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contractors in bidding on a contract. This competitive
advantage, the difference between petitioner's cost of asphalt
and the price other paving contractors have to pay for asphalt,
is passed along to the customer. If petitioner marked up the
asphalt, it would have no competitive advantage in bidding on
contracts. On some jobs, petitioner purchases asphalt from third
parties. In bidding on contracts where asphalt is purchased from
third parties, the asphalt is also bid at cost.
Over the years, petitioner has developed its own method for
determining the profit necessary for a normal job. This method
is to charge approximately $3,000 for a full paving crew for 1-
day's work. This $3,000 per day will cover petitioner's office
overhead and provide sufficient profit to keep petitioner in
business. The base $3,000 per day figure is then sometimes
modified depending on competitive conditions. If petitioner is
very busy or has some other competitive advantage such as
location and is requested to bid on a job, petitioner may bid
substantially higher than $3,000 per day. Conversely, if
business is slow, or for some other reason, petitioner may bid
substantially below $3,000 per day to get the job. Whatever the
job, asphalt is always priced at cost, and the income earned on a
particular job or contract bears no relation to the amount of
asphalt used.
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Last modified: May 25, 2011