Dealing With Inflation In Your Construction Contracts And Bids

Inflation hits all of us hard, and no industry is immune to the effects of rampant inflation. But there are few industries that get hit harder with inflation, than construction does. Margins are tight, profits slim, and when a product or material ends up costing more than it should, it can eat into profits, and cause havoc on a construction project.

Rising Inflation is Rarely a Legal Excuse

Absent some massive economic collapse, simple rising inflation-or even somewhat significant inflation-is not “force majeure” to get out of, alter or cancel a construction contract. In other words, rising inflation is not some unforeseen, unexpected act of god (in legal terms), the way that, say, an earthquake, or a global pandemic may be.

It also does not make your contract impossible to perform, or give any legal right to get out of an otherwise fully negotiated and agreed to agreement (that is, unless a material that you need is wholly unavailable). In fact, when it comes to government projects, the government recently said that it will not give any equitable alteration of contracts, where the construction contracts or bids don’t allow for them.

Workarounds and Inclusions in Your Agreements for Inflation

That’s why it’s important to negotiate your construction contracts in advance, with an eye as to what to do if the materials and equipment you need suddenly spike in cost.

One workaround may be to alter the way the project is constructed to do it in a way that requires less material. This is, admittedly, a shortsighted solution-inflation won’t always be high-but in some cases, cutting down on elaborate plans, or altering plans to include materials that are in wider supply, or which tend to be more immune to inflation shifts, may be an option.

Another, more practical way of dealing with inflation increases, is the inclusion of price escalation clauses. These are provisions in contracts or bids for government projects which say that should the price of a good or material spike above a certain level, that owners will pay a bit more.

Why would an owner ever agree to this? Because there is often also a clause that provides the owner a savings, should the price of materials or needed equipment go down in price.

Use Clear Terms

When you do include provisions in your agreement that deal with inflation, make sure to use concrete, objective terms. Allowing for a price increase for “volatile” inflation doesn’t tell anybody what such an inflation spike actually is, or when the rights of the parties are actually altered. Likewise, saying that an alteration is possible when a “vital material” goes up in price, doesn’t give anybody any guidance as to what that is.

Call our Fort Lauderdale construction law lawyers at Sweeney Law P.A. at 954 440-3993 for help in drafting your government contracts and bids

Sources:

supplychaindive.com/news/material-costs-escalate-construction/608693/

governmentconstructionlaw.com/wp-content/uploads/sites/688/2022/06/Department-of-Defense-Memorandum-re-Inflation-and-Economic-Price-Adjustments.pdf