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Like most years lumber prices are on the rise and many builders here in idaho have been loosing their shirts on lumber prices. we are seeing jumps in the 10-15 percent range (per month )during this first half of the year forecast and are considering an accelerator clause in our contracts where basically if the lumber goes up more than some % the cost is passed on to the home buyer.

Is anyone doing this and or have an example of a clause. like any good lawyer ours is in mexico for a month lol.
 

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I've never heard it called an accellerator clause but if the materials I were using were that volitale, I would have such a clase.

Infact I do have a clause I add to various proposals.

"The above pricing is based on material prices and the above pricing will change according to changes in material prices."

I'm sure a lawyer can add hereto's and forthwith's. Like all my contracts, my wording is bare bones and to the point. This simple clause above provides me an out if I need one.

You could pull something like: "All proposed pricing is based upon current market values for materials and labor. Changes in value for materials and labor will effect the propsed pricing. The customer acknowledges that material pricing can fluctuate and agrees to be responsible for these price fluctuations."

Personally I'd never stick it to any of my customers like that. I'd give 'em an option. "Oops. Mr. Customer, it appears plywood has raised in price 15%. I have to add $1,000 to your proposal. Should I go ahead with that?" Again the clause is only for hard ball if he comes back with "No! I want you to do it for the price you quoted!!!"
 

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Grumpy said:
I've never heard it called an accellerator clause but if the materials I were using were that volitale, I would have such a clase.
It's called an escalation clause and a number of the suppliers that quote my jobs use them regularly. Typically there will be a footnote on their quote that states that the price quoted is tied to a raw material price that is regularly published in an industry recognized trade publication. For instance, asphalt suppliers tie their prices to the published market price of liquid asphalt. Ductile iron pipe suppliers tie their prices to the price of heavy #1 scrap iron. I imagine the timber industry has some similar published price for various grades and species of lumber.
 

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Discussion Starter #4
hmm good information and stuff to think about. I think we are gonna end up calling a different lawyer to give our contracts a look see. we havent lost alot of money building houses but usually we only see a 1-2 % variance per month on our lumber but all 3 suppliers are saying to expect 10-15% next month
 

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I bid a job in the early 90s, small glass room in Roanoke Virginia. The fella waited a month to start. The NW forrest fires hit. The lumber alone went up 2 grand.

Bob
 

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You should establish a basis - it is only fair to your customer and keeps everybody from squeeling when it actually happens. Just saying the price is based on market is pretty ambiguous since materials can vary in price from supplier to supplier. Establishing a threshold of change should be included to. Such as a clearly defined upto percentage. Say if materials increase up to 1.5% from signing of contract an adjustment will be made. As a customer I wouldn't want to sign anything without some concrete numbers, if not it is really just a time and material contract.
 

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Mike if the price increase is 1.5% I usually eat it.

How can one proiedict a price increase if any? Therefore how can one predict what the customer will have to pay additional if any? If my price goes up, the customer's price goes up. That's what my clause says.
 

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You don't need to predict anything. That's what the escalation clause is there for.

How can you say if the price of materials goes up, the customers pays the difference when at the same time you just said if materials go up 1.5% you will eat it?

Which is it?

I suspect the answer is really you have a mental threshold where above a certain dollar amount or precentage of increase that you make a personal decision to eat it or make the customer pay the difference. I'm saying don't keep that threshold a secret. Spell it out.

If somebody put a contract in front of me for $100,000 to do an addition and in the contract it said "if the price of materials goes up you pay for it." I would turn the contract around and tell them to try again.

I want to know goes above what? What period of time? You screw around and take 2 years to build my addition when we are talking 6 months and incure price increases because of your delays that you shouldn't and you want me to pay for them? Screw you. You suddenly screw up or one of your subs screws up and causes you to miss the foundation pour date and your regular cement supplier can't do the pour now and you have to use another that is 10% higher and I have to eat it? The list of what ifs is endless.
 

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Mike I stated in a previous post that the material escelation clause is there when it comes time to play hard ball.

I will eat 1.5% increase and not invoke the clause. If the price goes up more than I can stomach, it's time for hard ball.

I don't put in contracts for $100k. My average contract is $5k... and I only put that clause in a very few contracts. Only the really weird/strange/unique contracts. Also most of my jobs don't last longer than 3 or 4 days (actually most last a day) so I don't have the burden of a 6 month job and dealing with fluctuating prices for that 6 month period of time.

Bottom line, if the customer wants details as to what and when... I will always feel happy to alter a contract to answer those questions. I always say it's not a concrete contract until signed and the deposite is cashed. If they say try again I will ask "what do you mean?" to get them to explain what is not satisifactory. Do they want me to write start and completion dates in the contract? Done. Do they want me to break out labor and material seperately? I walk away. Bye Bye. I am NOT going to open that can of worms.
 

