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.

Richard L. Stacey is a partner with the law firm Meuleman Mollerup LLP practicing in the areas of construction law, environmental law, and complex business litigation.  Mr. Stacey can be contacted at 208.342.6066, or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it ; more information at www.lawidaho.com.

 (Published in the Idaho Construction Review, September 2009)

              There is a new trend within the construction industry to utilize form contracts that allow the parties to choose whether to resolve all disputes by binding arbitration instead of litigation. This is an improvement over the older forms that dictated which means of dispute resolution would be used. However, too many contractors now opt to use arbitration without any consideration.  While arbitration has been embraced by many in the construction industry as a cheaper, faster, and better alternative to litigation, it does not always live up to these lofty expectations.  This article will explain some of the advantages and disadvantages of opting to arbitrate construction disputes.

  So what is the difference between arbitration and litigation? Litigation is the process of filing a lawsuit and going to trial.  In contrast, arbitration is where the parties submit their claims to a neutral third party arbitrator or arbitration panel for a binding decision, instead of to a judge or jury. 

              Construction arbitrations are usually coordinated by arbitration administrators, the most common of which is the American Arbitration Association ("AAA").  To initiate arbitration, a party must file a claim and pay filing fees with the administrator identified in the contract.  Filing fees with the AAA range between a minimum of $750.00 (for claims less than $10,000.00) to more than $10,000.00 (for claims between 5-10 million dollars).  In contrast, the cost of filing a lawsuit in Idaho is currently only $88.00.

               In addition to filing fees, the parties also must pay for the arbitration location, the arbitrator's professional fees, and all expenses the arbitrator incurs throughout the arbitration.  It is not unusual for the professional fees and expenses to exceed several thousand dollars per day.  In the event the contract requires a three-person arbitration panel, which is quite common in construction arbitrations, these costs are tripled.  Contrast this with a trial where the taxpayers pay the costs of the judges, juries, and courtrooms, instead of the parties.     

               Another thing to consider is whether you will be able to recover the attorneys' fees you incur if you prevail on your claims.  The prevailing party at trial will likely recover at least some of its attorneys' fees.  However, the prevailing party in arbitration cannot recover its attorneys' fees unless there is a contractual provision allowing such an award.  There are legitimate reasons why you may want each party to be responsible for its own attorneys' fees regardless of the outcome of the dispute.  However, this decision should be made only after careful consideration.

  Arbitration is also generally viewed as faster and less formal than litigation.  While this is generally true, it is not uncommon for construction arbitrations to be nearly as time consuming and formalistic as trials.  Construction disputes commonly involve tens of thousands of pages of documents, involve numerous fact witnesses, and require expert witnesses to testify concerning the veracity of the competing claims.  This often necessitates a time consuming, formalistic discovery process regardless of whether the parties litigate or arbitrate their claims.

   One clear advantage of arbitration is that the parties are allowed to select arbitrators experienced in dealing with construction disputes.  Construction arbitrators are typically experienced construction lawyers that understand the construction industry and construction law. This is knowledge that most judges and juries simply do not have.  Construction disputes involve lengthy construction contracts, specialized industry standards, and technical plans and specifications.  These are things that can be difficult and time consuming to explain to the judge or jury, but less so to a knowledgeable arbitrator.

               Others cite that an advantage of arbitration is that it allows the parties to avoid the kinds of wild or unpredictable results that may come from a jury trial.  However, the flip side of this is that it means arbitrators are much more likely to split the proverbial "baby."  While this may mean nobody loses, it can also mean that nobody wins.  This can be a difficult pill to swallow after expending tens of thousands of dollars in attorneys' fees and arbitration costs.

               Another purported advantage of arbitration is the finality of the arbitrator's decision.  The bases to appeal an arbitrator's decision are largely limited to cases of fraud, bribery, or other illegal conduct, but not for mistakes made by the arbitrator in deciding factual or legal questions.  Consequently, the finality of the result is often advantageous for the prevailing party, but the non-prevailing party may feel slighted that it cannot appeal what it believes to be an erroneous decision.

               As you can see, arbitration has pros and cons.  The decision to opt for arbitration should be made on a case-by-case basis weighing these pros and cons and carefully analyzing the nature of the contract and the parties you are dealing with.  Consultation with your construction attorney can help you to assess these risks or to draft contractual provisions limiting undesirable aspects of arbitration in the event it is chosen.

Richard L. Stacey is an partner with the law firm Meuleman Mollerup LLP practicing in the areas of construction law, environmental law, and complex commercial litigation.  Mr. Stacey can be contacted at 208.342.6066, or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it ; more information at www.lawidaho.com.

 (Published in the Idaho Business Review, September 2008)

By Richard L. Stacey  

A non-competition agreement is an agreement in which an employee promises not to work for a competitor for a specified period of time after leaving the company in exchange for employment or continued employment.  In today’s increasingly competitive job market, this type of an agreement is becoming more prevalent.  Non-competition agreements are now commonplace for many jobs within the construction industry.

