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CLIENT ALERT
August 3, 2021
The recent fluctuation of construction material prices has posed unprecedented challenges for well-planned and executed projects. Economists and industry professionals have identified several contributing factors including COVID-19-related shutdowns, lingering tariffs and quotas, increased demand from single-family homeowners, and instances of materials hoarding or price-gouging. The ripple effects ext beyond skyrocketing costs to potential delays due to limited avlability or rationing of crucial materials.
To navigate through these challenging times, there are two primary strategies avlable: allocating the risk via contractual provisions or taking proactive measures to mitigate impacts on projects.
Historically, businesses have included clauses in their international contracts for managing fluctuations caused by exchange rates. These flexibleoffer valuable lessons applicable here:
Contractor-at-Risk: The contract remns unchanged regardless of material price hikes and delays caused by material unavlability.
Supplier-at-Risk: The supplier agrees to absorb potential cost increases beyond a pre-agreed threshold.
Joint Risk-Sharing: Both parties share the costs related to materials, with adjustments made based on certn criteria like market indices or actual price changes.
Timely Communication: Establishing robust communication channels ensures that material suppliers promptly inform general contractors about any impacts and owners are aware of potential delays.
Contract Flexibility: Review existing contracts for clauses that might allow adjustments in response to unforeseen events, such as force majeure or hardship provisions.
Diversified Supply Chn: Identify alternative suppliers domestically or even internationally who can provide the needed materials at competitive rates.
Pre-Ordering: Lock in prices by pre-ordering significant amounts of materials well before they are required for installation.
Substitution Strategies: Consider proposing alternate materials that offer similar performance characteristics but are more readily avlable.
The unprecedented volatility in material costs and avlability is prompting some developers to reconsider or delay construction projects due to economic uncertnties. Those proceeding with ongoing projects face the risk of increased costs, schedule disruptions, and potential disputes. However, through proactive planning, careful contract management, and diligent negotiation strategies, these risks can be significantly mitigated.
Please reach out for specific legal advice if required:
Jonathan [email protected]
Kevin [email protected]
Brownstein Hyatt Farber Schreck, LLP is committed to providing comprehensive guidance and support during these challenging times. This document serves as an overview of current issues and potential solutions; for specific legal advice or further detls on the topics discussed herein, please contact us.
: This document provides general information about recent fluctuations in construction material prices but does not constitute specific legal advice. For any questions or need for tlored legal advice, please contact our attorneys listed above.
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Construction Material Price Fluctuations 2021 Risk Allocation in Contracting Projects Proactive Strategies for Project Management Economic Uncertainty and Building Costs Supply Chain Diversification Tactics International Contracts for Material Protection