Ongoing global uncertainty and supply chain pressures continue to drive significant volatility in the cost of key construction inputs. Fuel, steel, asphalt cement, and other essential materials are experiencing swings that are difficult – if not impossible – to predict at the time of tender.
For contractors delivering Ontario’s transportation infrastructure, fuel price fluctuations are not just an operational challenge; they ripple across the entire supply chain. Aggregates illustrate this clearly: up to 60 percent of their cost is tied to transportation. When fuel prices shift suddenly, the cost of moving these essential inputs rises immediately, placing pressure on project budgets and timelines.
Unlike many industries, construction operates on fixed-price contracts secured months or even years in advance. When input costs change dramatically, contractors are left managing risks that could not have been reasonably anticipated – an especially acute challenge for small and mid-sized employers.
Most municipal contract models place the full burden of this uncertainty on contractors at the time of bid. This dynamic can lead to higher upfront pricing, reduced bid accuracy, and a greater likelihood of claims during project delivery. Over time, this approach risks reducing competition and introducing avoidable uncertainty into public infrastructure programs that will drive up project costs.
A more balanced approach is available.
TARBA is encouraging Greater Toronto Area municipalities to adopt proven risk-sharing tools—such as fuel cost adjustment indices—that are already working effectively in several jurisdictions:
- Ministry of Transportation (MTO): Monthly Fuel Cost Adjustment Index with a ±5% threshold
- City of Ottawa: Application of the MTO index with a 7% fuel allotment and a ±15% threshold
- Region of Waterloo: Annual fuel adjustment for multi-year contracts, with ±10% threshold
These models align costs more closely with real market conditions, supporting more accurate bids and fostering a healthier, more competitive procurement environment.
Municipalities can further strengthen outcomes by streamlining procurement timelines. Reducing the gap between bid closing, award, and project start helps ensure pricing reflects current conditions, minimizing the need for contractors to include contingency premiums.
Fuel price volatility is driven by external forces beyond the control of any single party. By adopting shared risk mechanisms, municipalities and industry can work together to improve pricing certainty, reduce disputes, and enhance project delivery.
Greater stability benefits everyone: more competitive bids, better value for taxpayers, and timely delivery of the infrastructure communities depend on.
TARBA looks forward to continued collaboration with municipal partners to ensure infrastructure programs remain resilient, efficient, and responsive to today’s economic realities.