Every day, the construction attorneys at Cohen Seglias are approached by clients as to how to address the current crisis due to the significant fluctuation in pricing in construction materials, equipment, and energy. Whether the product in question is steel, copper, glass, or lumber, we have seen prices rise since the re-opening of the economy, with some commodities hitting a 100% price increase according to some indices. Who is responsible for the burden of the price increases?
Unfortunately, like with COVID-19, owners, construction managers, contractors, and subcontractors are all arriving at different answers.
The Construction Contracts & Risk Management Group at Cohen Seglias has prepared sample notice letters for use on jobs where construction has or is about to resume under pre-existing contracts. We are also providing you with language to add to your change orders and monthly releases. Also, we have included sample language to place in your contracts and proposals to help protect you in the event of a future price escalation. These are extremely difficult clauses to negotiate.
The claims arising out of contracts with a no escalation clause are even harder to prosecute. It is, therefore, our suggestion that the parties to any construction contract discuss the process and proofs needed to calmly deal with this situation, which is outside of the control of all of the parties. These are unusual times, and they call for out-of-the-box thinking. Even though there may be a right by contract to refuse an escalation change order, an owner must recognize that a contractor defaulting due to a bankrupt subcontractor is highly unlikely to complete a project on time. Instead, we hope that a little sharing of the risk now will save all parties a lot of unnecessary losses and attorney’s fees later.