Building Material Price Increases Create Challenges

Dinsmore construction partner Jim Boyers and commercial litigation clerk Mary-Kate Hetzel were published in The Indiana Lawyer this week discussing how building material price increases have created logistical and legal challenges during the COVID-19 pandemic. An excerpt is below.

While the COVID-19 pandemic has altered our day-to-day lives and experiences, the construction and real estate development industries have had to address how to effectively handle a particularly difficult issue that has arisen: unprecedented price fluctuations with a wide variety of building materials, perhaps most notably with lumber, where prices rose by as much as 400% this spring.

For those developers and contractors who committed to projects before or during the pandemic, the impact depended on the fortuity or skillful planning that led to the selection of the construction contract. Owners who chose cost-plus contracts found themselves paying much more than they anticipated for the projects they chose to complete. General contractors who committed to a fixed price contract or a cost-plus with a guaranteed maximum price found themselves facing the evaporation or complete loss of their profit margins on their projects that moved to completion.

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When price fluctuations hit in the midst of projects, parties have approached the problem in a variety of ways, including making attempts to rely on termination provisions, force majeure clauses, the cardinal change doctrine and other clauses or theories or by agreement. It may be difficult to apply most force majeure clauses to obtain relief based upon material price fluctuations absent specific language in the force majeure clause that supports doing so. It may also be difficult to fit material pricing impacts into a cardinal change doctrine argument as “the Cardinal Change doctrine applies only to those contracts that have been so fundamentally changed that the present undertakings of the contractor bear no likeness to those as originally undertaken.” Typically, the doctrine applies to changes in the work as opposed to changes in material costs.

Read the full article here.