L E G A L LY S P E A K I N G Supply Chain Woes Don’t Have to Be Contracting Foes: Tips to Navigating Price Escalations by Melissa Ogburn, Hall Booth Smith, PC
As I was talking to a friend the other day, he reminded me that it was not all that long ago that subcontractors were able to offer price guarantee estimates and bids. Now, it seems like materials costs are increasing on a weekly, if not daily, basis. How can we effectively estimate a project that is going to take longer than a week to construct, he asked. That got me thinking of some of the more recent contracts I have seen and revised, and some of the provisions we have crafted to handle the emergent problem of material cost shortages and price escalations.
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To start, we can all acknowledge that the COVID-19 Pandemic has brought not only new challenges to the construction industry, but it changed the way the business is conducted altogether. As businesses and economies shut down in an effort to stop the spread of the virus, disruptions erupted across supply chains, including industry-wide material shortages. All across the United States, construction trades have been affected, and still are. Materials are in short supply and when materials are available, their delivery is often delayed. The inadequacy of supply has led to rocketing and volatile
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prices, making estimating new jobs a near impossibility. In an effort to control their own costs and budgets, contractors and property owners have historically been reluctant to agree to contract provisions that allow for fluctuations in pricing during the course of construction. Where materials are available and pricing is stable, offering not-to-exceed pricing or guaranteed pricing may be achievable. On the other hand, subcontractors and construction trades may not be able to absorb gross fluctuations in pricing and
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