Material Price Escalation Clause’s

Good Afternoon,

There has been much discussion about the rising cost of materials and the fact that there is so much work and not enough labor, some contractors are 4, 6 or even 12 months out from time of bid until they can start a project. For those jobs that were bid months ago and contractors are now mobilizing, the cost increase on the materials is devastating. As a result, I have reached out to numerous FMCA member contractors to discuss how they are handling the issue and below are two varying ideas. **Disclaimer, please do not consider this to be legal advise, you should still consult with your corporate attorney to determine the best route for your business**

As part of the contract: includes a cancellation clause as well for both contractor & property owner
“Price Escalation Clause
The construction industry continues to experience rapid price increases of raw materials. We are no longer able to absorb these escalating price increases. If, during the performance of this contract, the price of the materials increases by more than 5%, the price of the contract will be adjusted accordingly.

If it becomes necessary to increase the price of the contract, you will be notified and have the option to terminate the contract by providing within five (5) business days a written notice. If terminated, your deposit will be returned less expenses and permitting costs of $_______________.

In the event there are additional costs incurred which exceed your deposit amount, you will be provided an invoice with such costs to be paid.

– This agreement and any subsequent project description order made pursuant to it may be terminated at any time by mutual agreement, or as may be provided for in any project description order. Either party may terminate this agreement immediately for cause or by giving thirty (30) days written notice. In the event of termination, owner shall pay for all services performed and disbursements made by the contractor up to the effective date of
termination.”

or verbiage included on the proposal. This contractor’s will not accept a down payment at time of accepted proposal to avoid being contractually obligated.

“*** Note to Customers: *** The proposal provided is based upon current costs and availability of materials. Due to COVID 19 we may experience increases in material costs that are beyond our control. We will address this with you prior to beginning your project if it is necessary.”

I have read contracts in the past that had a clause similar to the first, however it stated if there was a change of + or – 5%, the material cost will be adjusted for the project prior to work commencing and obtain approval from the owner for the increased/decreased cost of materials.

If you have suggestions or would like to discuss the above further, please feel free to reach out to a Board Member. The fluctuation in material cost is substantial and the Board recommends all contractors include a clause in your proposals and/or contracts that will protect themselves from having to absorb the additional cost or risk a law suit.

Looking forward to questions, comments or suggestions.

Respectfully,
Kelly White
Executive Director