Contractors may need to revisit some of the processes in their accounting and financial operations. Here are six strategies for construction companies to insulate against cost increases and mitigate financial risks.
It’s clear that, at least for the next year or more, the construction industry can expect unpredictable cost variations.
What can construction companies do to insulate against cost fluctuations? How can they mitigate risks related to supply-chain issues, labor shortages, and increased cost and decreased availability of materials and labor?
Here are six strategies construction contractors and subcontractors can adopt now to help minimize the impact of these economic uncertainties.
1. Consider price-escalation clauses or cost-plus contracts, both of which allow the contractor to pass increasing material and labor costs on to their customers.
Price-escalation clauses have typically been limited to cost increases for materials, but construction contractors can also use them to mitigate the risk of rising labor costs. This is an acute issue today, given the labor shortages and wage increases in the industry. Customers may try to negotiate out of price-escalation clauses, but the demand for their services means contractors have some leverage to push back against those demands–or contractors may need to be creative in negotiating price-escalation clauses.
Reprinted courtesy of Jill Masur, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.