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How is inflation impacting construction contracts?

On Behalf of | Jan 25, 2022 | Contracts

Increasing prices across every single industry have a serious impact on construction contracts already in progress when inflation takes hold. The biggest issue is for price quotes that now are inaccurate.

According to Associated General Contractors of America, if a contractor submits a bid before prices increase and then waits to buy the materials until after prices rise, inflation can cost the contractor a large amount of money.

Wiping profit

When inflation hits contractors, it reduces profit. In serious cases where prices rise extraordinarily, a contractor may make no profit. When the contractor does not make money, it seriously impacts his or her business and can lead to financial troubles.

Not just materials

It’s not just materials that impact the bottom line either. All costs increase when the economy is experiencing inflation. That means the electricity, fuel and tools the contractor uses also cost more. If the contractor must buy special equipment for a job, that could become a financial burden.

In addition, inflation will impact customers as well. They may have a harder time making payments. Late payments may increase, which could lead a contractor to have to make late payments to his or her creditors. Late payments mean penalties, which only increase the financial burden. This can delay projects and lead to time crunches.

The financial hardships that occur when the country starts experiencing inflation at a record high level can ruin a contractor’s business. It makes it hard to abide by contract terms. However, a contract is a legal agreement, so contractors must make sure to do everything possible to ensure they meet the terms or go to customers and see about amendments to the documents.