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« ICC to Develop Guideline for Building Commissioning | Main | Independent 5D Initiative Enters New Phase in Developing BIM Solutions for European Contractors »

06/03/2011

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We utilize a process called "transparent construction" which gives the owner a look at all the costs, bids, fees, profit, etc. on a project. This way, he can see the true cost of each item in the scope of work. In your scenario, the owner would have benefited from the 2/3 price reduction in costs as well as paid for the increase in price. There is certainly enough inherent risk in the course of the construction work. the average "profit" contractors make on the work should not cover risk costs such as this

You are correct when you say the contractor would not have requested a price adjustment had the cost of materials dropped. This is because this is the profit. There are so few projects these days and so much competition, that many contractors are taking on projects just to turn dollars, survive this economy, and come out on the other side when things improve.
Smart contractors should include a clause in the contract that would allow a change if they can prove that the cost of materials escalated more than 10% since they bid the project.I know we will be adding this clause!

Of course many owners and agencies already have contract clauses that cover large swings in prices of major cost items. This limits the bidder's risk so the owner gets better bid prices. And it cuts both ways. It's a win-win and is therefore a no-brainer...just like the differing site condition clause.

Material cost escalation is a real and very polarizing aspect of construction contracts, especially fixed price contracts. The FIDIC 1999 series of contracts includes a clause to cover material cost escalation. The amount of this increase is calculated by the use of a formula given in the contract. Of course, the contractor has to PROVE that the costs have increased substantially from the bid price in order to benefit from this clause. It's not perfect, but it is a viable option in today's adversarial and litigious environment.

I can see a clever and informed contractor bidding with today's prices to get the bid, knowing that prices are due to go up post award.

Price increases are never a surprise. They're either just playing dumb or are dumb.

Owners are wanting GC's to hold their bids longer and longer. Sometimes for up to 90 days. Subcontractors are qualifying their bids for shorter and shorter. Sometimes for only 30 days or less. That leaves the General Contractor to absorb most of the cost increases between bid day and the Notice of Award. A lot of prices can change drastically during that 60 days of limbo. There really needs to be some protection for GC's from this type of squeeze.

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