Skyrocketing diesel prices are reverberating through the construction industry, leading contractors and subcontractors to boost their bids as well as project cost increases.

“It’s significant,” said Mike Salsgiver, CEO of the Associated General Contractors‘ Oregon-Columbia chapter. “(Diesel) prices have effectively doubled or more since March. So, it hits the economy overall and the industry badly.”

For contractors and subcontractors, the costs are unavoidable. Diesel runs nearly everything on a typical jobsite, from backhoes and excavators to dump trucks and cranes. Diesel also powers the cargo ships, trains and trucks that bring building materials to a site.

Diesel fuel in Oregon averaged $6.04 per gallon at retail on Tuesday, according to AAA‘s Fuel Gauge Report. That’s up 46.5 percent from a year ago, when prices hovered close to $4 a gallon. Retail prices have dropped recently, down about 21 cents per gallon in the past month.

There’s little that contractors can do to avoid paying higher diesel costs, Salsgiver said.

“The work is the work,” he said. “We’re always making strides on making equipment more efficient, but (for avoiding costs), the immediate answer is not really.”

Project owners are noticing the effects. In April, the Oregon Department of Transportation paid contractors about 1 percent more than expected if fuel prices had remained unchanged.

ODOT uses a “fuel escalation/de-escalation” clause in its contracts. Contractors do not have to build in extra costs to cover fuel price increases after they submit a bid. Instead, ODOT adjusts payments after a project begins construction based on a monthly fuel price index.

“We expect prices to change, and our contracts make allowances for price fluctuations,” ODOT spokeswoman Katherine Benenati stated in an email message.

ODOT paid $4.66 per gallon in May, up from $2.51 a year earlier — a nearly 86 percent increase.

If prices remain high, the situation could eat into project budgets for major multibillion-dollar projects such as the Interstate 5 Rose Quarter Improvement Project, and the efforts to replace the Interstate and Burnside bridges.

Diesel price spikes are likely to hit large road and infrastructure projects the hardest, said Macrina Wilkins, director of market insights for AGC of America. That’s because diesel is used in the manufacturing processes for road materials, in addition to the work itself.

So far, AGC is tracking a modest escalation in costs.

“What we’re seeing is a slight uptick in the price of a bid or project,” she said.

Energy prices grew 10.1 percent in March and 7.8 percent in April, according to the Bureau of Labor Statistics‘ Producer Price Index.

“I would expect — as with any supply shock — you might see it begin to trickle into other areas,” Wilkins said.

Adding to contractors’ caution is the uncertainty of the United States’ ongoing conflict with Iran, industry officials said. It’s not clear when oil will resume flowing through the Strait of Hormuz at normal rates.

Salsgiver said he expects this price spike to endure longer than the 2022 disruption caused by Russia’s invasion of Ukraine.

“This one is dragging out a lot longer,” he said. “Certainly, as long as the situation in Iran is what it is, it’s going to last a while.”

Salsgiver added, “I’m not an economist, but I talk to economists, and they do not see an early end to this price spike.”

Contractors have so far largely taken the increased costs in stride. Dan Drinkward, vice president at Hoffman Construction, said the effects are hard to discern by general contractors. Subcontractors may notice the price spike first, he said.

“I would expect it to be a driver of escalation,” Drinkward said, adding that it’s only one component of increased costs across the industry. “For the most part, it’s a second-degree driver of escalation.”

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