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Nov. 15, 2022

Include Materials Price Escalation Clauses in Construction Clauses

By Robert Alfert, Jr.

Construction Executive

In an article authored for Construction Executive, Orlando-based partner Robert Alfert, Jr. discusses the impacts of the pandemic on the construction industry, including shipping delays, materials availability and inflation. Despite the uncertainty, however, Alfert said demand for critical infrastructure and housing, among other projects, remains high. 

To contend with these issues, he said the number one issue in construction contracts has become how parties handle inflation and materials cost escalation in existing contracts and in negotiations for new contracts. 

"Hard lump sum and guaranteed maximum price contracts are a thing of the past, at least for the near-term future," he said. "The current reality is that qualified contractors, subcontractors and suppliers are not likely to provide firm or hard quotes without some form of relief to fairly allocate the risk of inflation."

Alfert goes on to outline contract options as well as considerations for addressing the risk of materials price escalations. 

"Tremendous change has occurred in construction contracts over the last two and a half years, especially in the force majeure and contract price relief context, and it does not appear that 2023 will revert to prior practices," he said. "If anything, the market continues to reveal a certain degree of volatility that justifies the parties continuing to apply a more conscientious and customized approach to how they handle the allocation of risk and liability."