How to handle material price increases mid-project
Read the contract first to see who carries the risk, give written notice the moment a supplier raises a price, document the original quote against the new one, look for ways to cut the impact, and then ask for relief through the change order or escalation process the contract provides.
Material quantities, delivery timing and equipment availability shape the next phase of work. AI-generated illustration.
When material prices rise in the middle of a job, start with the contract, because it decides who pays. If you have an escalation clause, follow its notice and documentation steps exactly. If you have a fixed-price contract with no clause, the increase is usually yours unless the owner agrees to share it, so your job becomes limiting the damage and making a well-documented request. Either way, act fast: lock prices on what is left to buy, give written notice, and keep the original quote and the new one side by side.
Price jumps on steel, copper, lumber, or electrical gear can turn a 12 percent job into a 4 percent job before anyone notices. The contractors who come out best are the ones who spot the increase on the first supplier email, not on the job cost report three months later.
Step 1: Find out who carries the risk
Pull the contract and look for these items:
An escalation or price adjustment clause. What materials it covers, what index or proof it uses, any threshold or cap, and the notice deadline.
Your bid clarifications. If you qualified pricing on specific items or limited how long your price was good, those terms may have carried into the contract.
Force majeure and change clauses. A force majeure clause often gives time, not money. Read it rather than assuming.
Flow-down terms. Subcontractors should check whether the prime contract has an escalation clause that flows down, and what notice the GC needs to pass a claim up.
Federal jobs can be different. Some federal contracts include an economic price adjustment clause. One standard version, FAR 52.216-4, requires the contractor to notify the contracting officer within 60 days after an increase or decrease (unless the contracting officer approves a longer period in writing), caps total increases to any contract unit price at 10 percent of the original unit price, and applies decreases as well as increases. Check whether your contract actually includes it before relying on it.
Step 2: Give written notice right away
Many contracts require notice within a set number of days of the event, and missing it can waive the claim. Send a short letter or email to the owner or GC: which material, the quoted price, the new price, the expected cost impact, the date you learned of it, and that you are reserving your rights to an adjustment. Notice costs nothing, and it keeps options open.
Step 3: Document the increase
The original supplier quote with date and validity period.
The supplier's written price increase notice or new quote.
Purchase orders and invoices showing what you actually paid.
If your clause uses an index, the index values for the base date and the purchase date.
Indexes are useful even without a clause, because they show the increase was market-wide rather than a bad buy. The U.S. Bureau of Labor Statistics publishes the Producer Price Index, which measures the average change over time in selling prices received by domestic producers, with monthly releases.
Step 4: Cut the impact before you ask for money
Lock the rest of the buy. Ask suppliers to hold a price on the remaining quantity and release the order now if you have storage and the contract allows billing for stored materials.
Get competing quotes. The supplier raising prices may not be the only option.
Offer alternates. An equal product may cost less. Submit a substitution request and get approval before switching.
Re-sequence. If prices are expected to ease, check whether buying later is realistic without delaying the job.
Talk to your subs. Their suppliers may face the same increase. Find out early, before it arrives as a surprise claim.
Step 5: Request an adjustment the right way
If the contract has a clause, submit the adjustment in the form it requires, usually as a change order request with backup. Without a clause, frame the request as a business conversation: show the documentation, the mitigation you already tried, and a fair proposal such as splitting the increase or adjusting the schedule. Owners and GCs are often more open to a shared solution when they can see the numbers and know the job is at risk.
Worked example: copper wire on an apartment job
Here is an illustration. Say an electrical subcontractor signed a $1.1 million fixed-price subcontract with a material escalation clause covering copper wire and conduit. The clause requires notice within 10 days of a supplier increase and covers increases above 5 percent of the quoted material price.
Example escalation calculation (illustrative figures)
Line
Amount
Wire quoted at bid
$140,000
Already purchased at bid price
$50,000
Remaining wire at bid price
$90,000
Remaining wire at new supplier price
$108,000
Increase on remaining wire
$18,000 (20%)
Threshold carried by sub (5% of $90,000)
$4,500
Adjustment requested
$13,500
The sub sends notice on day three with the original quote, the supplier's increase letter, and the remaining quantities. It gets a second quote that comes in $3,000 lower than the original supplier's new price, revises the request to $10,500 (the $15,000 increase minus the $4,500 threshold), and releases the remaining order immediately to cap further exposure. The GC passes the request to the owner under its own clause, and the change is approved in the next billing cycle.
Talking to the owner or GC about an increase
How you raise the issue affects the answer. Call before you send paper, so the first time the owner hears about it is not a formal claim. Explain what happened, what you have already done to limit it, and what you are asking for. Then follow up in writing with the documentation. Keep the tone factual. Owners respond better to "here is the supplier letter, here is our second quote, here is what we propose" than to a demand. If the contract gives you no right to an adjustment, say so plainly and present the request as a shared problem on a job both sides want finished on time.
