Asphalt Price Escalation in Ontario: What Contractors and Owners Need to Know
The Challenge of Asphalt Price Volatility
Asphalt cement is one of the most price-volatile materials used in Ontario’s construction industry. Because its cost closely tracks crude oil markets, prices can change rapidly, creating significant financial risk for contractors working under fixed-price or lump-sum agreements.
The Ministry of Transportation of Ontario (MTO) tracks asphalt cement pricing through its Performance Graded Asphalt Cement (PGAC) Price Index, which is widely recognized as the industry benchmark for measuring changes in asphalt cement prices. Between 1992 and 2007, the MTO Tender Price Index increased at an average annual rate of approximately 4.4%, more than double the rate of general inflation. More recently, post-pandemic supply chain disruptions and continued energy market uncertainty have contributed to even greater price volatility.
Without appropriate contractual protection, those fluctuations can quickly turn a profitable project into a financial loss.
How Contracts Address Price Escalation
The Ontario Provincial Standard Specifications (OPSS) are standardized technical specifications developed by the MTO and incorporated into public infrastructure contracts across Ontario. For hot mix asphalt work, the OPSS include price adjustment mechanisms designed to account for fluctuations in asphalt cement prices over the course of a project.
These mechanisms track changes in the MTO PGAC Price Index between the time a contract is tendered and the time the work is performed. When the price changes beyond a specified threshold, the contract price is adjusted in accordance with the applicable formula.
Most public infrastructure contracts incorporate the OPSS price adjustment mechanism. As a result, contractors are generally protected from significant changes in asphalt cement prices.
Private contracts are different. Outside the public procurement context, entitlement to a price adjustment depends entirely on the wording of the contract. Unless the parties expressly include a price adjustment mechanism, contractors generally have no automatic protection against increases in asphalt cement prices.
What the Courts Have Said
The courts have consistently held that entitlement to additional compensation depends on the wording of the contract.
For fixed-price contracts, the default position is well established. In HMI Construction Inc. v. Index Energy Mills Road Corp., 2017 ONSC 4075, the court held that a fixed-price contract generally prevents a contractor from recovering additional compensation for increased material costs, even without an express exclusion. By agreeing to perform the work for a fixed price, the contractor assumes the risk that market prices may rise during the project.
Where a contract includes a clear price escalation clause, however, courts will enforce it. In Dexter Construction Company Ltd. v. Nova Scotia (Attorney General), 2011 NSSC 441, the Province's delay in approving construction pushed paving work into the following year, during which asphalt cement prices increased from $345 to $510 per tonne. Although the Province argued that pricing should remain fixed as of the tender date, the court interpreted the escalation clause in light of the parties’ intentions and held that the contractor was entitled to recover its actual increased costs.
Importantly, the wording of the clause remains critical. In D&M Steel Ltd. v. 51 Construction Ltd. and Jing Yin Temple, 2016 ONSC 1335, the contractor relied on language stating that its price was "valid for 30 days only" and "subject to change based on market value." The court found that this wording did not establish when a price adjustment would be available or how it would be determined. As a result, the clause was too ambiguous to create an enforceable right to additional compensation, and the contractor's claim was dismissed.
The Bottom Line
Contractors should ensure their contracts account for the volatility of asphalt prices before work begins.
Price escalation clauses should clearly define when an adjustment is available, how it will be calculated and what evidence is required to support a claim. Doing so reduces the risk that contractors will be forced to absorb the cost of rising asphalt prices.
HOW WE CAN HELP
RAR Litigation advises contractors, subcontractors and owners in Ontario’s construction and infrastructure sector on contract risk, procurement disputes and price escalation claims. We assist clients in assessing contractual risk, negotiating appropriate protections and responding strategically when disputes arise.
Contact us for strategic advice, risk assessment and litigation representation.