Cost Escalation Following Force Majeure Event Clause
(Fixed-Price Construction Contract)

Summary

This escalation clause may be included in a fixed-price construction contract to provide that the contract will be modified if the total price of materials required to perform the contractor's work increases by more than a certain percentage. This clause includes practical guidance and drafting notes. The COVID-19 pandemic has disrupted global supply chains and raised the costs of certain construction materials. Regardless of whether the trigger is COVID-19 or another force majeure event, such as an unexpected tariff, if the contract for the project is for a fixed price, the contractor often bears the risk for these increased costs. An escalation clause can be included in a construction contract's force majeure section to protect the contractor by requiring that if a force majeure event increases the total price of materials required to perform the work by more than a certain percentage either: • The contractor receives an equitable adjustment to the contract sum for the purchased materials –or— • The owner and the contractor will equitably adjust the contractual obligations yet to be performed by each party through an appropriate contract modification Capitalized terms used in this clause should be conformed to those used in the relevant contract. For a list of key resources covering construction-related tasks for a first-year associate, see First Year Associate Resource Kit: Construction. For a discussion of issues and tasks commonly encountered by in-house lawyers and counsel working on construction-related matters, see In-House Construction Resource Kit. For guidance on owner and contractor agreements, see Owner and Contractor Agreement Resource Kit. For a full listing of key content covering construction, see Construction Resource Kit. For a list of key resources covering construction-related tasks for a junior associate, see Junior Associate Resource Kit: Construction. For further guidance see Force Majeure Clauses in Construction Contracts .