Mistakes to avoid
Waiting for the invoice. The time to act is the supplier's notice, not the bill.
Missing the notice deadline. Late notice can kill a valid claim.
No proof of the original price. Keep dated quotes. Without them, an increase is just a number.
Asking for the whole increase on everything. Material already bought at the old price is not part of the claim.
Swapping products without approval. Unapproved substitutions create rework and back-charges.
Not updating the job cost forecast. Put the expected increase into cost to complete now, even if relief might come later.
Smart Business Automator tracks change orders with their backup and shows the cost impact on the job's WIP view, so an escalation request does not sit unpriced. See change order approval automation.
Frequently asked questions
Can a contractor raise prices after signing a fixed-price contract?+
Usually not on its own. A fixed price generally puts material risk on the contractor unless the contract has an escalation clause or the other party agrees to a change. Read the contract and get legal advice on specific disputes.
What should a material price increase notice include?+
The material, the original quoted price and date, the new price, the estimated cost impact, the date you learned of it, and a statement that you reserve the right to an adjustment. Follow any form the contract requires.
Does force majeure cover material price increases?+
It depends on the wording. Many force majeure clauses grant extra time rather than extra money, and some do not mention price at all. Read your specific clause.
How do I prove a material price increase?+
Keep the dated original quote, the supplier's written increase, purchase orders, and invoices. A published index such as the Producer Price Index helps show the increase was market-wide.
Maurice Francois writes and edits construction operations guides for Smart Business Automator. More from Maurice on the Scaling Legends podcast.
Related listening · Scaling Legends
UK Construction Cost Crisis 2026: What the Sharpest Material and Labor Cost Rise in 30 Years Means for How Every US Contractor Should Price Jobs Before the Wave Arrives
UK construction firms are experiencing the sharpest cost rises in nearly 30 years. Historically, UK cost pressures arrive in the US 6-12 months later. Every US contractor needs to adjust their pricing strategy now before the wave arrives.
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Read the full episode transcript
Published transcript from Scaling Legends. It may contain transcription errors. View the source transcript.
Usually, when we talk about projecting costs in the construction industry, it basically involves looking at last year's spreadsheets and, you know, just kind of hoping nothing blows up. Right. Lots is crossing your fingers. Exactly. You put together a bid for like a two -year commercial build, and it genuinely feels like you're throwing a dart at a moving board. Oh, 100%. It's totally unpredictable for most folks. But today, we're tossing out the guesswork. So welcome to this deep dive. Our mission today is laser focused. We are taking hard global supply chain data and turning it into a defensive playbook for your margins. Yeah, a real actionable playbook. Right. We're looking at the exact strategies you need to adjust your bid pricing and negotiate contract language before this massive measurable cost wave just absolutely crashes into your current
projects. I think the word measurable. is really the uh the linchpin there like we aren't talking about some theoretical market correction no not at all we are tracking a strict mathematical reality that is currently just tearing through the UK market. I mean, as of May 2026, construction firms across the United Kingdom are experiencing like the most aggressive spikes in material and labor costs they've seen in nearly 30 years. Wait, 30 years. So that takes us back to the late 1990s. Yeah, exactly. We're talking about severe margin compression here. You know, for the listener sitting stateside running a commercial firm in Texas or Ohio, it is so tempting to view a U .K. crisis as just a distant European problem. Oh, sure. It's easy to write it off. But historical
data tells us a completely different story about how these cost waves actually travel. It does. Because the global supply chain, it really does not respect borders. It operates as this highly efficient transmission mechanism. Right. The pressures driving that UK spike right now are this brutal combination of skyrocketing energy costs, cascading supply chain bottlenecks, and an absolute drought of skilled labor. Just a perfect storm. Right. And those forces are currently localized in their most extreme form in the UK. But the underlying mechanisms, those are entirely global. You know, I look at the UK market like seeing a massive lightning strike on the horizon. That's a good way to put it. Right. You see the flash and you know the thunder is coming. It's really just a matter of calculating the distance to figure out exactly when it's going to rattle your windows. And in construction procurement,
that transit time is historically, what, two to four quarters? Yeah, usually around two to four. So if the UK is taking the direction... Spot on. And the mechanics behind that delay are actually fairly simple. I mean, but are US supply chains really that inextricably linked to the UK? Or is this just sort of a coincidence? No, it's definitely not a coincidence. Both the US and the UK rely on the exact same multinational building product manufacturers, you know, and the same global commodity markets. Okay, that makes sense. The delay you're seeing is simply the time it takes for a manufacturer's newly
inflated wholesale contract to, like, work its way through the international distribution network, land at a regional US distributor, and then finally show up on your domestic invoice. Let's break down the reality of that for a second, though, because if I'm buying ready mix concrete from a local plant, right, the aggregate is coming from a quarry 10 miles down the road. Yeah, the heavy stuff is always local. Exactly. The water is local. So if I am a domestic contractor, my supply chain feels entirely local. Like why on earth does a spike in UK energy costs have any bearing on my local concrete pour in the Midwest? We'll see. That is the exact trap that catches domestic contractors totally off guard. Right. Because, yes, concrete is local, but cement, the crucial binder that actually makes the concrete
