Legal Ease

Handling volatile material pricing

Roofing contractors have faced challenges recently because of volatile pricing and some material shortages. Although the problem became more acute for roofing contractors midway through 2004, other construction industry trades have been facing the problem for more than a year.

Rising material prices now are a part of doing business and may remain so for the foreseeable future given China's voracious appetite for steel and other construction materials, production shortages and rising transportation costs. Steel prices have been particularly volatile. Prices for copper, aluminum, cement, petroleum, natural gas, wood products and gypsum also have increased dramatically, and spot shortages have been reported.

Although the problem may seem unprecedented to roofing professionals, it is not new. Following the 1973 Organization of Petroleum Exporting Countries (OPEC) oil embargo and political instability in the Middle East during the 1970s and 1980s, gas and oil prices dramatically increased. Unexpected material price increases caused by diverse factors threatened numerous industries. In response to these circumstances, companies that were bound to fixed-price contracts when confronted by steep, unexpected production costs sought legal relief by asking courts to relieve them of their contractual obligations. Various legal theories have been attempted. None have been particularly successful.

The general rule of law is the risk of material price increases in fixed-price construction contracts are borne by the contractor. The fact that performance has become economically burdensome or unattractive is not sufficient legal grounds for performance to be excused. In the absence of a specific contract provision, courts rarely will rule a party is excused or entitled to a price increase because of unexpected, substantial price increases with regard to obtaining materials. If a material is unavailable, courts will be more receptive to reforming a contract compared with when a material can be obtained at a higher price than expected.

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