Builders who were Boy or Girl Scouts will be familiar with NAHB’s current advice: Be prepared. With quarantines and stay-at-home orders in place, builders may run up against disruptions in the supply chain or with contractor availability. NAHB suggests that they review contracts for escalation clauses that will account for changing material costs due to decreases in supply. Without one, builders, contractors, and suppliers may run into trouble if prices soar and they are unable to recoup the cost.
The coronavirus pandemic has caused many disruptions and may well impact residential construction in the coming weeks or months. Last week, California issued a far-reaching “stay-at-home order” for its 40 million residents. This order is required except for those needing to get food, take care of a relative, or go to an essential job in one of 16 sectors specifically identified. Other states and cities are following suit.
With this most recent development, companies should evaluate their businesses, including their contracts, and be prepared for the possibility that building materials prices may increase as a result of supply chain disruptions.
As part of an overall contract assessment, one of the most efficient ways to address unexpected price increases in building materials may be to use an escalation clause. If you do not already include an escalation in your contracts, consider adding one.