Soaring lumber prices can be cause for contract renegotiation

On Behalf of | Aug 20, 2020 | Construction Contracts |

Back in March, 2020, lumber prices fell. This was good news for home builders and buyers. Then, over the course of a just a few months, lumber prices soared- increasing more than 60%.

The cause of the price increase is twofold: One, supply. Mills have not been able to keep up with sudden demands. Two: Canadian tariffs on lumber. With the framing of home being 20% of the overall cost, this means total project costs rise considerably.

What to do when the cost of materials changes the scope of the project

The first action to take is always to communicate with the client. In many cases, clear and prompt communication can preempt misunderstandings later. The second step is to review the terms of the contract. From a legal precedent standpoint, under a firm-fixed-price contract, a contractor will typically assume the risk of an increase in materials costs. However, it is usually more cost effective for both buyer and builder to work together to find a resolution that works. After all, the buyer wants a finished home and the contractor often can’t afford to absorb such unforeseen costs without serious harm to the business.

3 effective ways to decrease construction costs

Any contractor knows that there are many ways to cut costs while maintaining the integrity of the original design and vision. Here are three proven ways to bring down costs in order to defray the skyrocketed cost of lumber.

  1.  Rethink other material choices. Does the kitchen have to have marble counter tops and $80,000 cabinets, or will the $20,000 Ikea cabinets and quartz counters work? Are the Wolf range and Sub- Zero fridge necessary or are there a more modestly priced alternatives? Can concrete, laminate, vinyl or tile floors work instead of hardwood? What about client- sourcing for dishwashers, water heaters and other appliances?
  2. If possible, make the footprint smaller to cut down the cost per square foot.
  3. Rework the interior layout into an “open floor plan” so that the space can be used in many ways. When clients understand that taking out walls, doors, extra electrical and plumbing can significantly cut costs and making the space more versatile, they can more readily see the merits of an open plan.

An experienced contractor usually has proven alternatives at the ready when it comes to bringing down overall cost. An experienced construction law attorney can often work as a liaison to bridge the gap and offer necessary creative solutions or contract negotiations that will work for both parties and keep the project moving forward.



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