Flooring Price Increases and Your Bids: Who Carries the Risk, and How Escalation Clauses Work

A flooring bid prices material that will not be bought for weeks or months. On a commercial job the gap between bid and purchase can run a year. In that window, adhesive, plank, carpet and trim can all move. The question every contractor eventually faces is simple: when the price goes up after the bid is signed, who pays? The answer is in the contract, and most of the time it is written before anyone is thinking about it.

The default: the contractor carries it

A legal alert from Smith, Gambrell & Russell sets out the usual position. Unless directly addressed through an escalation clause, the risk of an increase in material prices most often sits with the contractor.¹ That is especially so under a fixed price, or a GMP contract with a maximum price.¹ It notes that before the pandemic disrupted supply chains, significant unexpected increases were relatively infrequent, so construction contracts often did not address the risk at all.¹

That silence is not always fatal to a claim. The firm notes that a contract's silence does not automatically foreclose a contractor from seeking relief. The outcome depends on the contract language, the cause of the increase and the owner's attitude.¹

Why force majeure rarely solves it

Contractors often reach for the force majeure clause. The same alert explains why that usually disappoints. Force majeure provisions are generally based on performance being affected by causes beyond the contractor's reasonable control. Unless specifically listed, price increases alone typically do not constitute a force majeure event, absent extenuating, unforeseeable circumstances.¹ More often than not, the clause states that an extension of time is the contractor's sole remedy. The contractor gets more time, not more money.¹

Owner-caused delay is a better route. The alert gives a flooring-relevant example. If a delayed release of plans pushed a purchase beyond the supplier's quoted price validity period, the contractor is likely entitled to a price adjustment.¹ That makes the supplier's quote validity date a document worth keeping. It is also a reason to be wary of "no damages for delay" clauses in volatile markets.¹

What an escalation clause does

An escalation clause is contract language that lets the agreed price adjust up or down when specific material costs change beyond a defined threshold. It shares the risk of volatility rather than forcing one party to absorb all of it.² The practical advice is to include one when the project timeline exceeds 60 days. The same applies when material-heavy work makes up a large share of the budget, or when markets are volatile. If a firm supplier hold cannot be obtained for the full project duration, the clause is essential.²

A clause has to be drafted with care. Smith, Gambrell & Russell notes that escalation provisions are not one size fits all, and must be drafted so they encompass most of the contractor's price risk.¹

Index-based or fixed-rate

There are two common mechanisms. Index-based escalation ties adjustments to a published third-party index, such as the Bureau of Labor Statistics Producer Price Index. Fixed-rate escalation applies a predetermined percentage at set intervals.² Index-based is more accurate but harder to administer; fixed-rate is simpler but may over- or under-compensate depending on what the market actually does.²

Published indexes are used for exactly this purpose. The Ontario Construction Association urges buyers to include price adjustment provisions. It points to the United States Department of Labour Producer Price Index Table 9, chosen for its extensive list of materials and monthly tracking of cost changes.³ Whichever index is named, name it precisely: the series, the table and the publication date used as the base.

How the math usually works

The mechanics are straightforward once the clause defines them. Start with the index value or material price at contract signing, the base price. Compare it with the value at the time of purchase. If the change exceeds the trigger threshold, commonly 5-10%, multiply the difference by the quantity of material and apply that adjustment to the contract price.² Most clauses spell out the formula.²

Make the clause bilateral. A well-written escalation clause means the price falls if costs drop below the threshold, just as it rises if they climb. Owners are more likely to accept the language when they can see it works both ways.²

What to do at bid time

• Record the quote validity dates. They set how long your supplier price is good, and they support a claim if the owner's delay pushes you past them.
• Name the materials. An escalation clause should identify which materials it covers; on a flooring job that usually means the flooring itself, adhesive and large accessories.
• Set a trigger and a cap. A threshold stops small movements from generating paperwork; a cap makes the clause easier for owners to accept.
• State the index and the base date. Vague references invite disputes later.
• Flag the risk in the bid. Smith, Gambrell & Russell advises contractors to note the risk of price escalation during bidding, not after.¹

When the increase arrives

Treat it like any other change: in writing, promptly, with evidence. Attach the supplier's quote, the old and new prices, and the index values if the clause is index-based. If the contract has no escalation clause, the request becomes a change order negotiation rather than a contractual right. AIA Contract Documents warns that informal direction and undocumented changes lead to disputes about what was authorized and what it costs.⁴ See flooring change orders, and for the margin side of pricing, markup and margin.

Sources

1. Smith, Gambrell & Russell, “Have you considered an Escalation Clause to cope with Rising Costs?”. sgrlaw.com/newsroom/publications/have-you-considered-an-escalation-claus
2. Projul, “Construction Escalation Clauses Guide”. projul.com/blog/construction-escalation-clauses-price-adjustment-guide
3. Ontario Construction Association, “OCA urges buyers to include price adjustment provisions in tenders”. oca.ca/news/oca-urges-buyers-to-include-price-adjustment-provision-in-te
4. AIA Contract Documents, “Construction Change Directive vs. Change Order: What is the Difference?”. learn.aiacontracts.com/articles/construction-change-directive-vs-change-

General information for the flooring trade. This article was drafted with AI assistance and checked against the sources listed above; the manufacturer's current instructions and the project specification govern any real job. If something here is wrong or out of date, tell us.