In reviewing and negotiating design professional contracts our office often sees contract clauses stating that the design professional must design a project to meet the client’s budget and that, if bids come in over the budget, the Owner may require the design firm to redesign the project to get it back within budget –and that the designer will do this without any additional compensation. That obligation constitutes an uninsurable warranty. We have routinely revised that clause to state that the only time the designer will do such redesign for free is when the cost overrun was due to negligence of the designer. With construction costs and materials rising dramatically and unpredictably, it is fundamentally unreasonable to expect designers and contractors to bear the costs for which they could not control. Yet, the contract wording seems to be getting more onerous in this regard. Read the contract wording carefully and revise the language to protect against having to provide such free services.
A recent article in the electronic newsletter, “Construction Dive” published by Industry Dive, Inc., Washington, D.C. stated that nonresidential construction input prices increased 23.9% in May, 2021 compared to the previous year, according to an Associated Builders and Contractors analysis of U.S. Bureau of Labor Statistics data released Tuesday. In addition, the price of softwood lumber has expanded 154% over the past year. ABC chief economist Anirban Basu is quoted as stating: “While global supply chains should become more orderly over time as the pandemic fades into memory, global demand for inputs will be overwhelming as the global economy comes back to life.”
Commercial and residential builders have struggled with the higher materials prices since this time last year. The National Association of Home Builders reported that lumber costs are adding an average of $35,872 to new single family home prices. Those prices have also added $12,966 to the value of an average new multifamily home. As those are typically built to rent, that in turn is adding $119 a month in rent to new apartments.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 23, No. 4 (July 2021).
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