Do you remember 2021? That’s when contractors faced sudden increases in material prices that stuck them with huge cost increases and, in some cases, long delivery delays.
The summer was a disaster for homebuilders dealing with lumber prices amid the pandemic. And you needed nerves of steel to buy steel as costs rose and delivery times couldn’t be locked in.
With President-elect Donald Trump making tariffs a foreign policy priority, it’s a good idea to seek protection in case price spikes return in the short term, he advises. Attorney Kenneth E. Rubinstein. He urges contractors to negotiate to include material price escalation clauses in new fixed-price construction contracts, which could have helped during the first Trump administration and the pandemic.
“I haven’t gotten into the deep economic analysis yet,” explains Rubinstein, “but if Trump moves forward with a 20 percent tariff against a country in general, we could see prices go up” for materials from a specific country and then unpredictable. responses from domestic sources of the material.
Rubinstein, along with his colleague at the law firm of Preti, Flaherty, Gregory L. Silverman, offered detailed advice on how to deal with material inflation in an ENR commentary that appeared in October 2019 , 1,000 days after the first Trump administration, but six months before the Covid. The -19 pandemic supply chain crisis added fuel to already smoldering inflationary fires.
Rubinstein
Contractors who didn’t price out suppliers before rates were announced generally have had to bear the brunt, lawyers wrote at the time, since most standard contracts don’t allow them to recover costs more resulting highs.
Buying the project early has some drawbacks, Rubinstein and Silverman noted, which limits the ability to take advantage of price drops.
But materials cost escalation clauses, the lawyers explained, generally allow a company to obtain a change order to increase the contract price, or the maximum guaranteed price on an at-risk CM project, when the price of ‘a particular material rises above an established one. percentage, usually 10%. This still requires the contractor to bear the burden of ordinary and typical price fluctuations, but allows for relief in the event of significant increases that neither party anticipated when the contract was signed, they wrote.
“Some owners may object to the price escalation clause, feeling that contractors are in a better position to hedge against risk because they can subcontract early to avoid potential cost increases,” Rubinstein wrote. and Silverman. “But many landlords readily allow such clauses to be part of the contract.”
After the material price increases from 2021 to 2022, there were some patterns in the litigation that followed as contractors tried to recoup their losses. “A lot of private developers, who are institutional clients,” Rubinstein noted last week in a phone call, “gave some relief to contractors, often out of goodwill. But public owners can’t give that relief by law, and they have a duty to the public and the right to enforce performance.”
“If you do a search for litigation stemming from Trump’s tariffs,” Rubinstein said, “you’ll find case after case where the contractor didn’t get relief.”
