Generally, a material price phasing clause entitles a contractor to a change order when the price of certain types of materials increases between the time the bid is submitted or the time the contract takes effect and the time the contractor orders the equipment. The amount of additional compensation that the contractor can claim can be based either on the actual price of the material in relation to the amount included in the offer, or on the use of a commodity index to calculate the increased amount. While in the past it was sometimes overlooked, escalation clauses are now given priority in contracts. Note that it is common for force majeure relief to be limited to time extensions only. If this is the case, you can apply for an extension of time that can help you cope with extended delays related to materials, but you are not entitled to financial relief for price scaling. (4) How is the basis for the price adjustment communicated to the other party? Is there a specific date on which this notification must be made from the date on which the basis for a price adjustment occurs? Some contracts include a significant price scale clause that allows the parties to adjust the price based on an agreed measure. The measure could be, for example, the difference between the price indicated at the time of submission of the offer and the price of the material on delivery if the price change exceeds an agreed threshold. This provision can also serve as a savings clause if material prices exceed a certain threshold, which can be a useful incentive to facilitate the inclusion of an escalation clause in your contracts. Here are some examples of material price scale clauses included in contracts: Understand that the adjustment clause shifts the burden of rising costs from the contractor to the client or from the subcontractor to the general contractor, depending on the circumstances. As with any other contractual provision, the adjustment clause is negotiable or can be rejected altogether. Since this clause, like any other clause in a construction contract, has legal effects, it is essential that a lawyer drafts the project-specific clause or at least reviews the contract before submitting it for approval to ensure that the rights of the contractor or subcontractor are protected as much as possible. Cost management, especially for large projects, is essential to maximize profitability.

The escalation clause is a method to achieve the desired result. 7) Does the Contractor obtain an extension of the supply of equipment due to delays in delivery or hardware failure? Global steel production has slowed in response to the COVID-19 pandemic. Although prices initially fell in early 2020, they rose steadily due to pandemic-related mining disruptions during the year`s delay. In 2021, there has been another price escalation in response to ongoing supply shortages and growing demand from a global economy that is currently preparing to recover from the pandemic. Polyvinyl chloride (PVC) prices have risen steadily over the past six months, increasing by nearly 40% since the beginning of the pandemic. Recent storms in Texas have caused new spikes in PVC prices and led to shortages, as the state is the source of most of the locally produced PVC resin. Steel reinforcement prices increased several times in February and currently exceed $700/tonne; that`s $150/tonne more than a year ago. The following chart of Tradingeconomics.com (in Chinese yuan/tonne) shows this dramatic increase. 8) What supporting documents must be provided to justify the price adjustment? Whether you`re following financial headlines or checking recent delivery invoices, one thing is clear: material costs are rising and are far from slowing down as the rate continues to accelerate. Contractors are under increasing pressure to provide the price of materials high enough to cover rising costs, but low enough to remain competitive. The pressure becomes intense.

Ferrous and non-ferrous metal prices have risen significantly over the past year, for the same reasons: scarcity. 2) Are all documents included in the clause? Some materials may be excluded if they are not expected to increase. These exclusions limit the scope of the clause and the corresponding risk. Alternatively, only certain elements may be included in the clause if certain prices would increase or if a certain increase in a particular input (wood or steel) would alter the economic considerations of the project. ESCALATION OF MATERIAL COSTS: If, in the course of performance of this Agreement, material costs increase significantly through no fault of the Contractor, the price of this Agreement shall be adjusted by an amount reasonably necessary to cover such a significant increase in material costs. As used in this document, a significant increase in material costs means any increase in material costs that the contractor undergoes more than ____% from the date of contract signing. Such an increase in material costs should be documented by quotes, invoices or receipts. .