - just a lot of oil that's being burned," Binoniemi said.
According to the American Automobile Association, the current average for diesel runs about $6.51 a gallon in Michigan.
Contractors typically bid on public projects based on future projections of fuel costs.
"When those future projections are off, which they were this time, and prices get a little bit higher than they had foreseen, that dips into their [profit] margins," Binoniemi said.
Road agencies rely on a low-bid system and award contracts to the lowest bidder that successfully meets a project's requirements.
"We're in a very competitive state when it comes to road construction," Binoniemi said. "They really have to sharpen their pencils when prices are high."
After a bid is accepted, the expenses can still add up.
"They still have to perform the amount of work that's being done for the price that they did that project for," Binoniemi said. "Regardless if fuel prices have increased, the project cost is still going to be the same."
The impact of increased oil and gas prices vary by company.
Binoniemi said some stockpiled by purchasing oil in advance during lower price periods. Those that have won contracts using projection pricing have suffered when it comes to actually purchasing the oil, he said.
Even with higher oil and gas prices, some smaller companies have fared better than might be expected, Binoniemi said. Smaller companies are finding that the volume of work has allowed them to keep up with the increase in prices.
According to Joceyln Garza, the deputy director of public affairs for communications and media relations at the Michigan Department of Transportation, oil prices are currently not impacting construction overseen by the department.
Those prices were locked into the accepted bids for the 2026 construction season, Garza said.
Exact impacts of recent oil and gas prices for projects under the department will not be available until after bids for 2027 construction projects are complete, she said.
Binoniemi said a dry summer also helped contractors control expenses. During most summers, rain can lead to crews losing days and scrambling to finish as fall comes to end.
Funding for current projects is another major concern.
Last year, the Legislature passed a $1.85 billion road funding plan.
"It's a good start," Binoniemi said. "But it's far short of the $4 billion that's needed."
Other funding sources have run out of money or are in limbo, he said. The state's $3.5 billion bond from 2020 lasted only four years, while the federal Infrastructure Investment and Jobs Act ended this past September.
"There's still a massive need for more money in the system," Binoniemi said. "But right now, things are pretty good."