Does Your Contract Protect You Against Material Price Increases?
Click here to print article, "Does Your Contract Protect You Against Material Price Increases?"
Written by Richard L. Stacey
(as published in the Idaho Construction Review)
While the economy continues to struggle, prices for many construction materials have been on the rise. SteelontheNet.com reports a 25% - 30% increase in steel prices just since January 1, 2011. Ken Simonson, Chief Economist for the Associated General Contractors of America, reports that copper, diesel, plastics, asphalt, and gypsum have also experienced dramatic price increases so far this year.
The combination of economic downturn and increased material prices create a very dangerous situation for construction companies. Decreased construction demand keeps bid margins at a minimum while increasing the risks contractors undertake due to increased material costs. Bids must be low enough to be awarded the job but also must be high enough to take into account the possibility of an increase in material prices during the course of the project.
Now more than ever contractors are asking the following questions: (1) If a rapid price increase occurs, can I increase my contract price to reflect the increased cost of the material? (2) Can I terminate the contract without liability because I cannot afford to perform the work at the increased price? As always, the answers to these questions depend upon the terms of your contract; specifically, whether or not it contains a properly drafted price escalation or “force majeure” clause.
A force majeure clause is a contractual provision found within a variety of standard commercial contracts including construction contracts. It essentially allows you to seek price adjustments or to terminate your contract if a specified event beyond your control occurs. Standard force majeure clauses typically include protections against strikes or acts of a labor union, floods, earthquakes, acts of God, and acts of war.
Unfortunately, these provisions typically fail to cover other significant events such as material price increases. Because most courts narrowly interpret the events covered by force majeure clauses, it is important that you have a well-drafted clause in order to protect yourself against the risks of material price escalation. For example, a properly drafted clause should identify the construction material you are going to supply, the value of said material at the time the contract is executed, and explain that material price increases beyond a certain threshold amount, say 20% for example, constitute an event for which you are entitled to additional compensation or to terminate the contract without liability.
While a price escalation provision should be included in your contract to protect you against the risks of increases in material prices, these provisions can also be beneficial to the owner. Owners can expect contractors to submit lower bids if the contractors do not have to accept responsibility for increased costs resulting from material price escalation. Even if a construction contract contains a properly drafted force majeure clause, the contractor can still be responsible for increased material costs if the event or events resulting in the price increases were within its control. There are two important aspects of this rule.
First, you cannot invoke the clause if you could have taken reasonable steps to avoid incurring the increased material costs. For example, a contractor may still be responsible for increased material costs if the price increase occurs after the materials were reviewed and approved by the owner but before the contractor reasonably should have purchased the materials from its supplier.
Second, you cannot cause the materials to increase in price. For example, a contractor cannot utilize the provision to seek additional compensation for in-stock materials that were purchased prior to the execution of the contract when material prices increase after the contract is executed.
Now more than ever it is important to review your contract to ensure it properly protects you against the risks of material price escalation. If it does not, I encourage you to contact an experienced construction attorney to draft one for you. Because these provisions are narrowly construed by the courts, you want to be certain it will be enforceable if it is ever challenged.
Idaho's "Right-to-Work" Law Amended in 2011
Click her to print: More "Right to Work" for Idaho
Written by Wayne Meuleman
(as published in the Idaho Construction Review)
In 1985, the Idaho Legislature adopted the Right to Work Act stating “in order to maximize individual freedom of choice in the pursuit of employment and to encourage an employment climate conducive to economic growth, that the right to work shall not be subject to undue restraint or coercion”. In general, the Right to Work Act provides that no one may be required, as a condition of employment, to be or become a member of a union, or to refrain from or withdraw from membership in a union, or to pay dues or fees to unions, or to be referred or recommended for employment by a union. The Act is intended to protect the right of individuals to determine whether or not to join a union and to prohibit agreements between employers and unions to require union membership as a condition of any employment. It also prohibits employers from preventing its employees from being union members if they choose.
The 1985 enactment of the Act was very controversial and followed several unsuccessful attempts to enact a right-to-work law over the preceding years. Until this year, the Act has been amended only once in a 1995 to make its provisions applicable to public employment by State and local government agencies, as well as private employment. The 2011 legislature has now added two new section to the Idaho Right to Work law which will take effect on July 1, 2011.
One of the new sections, referred to as the Fairness in Contracting Act, prohibits (a) contractors and subcontractors from receiving any wage subsidy, bid supplement or rebate on behalf of its employees or from providing subsidies, bid supplements or rebates to its employees; (b) labor organizations from paying a wage subsidy or rebate to its members in order to subsidize a contractor or subcontractor; and (c) the use any fund derived from wages collected by or on behalf of labor organizations to subsidize contractors or subcontractors in Idaho. A violation of the new Fairness in Contracting Act carries substantial penalties; up to $10,000.00 for the first offense, $25,000.00 for the second, and $100,000.00 per violation for each additional offense. Any interested party, including any bidder, contractor, subcontractor, or taxpayer has a standing to challenge any violation of the new act and entitles the challenger to an award of attorney’s fees and costs in the event the challenge succeeds.
