Are Price Escalation Clauses Needed?

Kegler Brown Construction Newsletter

Dramatic recent construction material escalation costs, particularly in steel, have created hardship for many in the industry and caused some contractors, subcontractors and suppliers to consider placing a condition in their bid proposal or contract protecting the bidder from these costs, such as:

"In the event of significant delay or price increase of material, equipment, or energy occurring during the performance of the contract through no fault of the contractor, the contract sum, time of completion, or contract requirements shall be equitably adjusted by change order in accordance with the procedures of the contract documents. A change in price of an item of material, equipment, or energy will be considered significant when the price of an item increases ____ percent between the date of this contract and the date of installation."

While such a clause could be readily utilized on negotiated private work, there is considerable doubt that such an escalation clause could be used on public work where a bid must be responsive to the bid solicitation. It remains uncertain whether a differing condition or equitable adjustment clause could be utilized on public work to support an unexpected material cost increase.