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One other thing I do is put a 30 day right of acceptance on ALL my proposals. It states simply. "The above pricing is valid for 30 days from the date of submittal."

When the customer asks I tell them "My suppliers have all stated they will give me a 30 day notice if the material prices shall increase. Therefore I can honor my price for only 30 days, however I can tell you typically we only have increases in spring and fall. I wouldn't worry too much... normally we honor year old contracts without flinching."

If materials are roughly 1/3 of my contracts, lets say a job is $15,000 but the materials cost $5,000. Now let's say the materials go up 5% as they just did. That will only add $250 to the job. That's about a 1.65% increase. I'll happily eat it.
 

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I use the 30 day clause too.
 

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Discussion Starter #12
the big one here is out lumber. most of our pricing is good till the end of the month. so if i get a bid for lumber on the 20th. come the first i have to go back and get an updated price. Really where we see this come into play is when it takes the banks more than 2 weeks to get the money for the loan. so we bid on the 15th and dont end up starting the home until the first second or third week of the month. because the owners screwed around getting the paperwork into the loan officer. we very quickly end up into the second month after the quote and have a 10-15 % increase on lumber. On our spec houses its not much of a worry since we buy the lumber and sit on it until we need it but for most of the custom homes we wont buy the lumber until the bank says funds are available... to big of a risk of the buyers changing their minds and then we are stuck with lumber we might not use for awhile... i think we will probably go and use both clauses just to cover our butts
 

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You should specifically cover the time period between your bid and the contract being awarded, too, i.e.:

"We reseve the right to increase our price to reflect those increases that occur after our estimate is developed and prior to contract award."
 

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I state in my that a bid proposal is good for 30 days if the supplier locks in the 30. If not, and we aren't that formal, I tell them up front to lock in materials, buy them now...do not wait...since most suppliers will allow you to pay for and hold for later delivery.
 

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I guarantee labor prices for 30 days, even if they would be the same after that, material prices for 7 days, same as my supplier. I also add a material price increase clause for the longer lasting jobs
 

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We used to honor our price estimates for 30 days. We now include a clause of 14 days, on our proposals and contracts that state the prices may be subject to change due to various increases: rise in costs of materials, fees, taxes...etc. . We have yet to apply it.
But it is there just in case the difference in prices are significantly changed.
We went to the 14 days instead of 30 because of the way prices have increased so rapidly on materials...EXAMPLE: The cost of GAS can change prices overnight.
 

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I haven't read anyone elses reply to this. I'm waiting on dinner ... so I'll throw in my 2 cents

if there are some real volatile items, I'd consider doing that as a T&M.

I do this with concrete. It's billed seperately, at the cost of the concrete, plus whatever mark-up.

works so far ...
 

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I was listening to Bruce Williams a while back and he was talking about an accelerator clause. As he described it, an accelerator clause was to be used when lending money to someone so that you can require a delinquent borrower to pay the remainder of the loan in full.

In Bruce's example, a caller called in and said that he had lent something like $5000 to a friend or associate. The loan contract required it to be paid back in increments of like $200 per month. The borrower decided to stop making payments on the loan, so the caller (lender) wanted to take him to court. Bruce said since there was no accelerator clause, all the lender would be able to do was sue for the amount needed to cure the breach of contract, which was $200, or the missed monthly payment. The lender would have to do this each time a monthly payment was defaulted. Adding an accelerator clause would have enabled the lender to obtain the remainder of the loan IN FULL in the event that the borrower defaulted.

I know this doesn't have anything to do with materials costs, but it's what I understand to be an accelerator clause. It might also come in handy if you ever loan money to someone in the future.
 

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In some areas, materials are quoted price escalations based on delivery dates for long term commercial jobs. This is done since delivery dates are not known during bidding.

In some countries, materials are paid in advance when the contract is signed and discounts are given for the materials delivered after the signing date according to fixed price schedule.
 

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All of our contracts have an escalator clause, based on market value of copper, and it states that all increases will be added to the contract in the same percentage of the change in the copper market. We have to do this, otherwise we would lose our ass on some bigger jobs, 2" type "M" copper is going for twenty five dollars a foot here now, but it has been as high as forty, and almost all of our jobs are copper waste and vent.

We base our bids on current market value, and state it is good for thirty days, after that the market price escalator kicks in, because we never get a signed contract within thirty days of bid, for the work we do, most contracts are signed about 120 days after the bid is issued.

I have bid large copper water pipe jobs in the last three years that ended up getting changed to galvanized Victaulic because of the increase in the cost of copper, and I expect this trend will continue.
 
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