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The Contractor Coaching Partnership Blog

Contractors: use escalation clauses to protect against price increase

Posted by Mark Paskell on Tue, Apr 16, 2013 @ 09:15 PM

Contractors are seeing material costs escalate at an alarming rate. A local Mass Lumber yard told us they have seen costs escalate over 25% since the January, 2013. They expect to see more increases before the end of 2013. Just compare your material slips from last November to now.

Don't Do It! You deserve to charge what you are worth!

Many consumers are dusting off the old proposals they obtained from contractors last year and are calling to book work. Contractors who did not put a clause on their proposal that limits how long it is valid are having a hard time with consumers who are looking to book the work at last year's price. Our advise to you is do not take the job if your costs increased unless the consumers agree to the increase. There is a lot of good work on the market so do not take a job at a loss. If you looking to save a job and need some help on how to deal with the consumer you quoted last year contact me.

Next add a a few clauses to your contract and proposals that limit how long your proposal is good for. Based on the volatility of the market we suggest you make your proposals good for only 10 days. Or a clause that says your acceptance is subject to verification with your supplier that prices have remained the same.

Escalation Clause

Definition for escalation clause from a provision in a contract calling for adjustments, usually increases, in charges, wages, or other payments, based on fluctuations in production costs, the cost of living, or other variables.

We suggest you add an escalation clause in your contract to protect against price increases in materials and labor. Material costs are forecasted to increase significantly by year's end. After you write your clause we recommend that you have it blessed by your attorney just to make sure your are in line with good practices. (note: any contract clauses or wording should be approved by your attorney before use),

Labor Increase

Don't forget about labor increases. There is a significant shortage of qualified labor and as the market heats up workers will want more money for their services. Carpenters and laborers are quickly jumping ship from low paying contractors to higher ones. As subs get busy you will see their prices increase as well.

Hope you have a great a prosperous spring!

Tags: escalation clause