Few things can dampen the thrill and promise of a newly closed construction deal than the realization that it could quickly become a losing proposition for the contractor depending on economic and other conditions. In an era of instant information, constantly adjusting markets and political extremes, projects that start under one set of assumptions or conditions can occur or conclude under much different ones. While no one has a crystal ball, there are contractual provisions that can provide clear guidance in the face of many “what ifs” that can arise in construction.
One of the chief concerns a contractor should have in a project lasting more than a few months is what impact price increases will have on the profitability of the job. On a true cost-plus project, this may be of little concern, but on any project with a limitation on costs or a guaranteed maximum price, contractors should insist on a procedure to revisit the limitation or price if certain conditions change.
This can be as simple as allowing the contractor to receive an upward adjustment in the price if costs increase by more than a certain percentage. It can be as complicated as requiring multiple new bids and disclosures to the property owner, architect or project manager and allowing approval of new suppliers or subcontractors to limit cost increases to the cheapest increase. The protection—and certainty—to the contractor though, comes from having a process in the contract to address cost increases, whether it is simple or complex.
Reprinted courtesy of Jason Lambert, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.