Safeguarding Construction Profits: A Quick Guide to Implementing Escalation Clauses

Navigating Material Cost Volatility in Construction

In the ever-changing world of construction, material cost volatility poses a significant risk to business operations and profitability. It’s essential to devise a comprehensive strategy to mitigate the impacts of these price fluctuations. This strategic planning safeguards your business and ensures that your customers receive a reliable and steadfast bid or estimate.

The Challenge of Commodity Price Fluctuations

The construction industry, particularly with regard to commodities like lumber products, is highly susceptible to price variability. This unpredictability can significantly challenge our collective endeavors in the building sector. A crucial mechanism for shielding your enterprise from the adverse effects of rising costs is the implementation of an “escalation clause.”

The Rise of Escalation Clauses

Recent findings from the National Association of Home Builders (NAHB) indicate that approximately half of the builders have incorporated such clauses into their contracts over the past year. This trend underscores the critical nature of proactive measures in protecting your margins and business sustainability against the whims of the market.

Don’t Leave Your Profit to Chance

Avoid the pitfall of leaving your financial success to the mercy of market fluctuations! We encourage you to follow our monthly Lumber Commodity Report HERE and explore a sample Escalation Clause document available HERE.

Key Materials to Include in Your Clause

Consider specifying materials that are often subject to price volatility, including, but not limited to:

• 7/16” OSB
• ½” CDX Plywood
• Dimensional Lumber such as 2×4 & 2×6 Doug Fir and Pressure-treated Wood
• Metal Roofing and Siding
• Composite Shingles
• Composite/PVC Decking
• Engineered Lumber Products, including I-joists, Glulams, and LVLs

Important Disclaimer for Contract Drafting

It is imperative to note that the sample clause provided is for informational purposes only and may not universally apply to all contractual scenarios. Precision in crafting any contractual provision is paramount, and it is advisable to seek legal expertise to ensure compliance with applicable laws and the customization of contract terms to suit specific agreements.

Continued Support for Your Business

We are committed to supporting your success by supplying quality materials and offering resources designed to enhance your business’s efficiency and effectiveness. Let’s continue to navigate the complexities of the construction industry together, equipped with the right tools and knowledge to thrive amidst market dynamics.