Historically in Idaho, non-competition agreements that are carefully drafted to protect employers’ legitimate business interests are enforceable.  Many provisions comonly found in these agreements, however, are the subject of significant litigation. On July 1, 2008 new legislation went into effect to add certainty to the enforceability of these agreements. 
 
    Under the new law, an employer may require a “key employee” to execute a non-competition agreement prohibiting the “key employee” from working for a direct competitor for up to eighteen (18) months after employment is discontinued.  A “key employee” is an employee whose knowledge of the employer’s business operations, customers, and other business relationships might allow the employee to harm or threaten the employer’s legitimate business interests if the employees were to go to work for the employer’s competition.  Any employee among the highest paid 5% of the employer’s employees is presumed to be a key employee. 

“Legitimate business interests” are now defined by statute to include “good will, technologies, intellectual property, business plans, business processes and methods of operation, customers, customer lists, customer contacts and referral sources, vendors and vendor contacts, financial and marketing information, and trade secrets.”  An employer may properly seek to protect each or any of these business interests through non-competition agreements.

A non-competition agreement must be reasonable in duration, geographical area, and includes restrictions on the type of employment.  The law creates legal presumptions with respect to each of these areas.  A non-competition agreement prohibiting employment with a competitor for eighteen (18) months or less is presumed reasonable.  A non-competition agreement prohibiting employment within the geographic area in which the key employee provided services or had a significant presence or influence is presumed reasonable.  A non-competition agreement prohibiting future employment of the type conducted by the key employee while working for the employer is presumed to be reasonable.

An employer may also increase the duration of a non-competition agreement beyond eighteen (18) months, so long as the employee is given some agreed-upon benefit or payment in exchange for the extended duration.  The statute does not quantify how much of a benefit or payment the employer must give the employee in exchange for the extended duration. 

All employers should review the language of their non-competition agreements to ensure compliance with the new statutory framework.  When reviewing your non-competition agreement, consider the following recommendations to minimize potential legal challenges: 

1. Your agreement should be carefully drafted to protect only those business interests that are at risk if the particular employee were to go to work for the competition.  Employers have a tendency to try to create broad protection by using over-inclusive provisions.  Unfortunately, overbroad provisions can leave you with no protection at all if the agreement is not unenforceable. 

2. Make sure that your agreement does not contain blanket prohibitions against working for a competitor in any capacity or within any geographic region. 

3. Make sure that your agreement is clear.  Ambiguities in non-competition agreements have historically been construed against the employer and in favor of the departing employee.  The new law is unlikely to change this rule of interpretation. 

4. Consider including a liquidated damages provision in your agreement.  A liquidated damages provision can establish a predetermined amount that the company will be damaged by a particular employee going to work for the competition.  One of the difficulties of enforcing non-competition agreements can be establishing the dollar amount that the company is actually damaged by a departing employee.  A liquidated damages provision may help eliminate the necessity of proving actual damages. 

5. When hiring a new employee, consider inquiring whether the potential employee has signed a non-competition agreement with any former employer.  Failure to do so may cause you to end up embroiled in litigation over the former employer’s non-competition agreement.

 In the event a court determines that the duration, geographical area, or type of employment in a non-competition agreement is unreasonable, the new law authorizes the court to re-draft the provision to make it reasonable.  While this decreases the likelihood that an agreement will be determined to be entirely unenforceable, employers should not view this as a reason to make these provisions over-broad.  Overly broad provisions make an agreement intrinsically susceptible to legal challenge.  Moreover, the employer may have less protection after the court re-drafts the agreement than the employer would have had if the agreement was properly drafted in the first place.  If your business interests are legitimately worth protecting, then you should have your non-competition agreements drafted with particularity to protect these interests with certainty.

Richard L. Stacey is a partner with the law firm Meuleman Mollerup LLP practicing in the areas of construction law, environmental law, and complex commercial litigation.  Mr. Stacey can be reached at 208.342.6066, or by email This e-mail address is being protected from spambots. You need JavaScript enabled to view it ; more information at www.lawidaho.com.

Published in the Idaho Construction Review, December 2006 

           By now, most Idahoans should know that the Idaho State Legislature raised the Idaho sales tax by one percent to a total of six percent, on the sale of all goods.  The sales tax increase went into effect on October 1, 2006, and applies to all building materials purchased for incorporation into any construction project within the state of Idaho.  This increase will impact the profitability of many competitively-bid projects and will obviously impact the bottom line of every project that was bid based upon the presumption that the sales tax would remain at five percent through the completion of the project. 

