The construction season is underway, and work is in full swing. While that work moves ahead, the realities of inflation have been unavoidable.
Since the start of the year, the price of diesel has climbed substantially. Continuing to pay that much more for fuel has been difficult for many of our members under the existing contracts they have with the Ministry of Highways, which has estimated the increase to be around 69 per cent.
Now, there is a conversation happening about what to do about this situation. Recently, the Ministry of Highways presented our association with some proposed adjustments to the fuel escalation clause. Since the start of the year, the ministry has been reviewing prices and policy and exploring potential options for updating the policy and the budget impacts of those possible updates. Then, in late March, there was a standard practice bulletin posted that directed that interim diesel fuel adjustments be calculated and applied monthly to improve contractors’ cash flow. But, at that time, no formal changes were applied to the policy.
Then, in June, the ministry began a process to review options – with industry – for updating and expanding the diesel fuel adjustment. The risk associated with the cost of diesel is shared by the ministry and contractors, but not all types of work or components of work are eligible for the adjustment. Not all diesel consumed on a project is included.
This shared risk will continue, but the ministry is open to taking on a greater share of the risk. The ministry has proposed expanding the scope of work to include additional types of work. It is also looking at the consumption rate and applying the existing consumption rates more broadly in some areas of work. It is also looking at better options to address fuel consumption for haul. Then, there is payment. The ministry is using a monthly adjustment to apply interim adjustments in advance of a final calculation.
While the ministry has some ideas, it had asked for industry to provide input on a few questions:
- Are the work types eligible for the diesel fuel adjustment appropriate?
- Are the proposed and existing consumption rates relevant? Do they adequately reflect the nature of the work being performed?
- Is the method of calculating and applying the diesel fuel adjustment sufficient “as is”?
Our industry has reviewed the proposal and a number of SHCA members provided additional improvements they would like to see beyond what the ministry has proposed.
We provided actual figures and examples of how the industry has been impacted by the escalation in diesel fuel. We’ve also asked for compensation for our members that currently provide asphalt concrete products that go into making the binder materials for crushing, micro-surfacing, paving and more. Then, there are the various types of work that also consume diesel fuel that the ministry didn’t include in its presentation, such as rock excavation and hauling used for dirt excavation. Finally, we will be working with the ministry on revising the industry consumption rates to reflect more realistic figures. It should be reasonable and fair to both industry and government. The deadline for comments was July 8.
The ministry is aiming to complete any updates to the diesel fuel adjustment by Aug. 15 this year in order to include them in all fall tenders. Changes through the supplemental agreement will be applied retroactively to the active contracts back to Jan. 1.
I know the current situation is not sustainable for our industry and this is a crucial conversation for many of our members whose future depends on this situation being addressed by government. We appreciate all of you who have contributed your input so that we can provide government accurate and meaningful information to ensure changes address your real need.