Prices of Highway Resurfacing Projects in Economic Downturn: Lessons Learned and Strategies Forward

Abstract

It was observed that economic downturns were typically associated with oil price shocks. Based on historical construction data from highway resurfacing projects in Kentucky, this paper investigates the relationship between oil price, Kentucky diesel price index (KDPI), Kentucky asphalt price index (KAPI), and construction cost of highway resurfacing projects. It was found that the bidding price of a commonly used asphalt mixture was significantly affected by four factors: KDPI, KAPI, number of bidders, and a recession factor primarily attributable to the “sticky prices” effect. The KDPI and KAPI can be estimated from the oil price by regression models. The sensitivity of the asphalt mixture and resurfacing project costs to oil price variation was analyzed. On the basis of the analysis result, it is suggested that the highway agencies may avoid the oil price peak typically preceding a recession and take advantage of the oil price plunge after the recession starts. However, in the long run, the agencies and the highway construction industry need to find a solution that is less dependent on oil products.