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Industry Alert – Rising Construction Costs Impacting the Development and Construction Industry

By April 29, 2021June 29th, 2021No Comments

A perfect storm of factors has led to unprecedented increases in construction material costs.  As Americans were forced to sit at home during the Pandemic, the market for home improvements skyrocketed.  Coupled with the already volatile international materials market, weather issues impacting production plants in Texas, and a booming real estate market, the downward pressures on material supplies have become even more acute.

On the residential side, housing prices increased 12% in the month of February alone, the largest single month growth in nearly two decades.  Lumber has reached record prices and miscellaneous metals continue to spike in price.  Given the recent lockdowns, the industry has no timeline for when supply will catch-up with demand.

The Associated General Contractors (AGC) went so far as to issue a Construction Inflation Alert to call on political leaders to immediately address these issues by reducing tariffs and quotas in certain key construction sectors.

So, what can parties do to proactively address material cost increases?  If you know the issue will impact a particular project, address the problem ahead of time in your contract documents.  Include clauses that mandate a certain price point, material cost increases must be compensated as a change order.

Likewise, address potential schedule impacts with impacted lead times through the contract process by mandating that the contractor will not be held liable for delays and liquidated damages related to material supply-chain disruptions.

If your contract is already underway, immediately notify your customer of potential impacts and begin discussing compensation as a potential force majeure item.  Communication is key.  Notifying your customer early of these issues improves your chances of an amicable resolution.  The late notice is a losing proposition for all involved.

For more information on this please contact Principal Attorney Colin McCarthy, ckmccarthy@lanak-hanna.com.

The information contained in this post has been prepared by Lanak & Hanna, P.C. for educational and informational purposes only. It does not constitute legal advice, nor does it substitute for legal advice.

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