How can project owners and contractors safeguard the project, their budget and their business?
After COVID-19 struck in 2020, the cost of construction and building materials skyrocketed, driving up project costs. According to the Associated General Contractors of America, the price of construction materials jumped nearly 20% in 2021. This increase came on top of an almost 13% jump during the first year of the pandemic.
At the same time, extensive delays resulting from supply chain setbacks, logistics jams and a labor shortage have all impacted contractors and project owners. Even geopolitical instability and tariffs affect materials supply and pricing.
These factors raised legal concerns among construction project owners and contractors alike regarding which party bears the burden of increased costs and project delays. It should not be surprising that both parties want the same thing – that the other take on the risk of construction cost increases.
- Most contracts now include government-mandated shutdowns, health emergencies and pandemics in their “force majeure” clause language. This clause excuses performance in the event of delays if the contractor is impacted by events outside of their control.
- Post-Covid contracts often include provisions that stipulate that the bid price is only good for a specified and limited period.
- Anticipating a materials price increase due to possible serious delays, some contractors automatically inflate their estimates.
- The contractor also may inflate the contingency line item in its bid to act as a buffer against cost increases.
To read the full article by Jaqueline G. Vogt click here.