The second amendment, to be known as the “Open Access to Work Act”, applies to public works construction in Idaho. This amendment prohibits state agencies and cities, counties, school districts, and other political subdivisions from requiring contractors to pay a specified wage scale or provide specified employee benefits to its employees for work on public works projects in Idaho, except as may be required by federal wage laws applicable to public works projects supported by federal funds. It also prohibits Idaho government agencies from requiring contractors, subcontractors and suppliers to sign collective bargaining or other union agreements in order to bid on or perform contracts for construction of public works projects.
These were adopted, at least in part, as a reaction to union picketing and demonstrations around Boise and the surrounding area over the last few years. The new prohibition against use of wage subsidies, bid supplements and rebates will impact some private and public projects because trade unions have occasionally subsidized union contractors in order to help union contractors to be more competitive in bidding public works projects. However, the prohibition against state and local agencies specifying wage rates and benefit requirements for public works project should not be significant because agencies have rarely, if ever, specified wage rates or benefits for public projects since the repeal in 1985 of Idaho’s “Davis Bacon Act” which mandated predetermined wages rates and benefits for public construction projects statewide. Similarly, the prohibition against agencies requiring collective bargaining or other union agreements on public construction projects will probably have little effect because government agencies in Idaho have not required union agreements as a condition for constructing public works projects.
Right to Work continues to be a popular political issue in Idaho.
Arnold L. Wagner
PROFESSIONAL RECOGNITION
- 2005 Award Recipient, Idaho Business Review's "Forty Accomplished Under Forty"
- Martindale-Hubbell "AV" Peer Review Rated
AREAS OF EXPERTISE
BUSINESS LITIGATION
- Representing businesses in employment matters, contract litigation, and breach of warranty and defective product litigation
- Representing businesses in significant and contested debt collection
- Representing individuals and businesses in disputes concerning the development of property
CONSTRUCTION LAW / LITIGATION
- Representing sureties, owners, general contractors, subcontractors and suppliers in litigation, negotiations and all types of alternative dispute resolution
- Drafting and negotiating construction contracts on behalf of owners, general contractors and subcontractors, including cost plus, lump sum and design/build contracts
- Advising owners and contractors during construction projects in an effort to complete successful projects and preserve claims
PROFESSIONAL EXPERIENCE
2002 - Present: Partner, Meuleman Mollerup LLP
1997 - 2001: Associate, Meuleman Mollerup LLP
BUSINESS AND INDUSTRY ACTIVITIES
- Member of the Idaho State Bar, Sections on Litigation and Employment Law
- Member of the American Bar Association, Trial Lawyers Section
- Idaho Associated General Contractors
- Boise Metro Chamber of Commerce
COMMUNITY INVOLVEMENT
- March of Dimes of Idaho, former member, Board of Directors
- Co-Chair, Commercial Real Estate Awards Event, March of Dimes
- Boise State University, Bronco Athletic Association Coach's Club
- Humanitarian Bowl, Chairman's Council
- Idaho Botanical Garden, Board of Directors 2007-2009
- Contributor, Idaho Junior Achievement
- East Boise Youth Baseball and Softball, Board of Directors
REPORTED CASES
In the Supreme Court of the State of Idaho: Oldcastle Precast, Inc. v. Parktowne Construction, Inc., 142 Idaho 376, 128 P.3d 913, Idaho 2005.
EDUCATION
- University of Washington School of Law, J.D., 1997
- Western Washington University, B.A., cum laude, 1994
Construction Law
Meuleman Mollerup LLP has practiced in construction law since the firm's inception in 1981. Today, we have more construction attorneys than any other firm in Idaho, and we are recognized as one of the leading construction law firms in the Northwest.
In addition to litigation we excel in other aspects of the building industry, including negotiation of construction and design agreements, and other related business arrangements. Our combined focus on construction law and real estate law positions us to prosecute or defend construction lien claims. As an added value to our clients we host quarterly contractor project management seminars on topical issues affecting businesses and business owners. We also publish monthly articles regarding emerging issues in the construction industry.
Whether you are a contractor, supplier, owner or developer, you will be represented by attorneys who are completely integrated in construction law and the construction industry. Our attorneys are active in construction industry trade associations and maintain a working knowledge of critical business and legal issues affecting the construction industry. Our knowledge of the industry eliminates the cost and time of a "learning curve" and allows our attorneys to provide effective legal advice from your first contact through resolution.
Click here to download the Idaho AGC's April 2011 Newsletter, which contains a featured construction law article by Meuleman Mollerup attorney, Arnold L. Wagner, titled, "Dealing with a Mechanic's Lien on Your Project"
