July/August 2022 - 106

Absent an intervening act by the owner (or contractor if
sought by the subcontractor) constituting a change or
constructive change to the contract, such as ordering the
substitution of materials or ordering acceleration of work to
recover excusable delays, escalation clauses and or pricing
contingencies remain the primary viable ways to recover for
market-caused costs increases.
Contractors should be prudent and thorough in drafting
escalation clauses. In the February 2022 case, Southern Coal
Corp. v. Drummond Coal Sales, Inc., 28 F.4th 1334 (11th Cir. 2022),
a federal court refused to enforce a contract escalation clause
because of a key omission. The price escalation clause tied
pricing of coal to a monthly price index published by a coal
producer. During the performance of the contract, the coal
producer stopped publishing the monthly index. The buyer
argued that other industry pricing information was available
and appropriate for establishing the market price. The court,
however, found that the escalation clause was ambiguous as
to intent of the parties in the event there was no price index
and thus, ruled that the entire escalation clause was
unenforceable. The buyer was left with no relief.
An escalation clause should include a basis for establishing
changes in pricing. If the owner or contractor will not agree to
actual pricing changes, using published rates or pricing indexes
are reasonable alternatives and are common. If a contractor is
going to use published rates or a price index for measuring
historical and current material, labor, and or equipment prices,
the indexes should be ones with long-standing records published
by reliable entities. The clause should indicate an alternative
pricing approach in the event there is a change or disruption
in the published indexes. For longer projects, the escalation
clause should identify intervals for subsequent adjustments.
The takeaway: while much has been written
about recovering costs for material, equipment
and labor price escalation, contract
escalation clauses and other contractual
pricing contingencies are the only realistic
methods for obtaining such recovery.
106 * DEEP FOUNDATIONS * JULY/AUG 2022

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