Price escalation spikes and supply shortages threaten construction companies’ financial viability in an unprecedented way. It creates a conundrum for existing contracts with a firm fixed price, lump sum, and to a lesser extent a guaranteed maximum price (GMP). The best approach to address cost uncertainty going forward is to include a price escalation clause in your next contract. A price escalation clause adjusts the contract price based upon an agreed upon metric, usually an objective cost index. This approach is both equitable and effective for owner clients, suppliers, trade contractors and General Contractors’ financial solvency. Rather than guessing on prices, an agreed upon objective index provides a superior risk management strategy.
Posted: October 22, 2021 | Legal
From Design-Bid-Build to CM-at-Risk and Design-Build to Integrated Project Delivery, each method developed to fit a very specific need—but each carries its own set of inherent risks and rewards. In this article we explore key aspects and differences among the various delivery methods that are commonly used in today’s construction industry, and provide guidance related to the obligations and risk profiles of the parties involved. Ideally, contractors and construction managers may refer to the advice provided herein when determining whether a proposed delivery method properly fits the requirements of the project under consideration.
Posted: July 16, 2021 | Legal
As a General Contractor, you may prefer to arbitrate any contractual disputes rather than engage in protracted litigation. Many Courts favor arbitration clauses and will enforce them if there is a sufficient reason to do so. However, there are several issues that a General Contractor should consider when including an arbitration clause in its construction agreement with its client. When an arbitration clause is not properly crafted, questions can arise as to who must arbitrate? Who decides whether to arbitrate? Who selects the arbitrator? What will the subject matter of the arbitration be? A look at a recent case in Pennsylvania highlights the need for properly crafted arbitration clauses.
Posted: May 14, 2021 | Legal
Contractors and design professionals face a unique level of exposure for lawsuits over their work compared to other professionals. With the growing complexity of construction projects, the longevity of buildings, and the increasing inclination for plaintiffs to file lawsuits over construction defects years down the road, one might ask when exposure for a completed project really ends. Many states have addressed this problem by enacting statutes of repose specifically dealing with claims arising from the construction or design of real property.
Posted: April 16, 2021 | Legal
Our industry has long grappled with the best way to manage risks in construction contracts and other project documents. This battle persists because these contracts and documents carry serious risks that can easily torpedo a company. In response to this dynamic, our industry has developed two approaches to managing this process: underinvestment and overinvestment. However, each approach is flawed. Below, we describe new approaches that of fer a better way.