Construction Insight: Navigating Extreme Cost Escalation

March 18, 2022 – With the impact of COVID-19 and now the conflict between Russia and Ukraine wreaking havoc on global supply chains, construction materials have skyrocketed in price. Over the last two years, construction projects have faced increased costs of structural steel, lumber, copper, petroleum, and more, with prices of affected materials and resources rising as high as 75% to 300%.

As the construction industry continues to struggle with unpredictability, contract provisions governing cost escalation have garnered increased attention from parties that want protection against these drastic changes. These challenges are sure to be with us throughout 2022, so construction industry players on all sides should review their standard contracts to ensure they contain cost escalation considerations. The most common types of cost escalation clauses are:

Any increase – an “any increase” escalation clause provides reimbursement for any price increase that occurs after the contract is executed. Typically, this clause applies to specific types of materials.

Threshold – a “threshold” escalation clause allows for an increase in cost up to a certain amount or percentage, as negotiated by the parties.

Delay – a “delay” escalation clause allows for the recovery of increased costs incurred due to the delay of a project beyond a certain date.

The threat of extreme cost escalation will not be leaving us soon, so it is vital in today’s world that construction contracts contain suitable cost escalation provisions. Experienced construction counsel can help you make sure these clauses are included in new contracts and can assist in negotiating and revising existing agreements to prevent project disruption during these unpredictable times.

Ulmer’s Construction Practice Group is made up of experienced attorneys who have been operating in the construction industry for decades. Our time-tested team has handled almost every kind of legal issue that arises in the construction industry and can help you anticipate and manage risk in construction projects. Please reach out to our attorneys if you have any questions.

The information provided in this insight speaks only to the information and guidance we have available as of the date of publication and is subject to change. We will continue to follow further issued guidance and regulations and endeavor to post those updates via our website. Please continue to follow these updates at ulmer.com. This insight was created by Ulmer & Berne LLP, and is not intended as a substitute for professional legal advice. Receipt of this insight, by itself, does not create an attorney client relationship. For any questions, or for further information, please contact Jason P. Conte at jconte@ulmer.com.