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The Use of Force Majeure to Justify Increasing Material Costs?

  • 1.  The Use of Force Majeure to Justify Increasing Material Costs?

    Posted 06-23-2021 11:06 AM

    Recently, I reviewed some Exclusions and Qualifications from a GMP proposal for a large ED expansion project. One of the clarifications was as follows:<o:p></o:p>

     <o:p></o:p>

    "Should there be a significant price increase to any specified building material(s) through no fault of the Contractor during the performance of the Work, the Contractor shall, before making any additional purchases of specified material(s), promptly provide written notice to the Owner stating the increased cost, the building material(s) in question, and the source of supply, supported by invoices or bills of sale. The Owner, upon receipt of notice of a significant price increase, shall provide notice to the Contractor within twenty-four (24) hours of an authorization to proceed with the purchase of the specified building material(s) along with a corresponding increase to the Contract Sum, or of Owner's intent to terminate the contract for its convenience."<o:p></o:p>

     <o:p></o:p>

    In our review comments to the Owner, I stated the following:<o:p></o:p>

     <o:p></o:p>

    "Item #4 addresses significant price increases. This is listed as a viable cost against contingency in section 2.2.4.1 of the A133-2009 agreement. One caution is that Section 3 states that once the Construction Contingency is exhausted, all costs and expenses listed in section 1 that would have otherwise qualified for use against Contingency shall be borne by the Construction Manager at no additional cost to the Owner."<o:p></o:p>

     <o:p></o:p>

    To which, the Contractor responded:<o:p></o:p>

     <o:p></o:p>

    "#4.   Our clarification is meant to draw attention to the clear Force Majeure material escalations and limited availability associated with current market conditions."<o:p></o:p>

     <o:p></o:p>

    As the AIA Standard Form A201 General Conditions for the Contract for Construction do not contain a force majeure clause, we would have to look to section 8.3 of the A201 for guidance. However, this section would only permit the Contract to be modified for a non-compensable time extension associated with the "event". What about the rise in the cost of the materials? In a GMP, is the CM not responsible for providing a 100% complete and functional building for a set cost?<o:p></o:p>



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    James Woody AIA
    Senior Project Architect, Associate Principal
    Perkins&Will
    Palmyra VA
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  • 2.  RE: The Use of Force Majeure to Justify Increasing Material Costs?

    Posted 06-24-2021 05:48 PM
    AIA A201 Paragraph 8.3 is the force majeure clause only without naming it as such.  You'd find similar wording in other agreements that actually use the term.

    Yes, material price escalation is the talk of the time. Most current recommendations add a price escalation rider to the agreement that sets out the specific circumstances and evidence that the contractor must provide to substantiate additional payment associated with more than expected inflation. The owner's options normally would be to not include additional instructions or rider and negotiate costs if/when they occur, which puts everyone in a tough situation, or include the rider and a specific allowance (or allow the contractor's contingency to be used for it.)  By providing an allowance, the risk moves to the owner/allowance but also means that each subcontractor is not including their own inflation built into their own costs, which multiple together to really bump the GMP.  We used to put an inflation rider and allowance into our GMPs in times like these and tell the contractor that the allowance is available to any supplier or subcontractor that can meet the conditions to receive additional payment, and tell subs/suppliers not to build inflation into their own figures.

    An important baseline of this discussion is being to document
    (a) what level of price escalation above which the contractor/supplier is due an increase.  Typically, we would not expect to provide relief from the first dollar but rather from some percentage above that that exceeds what the supplier/subcontractor should/would have provided in "normal times."
    (b) that the subcontractor/supplier factually document what the prices were in their original proposal to the general contractor and then what their current quote from the supplier is, so that the difference is documented.
    (c)assuring that the contractor places an order as soon as they can lock in a cost (or perhaps even provide an early partial GMP for a material purchase)

    Here's one example of the items that could be contained in this discussion (even though this article talks about letters prepared by the owner or contractor, any of these could be turned into an exhibit and attached to the agreement):
    https://www.mcaa.org/wp-content/uploads/2021/06/2021.06-Material-Price-Escalation-Package.pdf
    Mcaa remove preview
    View this on Mcaa >

    While I'm not advocating mixing and matching organizations, ConsensusDocs has produced a materials inflation exhibit would provide another (contractor's) view of what an exhibit might look like. 






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    Arlen Solochek, FAIA
    Owner/Principal/Founder
    Arlen Solochek FAIA, Consulting Architect
    Phoenix, AZ
    ArlenSolochek@gmail.com
    ------------------------------

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  • 3.  RE: The Use of Force Majeure to Justify Increasing Material Costs?

    Posted 06-24-2021 05:33 PM
    Sounds like he doesn't understand the concept of GUARANTEED MAXIMUM PRICE. 



    Sent from my Verizon, Samsung Galaxy smartphone




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