ConsensusDocs Tariffs and
Price Escalation Resource Center

Tariffs, construction labor unavailability, and supply-chain disruption continue to cause unprecedented price uncertainty and schedule delays. This volatility threatens the financial viability of constructors, trade contractors, and suppliers. Recently announced tariffs will blow past owners’ business case for many projects and cause overruns from estimates by architect and engineers.

The best but not singular solution to tariffs and other price uncertainty is a well-drafted price escalation clause. ConsensusDocs, the leader in best practice standard construction contracts, has compiled the resources below to address price escalation. Moreover, ConsensusDocs is the only publisher of standard construction contract documents to offer a standard price escalation clause -- the ConsensusDocs 200.1 Material Price Escalation Amendment and Schedule A. Even if tariffs were not an issue, you should always consider the use of a price escalation clause before signing your next construction agreement.

A material price escalation clause adjusts the contract price based on a particular metric, usually an objective index. One of the more challenging aspects of drafting a price escalation clause is choosing a reliable material price index that specifically and accurately addresses the prices involved in a specific project. Below are some indexes that are available for construction.

Owners, constructors, and subcontractors alike should consider price escalation/de-escalation clauses in these uncertain times.  The ConsensusDocs 200.1 Standard Time and Price Impacted Materials Addendum and Schedule A is available in all paid subscriptions. Rather than guessing to price out cost fluctuations, owners and builders would be wise to consider a best practice price escalation clause, which allows costs to go up, or down based on an objective index as the baseline. Hope is not a risk management strategy.

Constructors, subcontractors, and materials suppliers typically bear the risk for cost increases in a firm-fixed or lump sum agreement, even if such increases are unforeseen and not their fault. However, supply shortages could give rise to excusable performance delays, but paying higher costs for material supplies is usually considered a business risk. Some additional mitigation strategies include limiting the amount of time a bid can be relied upon; using cost of the work agreements (i.e., ConsensusDocs 230 or 500) rather than lump sum agreements (i.e., ConsensusDocs 205 or 751); breaking projects into phases; providing allowances or alternates for materials; early procurement and storage of materials (see the ConsensusDocs 750.1 Storage Rider); prefabrication (see ConsensusDocs 753 Prefab agreement); or increasing contingency amounts to allow for material price increases.