Nationwide Blogs
Rising Prices and How Contractors can Deal with Them ‐ Construction Costs
Inflation seems to be the running theme of 2022, and everyone is feeling the effects of
it. Whether you are a consumer or a business owner, you are being impacted by rising
costs in every market space in the economy. Everyone is having to adapt and adjust,
and contractors are no exception. Here are a few ways that construction contractors can
deal with the rising price of goods and materials.
Increase Service Rates to Increase Profit Margins
Whether or not you were ready to charge your customers more money for your
services, during these economic shifts it's becoming increasingly necessary. This might
not be the best option if your business is brand new because your client market might
not yet trust you enough to pay more for your services. You might not yet have the
reputation of more experienced and highly trusted contractors.
However, if you have a well-established client base and are a seasoned professional in
your field, it might be time for you to increase your rates regardless. Don't let imposter
syndrome make you feel like you aren't worth the money, especially when rising prices
and inflation are forcing your hand. Keep your prices as reasonable as possible while
still making sure you can do slightly better than covering your costs.
Include a Price Escalation Clause in Your Contracts
If you provide a client with an estimate, you can help protect yourself against rising
prices by including a clause in your contract that estimate pricing is subject to change
based on the price of materials. That way, if there's a shift in your costs in the middle of
completing a contract, you can account for it on your invoice.
There are a few different methods to go about price escalation clauses, including:
 Invoice Method
This method outlines the materials subject to change. The estimate gives your client a baseline price and allows for adjustment after you purchase materials.
 Index Method
Both contractor and client agree on a pricing index to gauge price increases during the contract.
 Invoice/Index Together
Prices for materials are reviewed and agreed upon by both contractor and client, and then the actual cost of materials is compared to the original estimate.
 Threshold
This gives the contractor a window of material costs and when it is exceeded beyond an agreed‐upon amount, it can justify a price increase.
 Delay
Knowing that prices will be continuing to steadily rise for the foreseeable future, a delay clause merits a price increase if materials have not been purchased by an agreed-upon date.
Other Options
Contractors should be mindful of their agreements with any subcontractors they work
with, in addition to their client contracts. You'll want to set fixed costs with your
subcontractors as soon as possible to help solidify your bid pricing, though your
subcontractors may need pricing adjustments of their own.
There isn't a business or household anywhere that has not been impacted by rising
prices of materials, but both consumers and business owners have been adapting as
needed. As long as all pricing negotiations are communicated clearly in your contracts,
you should have no issue accommodating fluctuations in your cost of materials.
With rising prices, ensuring you get your construction payments are essential. With
Nationwide Notice, you can protect your receivables with a full and self‐service notice
and lien company. The main goal for every client of Nationwide notice is to assist with
lien laws and related documents, based on the state requirements. Want to learn more?
Check out our website or see what sets us apart on this page ‐ or give us a call to see
how you can get started.