How To Deal With Increasing Materials Prices: Alex Barthet, The Barthet Firm and the Lien Zone Podcast

Dear Construction Nation,

I met Alex Barthet a few years back, when he was on my first podcastConstruction Dream Team, and I was on his, The Lien Zone. Alex is a construction attorney in South Florida and I was very excited when I saw that Alex was gathering a group of industry folks to offer advice on how to deal with the fast-increasing materials prices. I immediately asked him to come share with you, Construction Nation. Here is a summary of his overview and best advice.

An Overview of the Industry and Increasing Material Prices

Alex explained that in the private sector, the contractors and owners are working through the price escalations. This is because the owner sees that they can offset the costs with higher selling or leasing prices.

In the public sector, it is much more difficult to work through these issues. But, some public owners are addressing this issues in a fair manner. It takes more effort and more time.

Of course, most of the issues are for projects that were bid/NTP’d, and underway, when the inflation and escalations started skyrocketing. Alex does not see a great deal of litigation spawning from the price escalations, and he includes the supply chain issues that are creating project delays. Alex believes it is like “mutual destruction.” Both sides need to work together.

Alex is hearing from primes and subs that they are refusing to do the work. Or they are saying they WON’T do the job at the price they bid/gave. They are telling owners to “sue me, because I just can’t afford to do the job at that price.” For the owner, the escalated price is going to be cheaper than trying to put it out for rebid. And, according to Alex, there just aren’t enough contractors to do the work that already exists. So, an owner will have to pay more if they can even find anyone to do the work.

Here a couple actions Alex suggests Contractors take:

1.     Get firm quotes.
Document the number you got from the supplier when you bid. Too many times you just get a quote, but no paper to back it up. You need to make sure that you can show the owner what the bid price was, and what the price quoted now has become.

2.     Don’t sign the contract.
Once your bond has been issued, you are really into the project, and pretty committed. Alex is seeing bonds being used on private jobs because of the price risks. If you have signed the contract, then you are into negotiations with the owner.

Here are couple actions Alex suggests Owners Take:

1.     Owners can set up a dual contingency.
You can set up a dual contingency. One contingency for the project, and one for cost escalation (including time delays because of supply chain delays). This means the funds can be available as costs increase.

2.     Get a policy in place to deal with the cost escalation.
Help your decision-making body understand that paying the cost escalation is going to be significantly cheaper that starting all over. If you can get them to understand and get a policy in place to deal fairly with the cost escalation, you won’t lose momentum on your project, that adds even more cost and delay.

I hope you will check out Episode #38 and listen to Alex share his insights with you Construction Nation!!

In trust,

P.S.  Curious how you can improve your project’s chance at success?

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