When you work as a contractor, one of the issues you may find is that materials cost more than when you originally bid the project. If you don’t have a material escalation clause in your contract, you could end up paying for that extra cost yourself impacting your profits on the project. It’s important to protect your interests on anything you’re constructing.
Here’s what you should know about material escalation, so you can make the right choice in the wording of your contracts. This will help you protect your profits and financial future.
What is a Material Escalation Clause?
A material escalation clause is a provision in a contract. It states that a particular construction job will cost a certain amount for materials, but that the cost of those materials may rise (escalate). If prices rise, the price of the overall contract can also rise by a specified amount, the actual escalated cost or a percentage.
This clause is a way to ensure that you’ll receive the money you’re owed for the project, even if it ends up costing more than you originally bid.
What is an Example of a Material Escalation Clause?
As an example of a material escalation clause, the contract might be written such that if there is a significant price increase, which could be defined by percentage, for example an increase larger than 5% for the material, then the contractor can submit a change order to the owner or general contractor to cover such prices increases.
Further, the clause may require that the original price and increased price are documented through quotes, invoices or receipts.
Are Escalation Clauses Legal in California?
A California material escalation clause is legal, when written properly. It has to meet guidelines for how much the price can rise, and it needs to be worded clearly. If you’re a contractor who wants to have this kind of clause incorporated into your contracts, it’s important to work with a construction attorney to protect your interests. Quality legal representation reduces the chances that your contract will be unenforceable and helps protect your legal rights.
Ready to update your construction contracts, so you have more security and peace of mind? Reach out to Lanak & Hanna today, to get the information and representation you need. We’re here to help.