Use Escalation Clause to Manage Pricing Increases

Staying afloat is a major concern for many of us in today's housing industry. Not only do we have to worry about business, competition, labor shortages, subcontractors and collecting our payments, we also have to worry about price increases — and not just one or two increases, but multiple increases.

If it was only one price increase, we could and would handle it with no problem. But we’re faced with multiple price increases on many different products, and the prices are changing faster than we can react.

Some manufacturers are raising prices twice in a month and others are only stating the price when the items are shipped -- thwarting our best efforts to charge the customer accurately.

This has made controlling job costs a major problem for remodelers.

So what can we do to protect ourselves, especially when we sell projects that won’t be started for several weeks or months? Stockpiling products and materials doesn’t make sense.

The NAHB legal staff has developed a price escalation clause that you can adapt and use as an addendum to your contracts to protect yourself from price increases.

Consult with your attorney about how to tailor the clause to your business, and just as importantly, be sure to train your sales team on how to discuss the clause with your clients.

To download a sample of the price escalation clause, click here.

Additional construction liability tips and tools can be found on the NAHB Web site under construction liability. These resources were developed by the Building Products Issues Committee.

There is one more related obstacle that is probably affecting your bottom line -- fuel costs. Have your suppliers and manufacturers added a fuel surcharge to your deliveries?

NAHB has developed a clause to address that, as well -- the sample fuel surcharge clause. As with the price escalation clause, be sure to have your attorney and sales team involved.

Doug Sutton, CGR, CAPS, is president of Sutton Siding and Remodeling in Springfield, Ill. For more information, e-mail Sutton, or call him at 217-528-3911.