On October 18, 2021, Ken Roberts was quoted in Construction Dive on navigating price-escalation clauses to deal with the rapid escalation of material prices, a crisis that revved up last spring and shows no signs of slowing down for at least another year.
According to the article, until this year, many contractors were unfamiliar with material price-escalation clauses, which allow construction firms to pass on a percentage of procurement price increases to owners so they can build smaller contingencies into their bids and give owners an opportunity to share in savings if prices drop. These clauses specifically address volatile price increases, as opposed to force majeure clauses, which excuse parties from contractual obligations due to catastrophic or unforeseen events but may include only time extensions, not monetary relief.
No matter what, said Roberts, price-escalation clauses must be crystal clear, spelling out exactly how both parties will share the extra burden when material prices increase by a mutually determined amount and specifying substitutes if materials are unavailable.
The impact of COVID-19 and supply-chain disruption on subcontractors and contractors, Roberts added, "goes directly to the quality of their contracts and the reasonableness of who they’ve contracted with." Owners who refuse to share the risk during the contracting stage aren’t likely to get any easier to work with once the project commences, Roberts warned.
"You're working with someone who doesn't want to work with you to find a fair compromise. The second you know that, put on your battle armor," he said. "You are really taking a risk on that contract. I hope to God, for that risk, you have adequately priced it."
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