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COVID-19 materials escalation clause

New JerseyCoronavirus

Hi, I'm working on a residential remodel contract for a $300,000 renovation. I'm adding a COVID-19 rider to cover us against stop work orders, supply chain fluctuation etc. I've been considering adding an escalation clause to the effect that if items that cover a large area of the project site such as framing lumber, sheetrock, flooring, etc run over 10% more than projected costs then the owner is responsible for the difference. I can see framing lumber has gone up 15% since I bid on the project. My only concern is that this is the first bid I have done, and I don't want the owner to feel nickel and dimed and lose the contract. I built in a 20% markup based on materials and labour so I think if some of the relatively low cost items like framing lumber run higher it might still be ok, but if much higher ones - kitchen cabinets, or doors run 15% higher it will be bad for us. Any suggestions on whether I should add an escalation clause and how best to phrase it?

1 reply

Jul 28, 2020

Unless you have language in the existing contract which clearly passes the risk of pricing increases onto the customer, that may a tough sell. Clients sign construction agreements relying on the price to secure the associated financing, etc. If you were talking about how to change the contract for future projects, you could always bid projects labor only. You don't get the mark-up on materials, but your core profit is much less at risk. 

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