The Dotted Line: Careful Wording of Contracts Can Combat Price Escalations
By: Joe Bousquin
In a recent Construction Dive article, Lisa Wampler discusses how the reality of current market conditions gives contractors leverage. Lisa said, “Even though there may be a contractual right to refuse an escalation change order, the customer has to recognize that major material price increases can bankrupt a contractor, and that finding a replacement who can procure the same material at lower prices is unlikely.” She continued, “The customer and the contractor need to work together like they did with COVID-19 related delays and expenses. If the parties are most interested in getting the project done on time and at a reasonable price given the circumstances, there are ways to do so as long as the parties communicate and work together.”
Rising materials prices make it more important than ever for contractors to limit risk in their agreements with owners.
This feature is a part of “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.
As supply chain disruptions and material pricing volatility continue to rattle the construction industry, the timeline for when contractors might see a return to normalcy has only grown murkier.
For example, 73 ships were waiting to unload cargo off the coast of Southern California last week, according to the Wall Street Journal, while on the other side of the country, 20 vessels were anchored off the Port of Savannah. All of them were delayed due to cascading logistics snarls from earlier in the pandemic that have yet to work their way through the supply chain.
At the same time, material prices continued to escalate, with the Associated General Contractors of America issuing the fifth update to its Construction Inflation Alert report this year on Friday. It highlighted that overall construction input costs — the price to build a job — have risen 27.8% since April 2020, while steel mill products have skyrocketed 111%.
