SHIFT THE RISK AND BURDEN OF ESCALATING MATERIAL COST TO OWNERS

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CONTRACTORS

SHIFT THE RISK AND BURDEN OF ESCALATING MATERIAL COST TO OWNERS



The cost of work involving installation of materials made from concrete, steel, drywall, flooring, etc., fluctuates. Material costs can creep up slowly or increase rapidly. Rapid escalation of construction materials can make it difficult for contractors to provide accurate and competitive lump sum/fixed priced bids.

Contractors sometimes have a built-in cushion within its bids for potential increases in material costs. However, predicting the fluctuation of material costs isn’t easy and your bid may not be competitive with other bidders.

Obviously, the contractor’s profits decrease if the cost of the materials go up between the time the lump sum contract is signed and the time the work commences [which can sometimes be many months later].

Unless you SHIFT THE RISK AND BURDEN OF MATERIAL ESCALATION COSTS TO THE OWNER

Your contract agreements must have a provision shifting the risk and burden of material escalation to the owner. After-all, the Owners do own the materials and should not be get away with having the contractor pay for portions of their materials. However, unless you have a provision shifting the burden of material escalation to the owner, you may find yourself paying for the cost of the owners’ materials.

Below is a risk shifting provision that can protect contractors:

In the event, the cost of materials increase after execution of this contract, through no fault of the Contractor, the contract sum shall be equitably adjusted by change order in accordance with the change order provisions within the contract documents. A material increase is defined as: a change in price of an item of material that increases ____ percent.

Obviously, fill in the blank above before signing the contract.






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