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Office of the Administrator
April 8, 2004
Mr. Neil J. Pedersen
Through: Nelson Castellanos
Dear Mr. Pedersen
Thank you for your April 2 letter regarding the impact of recent steel price increases on the Woodrow Wilson Bridge Project. We have been working with the American Association of State Highway and Transportation Officials and the industry to evaluate the extent of the price spike and ways of addressing the problems it is causing.
We have long supported, but do not mandate, the appropriate use of price adjustment clauses in future contracts for steel and other products when they can reduce contingencies in construction bids and provide for an equitable adjustment of costs that may increase during the life of a project. However, our policy has not allowed the use of price adjustment clauses for existing contracts, as you requested for the Woodrow Wilson Bridge Project.
After a careful review of the issue in light of recent price increases, we have concluded that we are legally prohibited from approving the use of Federal-aid highway funds for retroactive price adjustment clauses in existing contracts. At the same time, we recognize that such clauses may be needed in some cases. Therefore, we would not object to a retroactive price adjustment clause for the Woodrow Wilson Bridge Project if the State can clearly demonstrate the following:
We will advise all State transportation departments of this clarification of our policy on retroactive price adjustment clauses.
I appreciate your letting me know how the price spike in steel is affecting the project's contractors and structural steel fabricators. Division Administrator Nelson Castellanos will be pleased to work with the State if you decide to proceed with a retroactive price adjustment clause in accordance with the necessary restrictions.
Please let me know if I can be of further assistance.
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