Construction & Public Contracts Group, Hinckley Allen, LLP
Christopher Morog Partner
Robert T. Ferguson Partner
Navigating Supply Chain and Material Escalation Cost Issues: Ongoing Projects As you are all well-aware, supply chain and material escalation cost issues have hit the construction industry hard. Many contractors are receiving letters from vendors and suppliers providing notice of anticipated shipment delays or cost increases, followed by claims seeking affirmative relief. While there are ways to manage these types of issues when negotiating new contracts, contractors are asking: how do we handle these issues on our ongoing projects? Unfortunately, there is no easy or universal answer. This is a highly fact-dependent question that must be addressed on a case-by-case basis. However, the analysis usually starts with the contract documents.
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t the risk of sounding like a broken record, the specific terms and conditions of the applicable contract documents are absolutely key. Contractors that purchase supplies, materials, or equipment using their own form agreements may well have provisions addressing shipment delays or price fluctuations. In such a case – and depending on the strength of the contract – contractors may have solid contractual bases to respond to their vendors/ suppliers. For example, contractors may be able to use “flow-down” and incorporation-by-reference clauses to assert claims against vendors/suppliers in the event of shipment delays. In addition, some contracts explicitly prohibit recovery of escalation costs. Other clauses – like force majeure provisions, liability caps, and liquidated damage provisions – may also be relevant, depending on the facts. All too often though, contractors – sometimes unknowingly – accept their vendors’/suppliers’ terms and conditions, either by signing third-party purchase order forms or by incorporating quotations into their contracts. In some cases, vendors/suppliers will use quotation and invoice forms stating that the transaction is subject to terms and conditions that are DECEMBER, 2021
not actually provided to the contractor (with a promise to make the terms available upon request). As you can expect, vendors/suppliers customize their own terms and conditions to afford relief in the event of supply chain issues or price fluctuations. As a result, it is critical to review the contract provisions applicable to the transaction. In some cases, there may be more than one set of terms and conditions at play, creating a “battle of the forms” scenario. In other instances, general contract requirements may continued on page 41
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