Price Escalation Impacts
July 1, 2022 Leave a comment
A Forum on Key Legal Issues for Design Professionals, Contractors, and Developers
July 1, 2022 Leave a comment
This Bulletin provides guidance to contractors, subcontractors, suppliers, and others to ensure compliance with contractual change order requirements in the event work on a construction project is impacted by price escalation.
Construction projects are being impacted by increased costs for most construction materials. The Producer Price Index shows a 69% increase in the cost of construction materials from March 2020 to March 2022. Many construction contracts do not address escalation or specifically exclude change orders for material escalation, leaving the risk of escalation of construction materials with the contractor, subcontractor, or suppliers.
Bid Protection Tips:
Contract Protection Tips:
We also recommend that you check all contracts for an Escalation Clause, which will compensate you in the event there are increases in raw material or equipment costs. Look for a clause like this:
Material prices, including construction materials, are based on current prices at the time of the Proposal. Any significant price increases (meaning a price increase exceeding (10%) in materials necessary to perform the work, that occur during the period of time between the date of this Proposal and Substantial Completion of the Project, shall cause the contract price to be equitably adjusted by an amount reasonably necessary to cover any increase. Further, if material or equipment required by the contract are not available due to shortage or unavailability or if the price to procure such material or equipment increases as set forth in this provision, then an acceptable substitute shall be found and an adjustment in the contract price shall be made accordingly. Contractor shall be entitled to an extension of time for any delay in obtaining delivery of the item necessary for completion of the Work.
Additionally, define unavailability to obtain materials as an excusable delay or force majeure event in the contract.
If the contract does not include an escalation provisions, you should revise to include a provision. Check the Prime Contract to see if escalation has been addressed. If so, the owner and the contractor should not object to including an escalation provision in downstream contracts.
Supply Protection Tips:
Price Escalation Action Items:
If you experience a price escalation impact, it is imperative that you comply with the notice provisions of your contract and track your actual time and damages:
For questions, contract Denise M. Motta.