Price Escalation Clauses in Construction Contracts: Mitigating Risks for Owners, Contractors, and Subcontractors
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
Intermediate
- work Practice Area
Real Property - Transactions
- event Date
Tuesday, July 25, 2023
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
-
This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will discuss how the rapidly rising price increases for materials and supplies affect the construction industry and what steps all stakeholders can take to mitigate risks from those changes. The panel will address how specific construction contracts allocate liability, when force majeure or change orders may provide relief, and best practices for drafting a price escalation clause in your subsequent construction agreement.
Ms. Paoletti is a franchise and construction law attorney at Garcia & Milas, P.C. Ms. Paoletti represents and counsels a diverse group of clients, including developers, owners, corporations, associations, design professionals, general contractors, and subcontractors in her commercial and construction law practice, as well as franchisees and franchisors in her franchise law practice.
Ms. Paoletti’s practice includes litigation; dispute resolution; contract drafting and negotiation; preparing documents related to land acquisition and land use; preparing purchase and sale agreements; reviewing leases; preparing, reviewing, and advising on Franchise Disclosure Documents; and providing general business advice.
Mr. Byrom is certified by the Texas Board of Legal Specialization in Construction Law and has substantial experience in both construction and civil litigation. His practice includes a broad range of construction matters, including lien and bond claims under the Texas Property and Government Codes, project delay and disruption claims, change order disputes, construction defect claims, and breach of warranty. Mr. Byrom also has experience representing all sides of these disputes, including owners, contractors, subcontractors, architects, and other design professionals.
Mr. Garcia advises and represents corporations, associations, owners, general contractors and subcontractors in his commercial and construction law practice, franchisees in his franchise law practice and individual plaintiffs with contract and tort based claims.
Mr. Garcia was named to the New England Rising Stars list as one of the top attorneys in New England in 2018 and 2019.
Mr. McChristian is certified by the Texas Board of Legal Specialization in Construction Law and his practice covers the full life cycle of complex design and construction projects in the private and public sectors. He frequently drafts and negotiates design and construction contracts, including EPC agreements, design-build agreements, BOP agreements, and master service agreements. Once a project enters the execution phase, Mr. McChristian is often asked to aid in resolving project performance issues that impact the cost of the work, the time required to complete the work, or the quality of the work. In those situations where an early resolution is not achieved, he represents his clients in the mediation, arbitration, and litigation of complex design and construction claims and disputes.
Construction costs have fluctuated significantly in the last few years. Builders and owners are more frequently facing busted budgets and complex negotiations, sometimes resulting in litigation over which party is responsible for absorbing the increased costs.
The answer to resolving disputes likely lies in the provisions of the construction contract, whether it is a cost-plus or fixed-price agreement. The initial decisions on structuring a construction project may determine which party--owner or contractor--bears the burden of future price increases.
Construction counsel should also consider when significant price increases trigger a force majeure clause. Traditionally, a force majeure clause excuses a contractor's performance for catastrophic or otherwise unanticipated events identified in the contract, such as extreme weather, war, strikes, and changes in the law that would make performance impossible. Counsel should review specific provisions in the force majeure clause to determine the potential for equitable relief.
As an alternative to force majeure, construction counsel and stakeholders may consider reducing risk with change orders based on the commercial impracticality of the price increase. Some courts have found that unforeseen price increases can be significant enough to merit an adjustment or reformation of a contract. But other courts have been less sympathetic to this type of market-driven argument.
Some contracts include a material price escalation clause that allows the parties to adjust the price based on an agreed-upon metric. Establishing these types of savings clauses if material prices decrease beyond a certain threshold can be a useful incentive to facilitate the inclusion of an escalation clause in construction contracts.
Listen as our expert panel provides guidance on this issue and best practices for navigating construction material price increases to mitigate risks and costs for all stakeholders.
- The current state of price escalation
- Types of construction contracts and price liability
- Cost-plus
- Fixed-price
- Guaranteed maximum
- Force majeure
- Limitations
- Type of relief
- Limitations
- Change orders
- Price escalation clauses
The panel will review these and other key issues:
- How does the type of construction agreement affect the liability of owners versus contractors and subcontractors?
- When can a force majeure clause be used when materials have increased significantly in price since beginning the project?
- Would a change order provide enough equitable relief in material price escalation?
- What should a properly drafted price escalation clause include?
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