Construction Cost Escalation Increases

Increases in Material & Other Costs

The consultancy side of our business has recently received enquiries along the lines of the following: “We have come to the end of our project and are facing a huge loss due to increases in the cost of materials and shipping and because of measures that we have had to adopt to control COVID-19. What can we do?”

Our immediate thoughts are, why have you only just realised that your project is losing money when you have been incurring additional costs due to COVID-19? Since early 2020 and the cost of materials, shipping and the like have been increasing. Surely contractors must have been aware of the effects on their bottom line for many months.

Check the Contract

Nevertheless, clients work with us because of our expertise. We need to advise them correctly. So the place to look to find out “What can we do?” is, as always, in the contract.

If the Contractor is very fortunate, the contract will include provisions to allow adjustments for changes in cost. This is, however, a clause only usually included in contracts during times of high inflation. Such a clause allows the Employer to potentially save money by agreeing to compensate the Contractor for actual increases. This saves the Employer paying to include the risk of inflation within the tender price. I have not seen such a clause included in a contract for many years.

Many increases in the prices of materials, shipping, transport and even labour may be linked directly to COVID-19. If the contract allows the Contractor to claim additional costs for an event such as COVID, this would be claimable. Most contracts that we have examined, however, tend to allow claims for extensions of time due to COVID-19, but not for costs.

Change in Law?

Some of the contracts we have examined give entitlement to claim for costs due to government legislation or government actions. Such a clause would provide a gateway to claim costs mandated by the government in dealing with COVID-19. This would not, however, entitle the Contractor to claim for any increased costs of completing the work due to price escalation.

We have also had to advise several clients that if they are only now thinking about pursuing any claims for entitlement, they have left it too late to make life easy for themselves. Notices should have been submitted when the costs began (almost 2 years ago). Claims should have been submitted many months ago and not left until such time that they have finally realised that they have incurred huge losses.

However, all may not be lost. If you find yourself in difficulty get in touch with us to see how we can assist. And if you want to know how to avoid such issues going forward, why not take up one of our e-courses?