Contractors know that material prices are certain. The certainty is that they will change upward. The uncertainty is by how much. The industry continues to struggle with this new problem. Not too long ago, it wasn’t a problem. We also thought the same about insurance, fuel and worker’s compensation. It is a new world with more risk than ever.
What to do about material cost escalation. Should we tuck in a contingency in our bids or proposals? Should we try to hold suppliers accountable for a hard unit price? How about making the client share some of the risk. Certainly, they are buying our craft skill. This craft skill is rare and we could negotiate a better contract if we are willing to say “pass” to contracts that don’t help us with this ominous problem.
Material price escalation language is slowly creeping into contracts. Some construction firms are receiving material escalation allowance language. Some are using another tactic; they are trying to receive “material escalation” clauses in their agreements.
Material allowance allows contractors to state a set amount of a material cost in their contracts. As an example, the total cost of copper of in their bid. That number say $140,000 is compared to the final cost. If the number is less the owner receives a credit. If it is more then the contractor receives extra compensation.