With the uncertainty of materials prices roiling the construction industry, subcontractors need to take steps to protect their companies. The cost of construction materials already is outpacing inflation, rising 3.8 percent between January 2017 and January 2018. The Trump Administration’s tariffs on steel, aluminum and other construction materials also add to the volatility. Documents included in ASA’s Subcontract Documents Suite include tools that can help subcontractors deal with price volatility in materials. The first step a subcontractor should consider to protect the firm from price volatility is to limit the duration of the bid’s validity. For example, ASA’s Subcontractor Bid Proposal limits the validity of the bid to 30 days. A subcontractor also can include a provision requiring an equitable adjustment to compensate for rapidly increasing materials prices. For example, ¶3 of the Subcontractor Bid Proposal states:
“A change in the price of an item of material of more than 5% between the date of this bid proposal and the date of installation shall warrant an equitable adjustment in the subcontract price.”
By including such language in its own bid proposal, a subcontractor has reserved the right to reject egregious language in a prime contractor’s proprietary subcontract and to negotiate this and other acceptable changes or to walk away from the project.
Once a prime contractor sends a proprietary subcontract to the subcontractor with unacceptable price escalation language, a subcontractor may want to include in its own addendum or its subcontract markup language such as that in ¶2 of ASA’s Subcontract Addendum, which states:
“A change in the price of an item of material of more than 5% between the date of subcontractor’s bid proposal and the date of installation shall warrant an equitable adjustment in the subcontract price.”