Cost changes during contract

[hbiss]

What is the procedure for handling labor and material cost increases that occur during the term of a contract? I have a customer that wants a contract on a project that won't be ready for us for 18 months. Normally we only guarantee prices for 30 days with 50% up front to cover materials but that is usual for something we can start within a short period of time. In this case I wouldn't want to hold their money for 18 months (even assuming the 50% now will cover the material costs when the job starts) and I wouldn't want to purchase the material now, store it and be responsible for it.

I know there are escalation clauses that are usual in this situation but I am not familiar with how they work. Customer want's a firm price today for something a year and a half out and unless I really inflate the costs to cover myself there is no way I would be willing to do it.

-Hal

 

[Sparky555]

"In the event that an increase of at least 5% in the cost of materials occurs due to a delay through no fault of (Contracting Co), the Contract shall be adjusted accordingly in price and time commitment."

Wording may vary in your state.

Dave

 

[tyha]

I dont know what type of project is getting firm pricing 18 months out. Your labor rate will be different in 18 months just due to cost of living and inflation. I would quote it with todays price and put a clause in it stating that it is likely to go up. What type of project is it anyway?

 

[mdshunk]

Here's my escalation clause, which I think might have come from either NECA or ABC originally:

Notwithstanding any provision herein to the contrary, in the event that, during the performance of this agreement, the price of copper wire and cables, aluminum wire and cables, steel conduit and/or any other necessary commodities significantly increases, through no fault of MDSMS, the price of any materials, components, or goods to be furnished under this agreement shall be equitably adjusted by an amount reasonably necessary to cover any such significant price increases. As used herein, a significant price increase shall mean any increase in price exceeding three percent (3%) experienced by MDSMS from the date of the execution of this agreement. Such price increases shall be documented through commercial quotes, invoices, receipts or other such documentation. Where the delivery of materials, components, or goods required under this agreement is delayed, through no fault of MDSMS, as a result of the shortage or unavailability of commodities, raw materials, components and/or products, MDSMS shall not be liable for any additional costs or damages associated with such delay(s).

 

[mdshunk]

I dont know what type of project is getting firm pricing 18 months out. Your labor rate will be different in 18 months just due to cost of living and inflation. I would quote it with todays price and put a clause in it stating that it is likely to go up. What type of project is it anyway?

That's easily forecast, unlike commodity items.

 

[mdshunk]

Consequently, some escalation clauses have administrative fees associated with them, to compensate for your time poking on the calculator. I haven't found the need for administrative fees, myself.