What Does Hurricane Katrina Mean to Your Company?

Kegler Brown Construction Alert

Beyond the obvious tragic personal and financial impacts associated with the unprecedented disaster on the Gulf Coast, there may well be a "ripple effect" on the Ohio Construction industry that should be anticipated by local contractors, subcontractors and suppliers.

Many remember the impact of escalating steel and other material prices over the last few years. Contractors experiencing unanticipated dramatic price increases often found no relief as the doctrine of "impracticality" required satisfying a tough to prove standard that the material was unavailable at any price.

With damage to certain manufacturing and shipping facilities and labor and materials expected to flow to the Gulf in unprecedented numbers (and the possibility of an Executive Order directing that) to assist in the reconstruction, material price increases or shortages may occur and wise contractors may want to consider inserting price escalation clauses in bid proposals and contracts.

An example of a price escalation clause is as follows:

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

Only if a contractor reserves the right to seek an equitable adjustment of the contract sum in the event of unanticipated or excessive price increases will a contractor preserve the ability to avoid assuming a disastrous loss. Now is the time for preventive action before it is too late.