We have previously mentioned that we strongly believe this shortage will continue at least through the end of 2021 at a minimum.
So, what does that mean for your business?
Material pricing and availability have always been a risk for contractors, but the current volatility in both the steel industry and construction materials in general has significantly multiplied that risk.
You have to be proactive to stay protected. In this article, we discuss 3 ways to protect your business during the steel price increases.
What Can Contractors Do To Protect Their Business From The Rising Cost Of Steel?
- Pre-purchase steel
- Material Price Escalation Cause
- Force Majeure Clause
Pre-Purchase Steel
If you have a signed contract and know you will need steel later this year, buy it now. The price of steel is escalating month after month. Today’s price of steel will absolutely be less than what it will cost through the remainder of 2021 and very likely into early 2022.
You also have to consider the potential difficulty of being able to source the steel in the coming months. Though there are multiple suppliers for metal roofing, companies are currently selling off their existing inventory and are unable to get their full replacement of steel. The steel mills that suppliers purchase from have them on allocations and are supplying about 60% of what’s required.
Unfortunately, we expect this problem to get much worse before it gets better.
Buying your steel now and safely storing it for future use will ultimately save you money and give you peace of mind knowing that you have the material you need in stock. In fact, many suppliers will store the material at no additional charge as long as you’ve given them a purchase order and a large deposit.
Price Escalation Clause
If your contracts do not already include a price escalation clause, now is the time to revise your contracts for any future projects to include one. This clause will allow you to adjust the price based upon an agreed upon metric.
A price escalation clause protects you from having to absorb the increased costs of materials, or from facing liability for delays that may occur due to material shortages.
While there is a variety of different wording that can be included, there are generally two different types of price escalation clauses:
- Delay/event price escalation clauses
- Percent-change price escalation clauses
A delay price escalation clause is caused by a specific event happening or a delay by another contractor or owner. This allows you to seek reimbursement for the increased costs.
A percent-change price escalation clause is percent-change price escalation clauses which allows you to recover costs for a project once the budgeted cost has increased by a certain percentage. This clause is especially beneficial for the current situation of material costs rising vs the delay price escalation clause.
For example, if you had a delay price escalation clause and a spike in material costs were to occur, but is not caused by a delay, then a delay/event price escalation clause likely would not be valid and you would not be protected.
Force Majeure Clause
The force majeure clause permits a party to delay performance or to be excused from performance entirely upon the occurrence of an event that renders performance commercially impracticable, illegal, or impossible.
Though this clause was sometimes seen as being unnecessary in the past, litigation resulting from delays derived from the Covid-19 pandemic has reinforced why this clause is necessary in commercial contracts.
Though it’s never the option we want to choose, if a situation is beyond control, it may be best to terminate the contract altogether and legally have the means to do so.
Sourcing Metal Roofing Materials Today
With the continued increase in the price of steel, sourcing metal roofing materials now can save you money in the long run. With the future being unpredictable, we strongly recommend requesting a quote and buying your materials now as prices are expected to increase further. This way you are guaranteed to have the steel your 2021 projects require while the industry is in a shortage.
To get started on your metal roofing or siding project, request a quote today.
