ACG addresses materials cost escalation issue

July 01, 2004 |

Reacting primarily to recent substantial price increases for steel products, the Associated General Contractors of America has issued an amendment to its fixed-price construction contract (No. 200). The amendment, which covers "Potentially Time and Price-Impacted Materials," is designed to provide a framework for determining cost adjustments for commodities that are subject to price volatility.

The "unprecedented runup in steel prices has been followed by price increases and shortages in concrete and other construction materials," says AGC CEO Stephen Sandherr. "These increases threaten the ability of general contractors and subcontractors to complete projects on time and on budget," he says.

The amendment provides for allocation of increased cost between owner and contractor, and also applies to cost decreases. The document has blanks for inserting the names of specific commodities, their baseline price, and the method to be used for calculating the allocation of price adjustments, according to AGC construction law counsel Mark McCallum.

AGC says the "force majeure" clause typically found in construction contracts does not apply to instances of sudden price escalation. The clause addresses circumstances beyond the control of the signatories and often results in an extension of project completion time.

The amendment was developed in response to a resolution passed at AGCs annual meeting in March. It is posted on AGC's website:

Meanwhile, indications were that the cost of steel and other construction materials was leveling off. Sue Stewart, senior vice president of estimating with McCarthy Building Cos., St Louis, said steel prices, particularly, appeared to be stabilizing in early June — albeit at higher levels than before the increases that began last year. McCarthy considered price adjustment strategies for several recent projects, "but in every case we have been able to make lump-sum deals," she says. For a project in Denver, the company was even able to purchase steel at less than what it considered a normal price.

Stewart says McCarthy has experienced schedule problems in obtaining cement on the East Coast, particularly in Virginia.

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