          Fortunately, many Idaho contractors are entitled to tax relief that will protect them against the impacts of the sales tax increase.  Contractors are entitled to a one percent refund on the purchase of all qualifying building materials purchased since the new sales tax went into effect.   Building materials generally qualify if they were purchased, used, stored, or otherwise incorporated into any real property pursuant to a construction contract that meets the following three requirements:  

• The contract must be in writing and signed on or before September 1, 2006 (a written bid submitted on or before September 1, 2006, will also qualify if a written contract was subsequently entered into based upon the bid);
• The contract/bid price must have been based upon the five percent sales tax;
• The contract/bid must require the cost of any sales tax to be borne by the contractor.  There does not appear to be any limitation upon the number of qualifying contracts for which a contractor can seek a refund.

          Because a contractor must be negatively impacted by the new sales tax in order to seek a refund, the following types of contracts do not qualify:  a)  cost-plus contracts in which the property owner agrees in advance to pay the costs of all materials incurred by the builder; and  b)  any contract that states the property owner will pay for the sales tax or that the property owner will bear the costs of any increase in the sales tax.  Additionally, equipment purchase contracts, rental contracts, and contracts for the retail sale of building materials cannot qualify either. 

          Contractors may apply for the refund regardless of whether or not they have a sales and/or use tax permit.  Moreover, the procedure for filing for a refund differs only slightly for contractors with a permit as opposed to those without one.   In order to file for a refund, every contractor must submit the following:   

a)  a completed Sales Tax Refund Claim Form (TCR), which is available from the Idaho State Tax Commission or online at its Web site:  http://tax.idaho.gov/pdf/contractor_SalesTaxRefund_092906.pdf ; 

b)  a signed copy of a qualifying contract; 

c)  copies of dated invoices showing all qualifying materials purchased pursuant to the qualifying contract; 

d)  a description of the claim such as, “The materials identified on the attached invoices were used pursuant to the attached contract, which qualifies for the five percent sales/use tax rate”;  and 

e)  a schedule summarizing and identifying all amounts subject to the refund on the attached invoices.   The summary schedule is only necessary, however, if it will help a tax auditor to understand your refund claims.   A schedule may be particularly helpful if you are not seeking to recover the full amount of every item identified on each invoice.

            If you have a sales/use tax permit, then you still must submit a Form 850 and/or Form 850-U return form.  You should submit the TCR and supporting documentation with this form, and the total refund requested must be identified on its adjustment line (typically line 7).

            If you do not have a sales or use tax permit, then you do not have to fill out a sales/use tax return form.  Instead, you simply send your TCR and supporting documentation to the following address:  Attn: Contractor Refund Claim, Idaho State Tax Commission, P.O. Box 36, Boise, ID 83722-0410.  Once the claim has been submitted, the Idaho State Tax Commission will review the claim and, if there is a net refund, will pay the refund with interest from the date the claim was filed.

            You can only file for one refund on each qualifying project.  Consequently, the date you should file for your refund is dependant upon the completion of the project.   Keep in mind that the statute of limitations for filing a claim is three years.

            The timing of your claim may also have other tax implications so treat this refund as you would treat any tax issue.  Consult your accountant and your attorney early and often to determine how to maximize the benefits this program can have for company.  

AREAS OF EXPERTISE

BUSINESS / REAL ESTATE LAW

• Representing businesses and business owners in all aspects of business litigation
• Representing companies and property owners in all phases of real estate litigation
• Drafting and negotiating business contracts

CONSTRUCTION LAW

• Advising general contractors, subcontractors, suppliers, sureties and owners on legal issues throughout all phases of construction projects
• Representing general contractors, subcontractors, suppliers, sureties and owners in all phases of litigation
• Drafting and negotiating construction contracts

ENVIRONMENTAL AND NATURAL RESOURCE LAW

• Advising construction clients in matters of environmental compliance

PROFESSIONAL EXPERIENCE 

2009 - Present   Partner, Meuleman Mollerup LLP  

2003 - 2008:  Associate, Meuleman Mollerup LLP  

2001-2002: Clerk to Judge Harvey Sweitzer, Office of Hearings and Appeals,
United States Department of the Interior  

10+ years general construction and construction management experience  

BUSINESS AND INDUSTRY ACTIVITIES

• Idaho State Bar; Sections on Litigation, and Environmental and Natural Resources Law   
• American Bar Association, Forum on the Construction Industry, and Litigation Section
• Association of Trial Lawyers of America, Civil Defense Section
• Idaho Associated General Contractors, former member, Board of Directors of the Construction Leadership Council, 2008 Vice President 
• Associated Builders & Contractors Association, Inland Pacific Chapter

PUBLICATIONS

• Co-author, Recent Legislation Affecting the Construction Industry, ABA, The Construction Lawyer, Volume 26, No. 4, Fall 2006.

COMMUNITY INVOLVEMENT

• Boise State University Alumni Association

EDUCATION

• University of Utah College of Law, J.D., Certificate in Environmental and Natural Resources Law, 2003
• Boise State University, B.A., magna cum laude, 2000