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Construction Law News November 2010

Impact of rising material costs on contracts

Recent issues raised with our clients have highlighted how important it is for builders to ensure that their tenders and contracts have sufficient provision for the rising costs of materials

Current increases to costs of materials, particularly steel, should alter the way in which tendering and quoting is approached in contracts.

  1. Restrict validity of the tender period to thirty days at which point a reevaluation of the quote will be carried out. This is particularly important where the tender involves steel products
  2. Nominate a prime cost item on the basis of a schedule of rates of the steel at the amount tendered, subject to adjustment when the supplier’s invoiced rate. This may be done progressively throughout a project
  3. Include a contingency sum in the contract to adjust the contract sum as agreed for the supplied cost of materials against the contingency sum
  4. Include an amount in your tender or quote as to your assessment of price increases for the duration of the contract
  5. If the work is commercial you may use a cost plus contract
  6. Use a construction management contract such that the principal directly incurs all increases to trade and supply. This should be anticipated in the budget estimates

If you are committing to a contract, check the terms and conditions for any contractual right to claim an increase. You may also advise your client as to increases to costs with supporting documentation and come to an agreement for reimbursing the increased cost.

These steps should help to reduce your liability for increases to costs for steel and other materials when entering tenders, quotes and contracts for construction.

Contact us at Forum Law to assist you with drafting the suitable terms in tenders and quotes and contracts to ensure that you minimise the risk of losing out on price rises.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.