Ask an Attorney: Can I Use a Price Escalation Clause In My Construction Contract?
With the impact of COVID-19 wreaking havoc in the supply and demand chain, construction materials have skyrocketed in price, and in some cases, have caused painfully long lead-times for materials. Contractors skilled and experienced in quoting a fixed fee or a guaranteed maximum price (GMP) are leery giving such quotes without some cushion to absorb the risk in these steep price increases. As a result, many contractors have been scrambling to put price escalation clauses in their standard construction contracts. These price escalation clauses give the contractors the cushion they need to move forward with a project.
Ask an Attorney: Leaving Disputeville
“The best laid plans of mice and men go oft awry.” – Robert Burns
The above quoted line from Robert Burns’ poem “To A Mouse” is often quoted. A translation of this famous passage for modern day contractors would be: no matter how carefully and thoroughly a project is planned, something may still go wrong. Even in the best planned projects, often unanticipated things go wrong before a project can be completed. Suddenly, the unpredictable occurs. One day your project manager calls you and says that while excavating the site, a fully intact Tyrannosaurus Rex skeleton is uncovered. Or, a pandemic sweeps across the globe forcing your workforce to quarantine and placing the entire project on hold. Undoubtedly, these occurrences, which could not have been predicted, impact a contractor’s bottom line, potentially converting an otherwise profitable project into potential financial disaster. “But surely the owner will agree to pay my company additional compensation for this,” you may say to yourself. But, when you submit your claim notice and/or change order request, the owner says, “Oh, no, no, no.”
