COST ESCALATION POSES SERIOUS THREAT TO INDUSTRY
The Covid-19 pandemic has had many serious implications that no one ever expected, including price escalation in construction projects. Cost escalation issues are increasingly becoming an issue for our STA member subcontractors. I am hearing complaints on a weekly basis now from our members regarding the unyielding position that public agencies are taking on price escalation for materials and supplies, especially for previously bid and delayed because of the pandemic.
In the spring of 2021, supply chain disruptions started leading to increased costs associated with construction projects. Those increases have remained in place and have been exacerbated by national and world events which have impacted the global economy. Overall, the price of construction materials jumped nearly 20% in 2021. For example, the Producer Price Index for steel mill products rose over 127% over the last 12 months. The index price for plastic construction products climbed 34% and lumber and plywood rose 12.7% and 17.6% respectively during the same period. Proposed tariffs could send prices for these materials even higher, and you can bet that the current uptick in inflation will have a negative impact in this area as well.
Prospectively, subcontractors should be especially careful in the review of their contracts as it relates to cost escalation at this time. Contact your attorney to review force majeure clauses in your contract and consult with them on language that protects you, increasing the baseline price in the event of cost increases. If drafted well, a price escalation clause may protect the contractor’s interest.
The STA has recently set a course on advocating for its members where escalation issues for previous and prospective public agency contracts are concerned. The STA will be working with other associations to explore state legislative remedies that would provide protection for contractors in this area. Specifically, the STA is reviewing recently drafted legislation by the AGC and will be exploring the possibility of retroactive relief as well as prospective protection for contractors where escalation costs are associated. We will keep you posted regarding the progress of these legislative efforts and the prospects for their enactment in Albany.