Construction Contracts have not typically contained escalation clauses but in the age of Covid they may be a necessity.
An Escalation Clause is merely a paragraph in the contract that states in essence, the Contractor is basing the pricing on the current cost of material and labor and because of factors beyond the control of the contractor, i.e. the drywall price is $X per square foot, if that increases above 5% the Owner agrees to pay the escalation in price.
A Sample Escalation Clause might read:
ESCALATION CLAUSE FOR SPECIFIED BUILDING MATERIALS
The contract price for this residential construction project has been calculated based on the
current prices for the component building materials. However, the market for the building
materials that are hereafter specified is considered to be volatile, and sudden price increases
could occur. The Builder agrees to use his best efforts to obtain the lowest possible prices from
available building material suppliers, but should there be an increase in the prices of these
specified materials that are purchased after execution of contract for use in this residential
construction project, the Owner agrees to pay that cost increase to the Builder. Any claim by the
Builder for payment of a cost increase, as provided above, shall require written notice delivered
by the Builder to the Owner stating the increased cost, the building material or materials in
question, and the source of supply, supported by invoices or bills of sale.
Specified Building Material / Current Price per (Unit of Measurement) / Date / Supplier
CAUTION – The sample language provided in this clause is intended for general informational purposes only, and may
not be appropriate for some agreements. Care should be taken in the drafting of any contractual clause, and it is
recommended that an attorney be consulted concerning both applicable law, and the phrasing of particular contract