Should You Add a Price Escalation Clause to Your Next Contract

With a major supply shortage hitting the construction industry, that means a price increase on these supplies is on the horizon.

You never know when there will be a spike in prices on materials in the construction industry. This can make the cost of construction projects go up as well. To protect yourself, you should always add a price escalation clause to your next construction project.

The Reason for a Price Escalation Clause

To allow the adjustment of prices on materials from time to time, a price escalation clause is needed. This is an additional clause in a construction contract. Since price increases are unpredictable, a price escalation clause will protect you from paying the extra amount.

When prices on materials do increase, contractors shouldn’t be the ones held responsible for paying it. It is the responsibility of the project owner to pay these extra costs. But the only way to ensure that the owner will be held responsible for the extra costs is to include a price escalation clause.

How to Structure a Price Escalation Clause

The great thing about a price escalation clause is that it can easily be tailored to fit your project. As long as the clause is detailed and both parties agree, a price escalation clause can be very effective.

Always include a detailed list of what materials and tools are covered under the clause, as well as the baseline price of these items. The clause should always include how price adjustments will be calculated (oftentimes a percentage) and the minimum and maximum amount allowed to be charged during a price adjustment. In addition, the clause needs to cover the length of time of the price adjustment and the notification method to all parties.

The point of construction contracts is to protect all parties involved. If you are involved in a construction project and need to learn more about construction laws in your area, speak with a construction lawyer in Phoenix.

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