work, that is heavily exposed to global energy markets. Oh, wow. Okay, break that down for me. So to manufacture cement, you have to heat massive industrial kilns to around 2 ,700 degrees Fahrenheit. Yeah, and you have to do it continuously. That requires an astronomical amount of energy. Usually natural gas or coal. Okay. So when energy costs spike in Europe, like they are right now, U .S. energy producers immediately increase their exports to fill that European void. Oh, so they're shipping it overseas where it sells for more. Exactly. And that immediately tightens the domestic U .S. energy supply, which instantly drives up costs for the local U .S. cement plant. Wow, that is a crazy domino effect. And it gets worse. On top of that, the multinational conglomerates that own those cement plants, they optimize their
wholesale pricing globally. Right. They look at the big picture. So when their European operations take a massive hit, they adjust their baseline pricing worldwide just to protect their overall corporate margins. I see. So the local distributor isn't pricing your materials based on what they paid for the inventory sitting in their yard today. They are pricing it based on what it will cost them to replace it tomorrow. Exactly. That's the key. And tomorrow's replacement cost is being entirely dictated by global energy markets. So that perfectly explains why energy -intensive materials like cement, glass, brick... tile are the ones rising fastest in the UK right now. Yep. And it is exactly why they will rise here next. Right. The manufacturers feel the energy squeeze first. They raise the global wholesale
floor. And honestly, by the time your local distributor passes that cost on to you, you are already locked into a fixed price contract with an owner. Which brings us to a much broader problem, I think. Because if this were just happening in the UK, we could maybe write it off as like an isolated European grid issue. Yeah, maybe. But we have multiple global markets flashing red warning signs simultaneously, don't we? We do. And understanding this requires looking at data integration across multiple distinct markets. Right. When we pull Smart Business Automator's market intelligence report, we can clearly see two massive confirming signals that indicate a much broader structure. breakdown. Okay, let's hear them. The first one is right next door in Canada. As of late May 2026, the Canadian market is reporting severe
safety risks during their current crane season, and it's directly tied to a structural labor deficit. Now, a structural labor deficit is a vastly different beast than, like, a temporary shortage. Very different, yeah. Because it means the physical human beings required to do the work simply do not exist in the labor pool. You can't just solve a structural deficit by throwing some money at a quick training program. No, you really can't. Because training a master crane operator takes years, not weeks. So when you lack skilled operators, accident rates naturally go up, project timelines stretch out indefinitely, and contractors just start bidding aggressively against each other to secure the few guys who are available. Exactly. And the ripple effect of that Canadian labor shortage actually hits the U .S. equipment market directly. Wait, really?
How does that work? Because North American heavy machine releasing... is highly integrated. Oh, I see. If a massive commercial project in Toronto takes 18 months instead of 12 because they literally lack the manpower to operate their tower cranes, well, those cranes are tied up on that site for an extra six months. Right. They don't cycle back into the North American leasing pool. So that artificial scarcity instantly drives up the monthly rental rate for a contractor looking to lease a tower crane in, say, Chicago or New York. Wow. So a labor shortage across the border literally manifests as an equipment inflation crisis for the U .S. contractor. That is a direct hit to the general conditions budget of any major project. All right. So what is the second signal?
Well, relying again on Smart Business Automator's market intelligence report, the second signal is actually coming out of Australia. Australia. Yeah, they're currently experiencing a severe copper cost shock. Well, copper is the absolute lifeblood of mechanical, electrical, and plumbing systems. Like, you literally cannot wire a modern commercial facility without massive quantities of it. Not possible. But how does an operation all the way in Australia specifically derail a U .S. budget? Australia is one of the world's primary nodes for copper mining and refining. When they experience bottlenecks, whether that's from labor strikes, refining capacity limits, or expert logistics, the global spot price of copper on the London Metal Exchange reacts immediately. Instantly. Right. And U .S. electrical components,
from raw wiring to complex switchgears, are priced dynamically based on that global commodity index. Gotcha. So a shock in Australia today. means a guaranteed price hike from your U .S. electrical distributor next month. Okay, but let's be real for a second. A contractor running a scaling construction business is already working, what, 80 hours a week? At least, yeah. Just managing subs, dealing with permitting delays, keeping the earners happy. So expecting them to manually track copper refining in Australia and crane leases in Toronto and cement kiln energy costs in London. I mean, that's just playing a global game of whack -a -mole. It's completely unrealistic. Oh, it's entirely unrealistic to do it manually. I totally agree. That is exactly why the contractors who survive this kind of wave are the ones using
compiled intelligence briefs. You don't need to be some macroeconomic researcher you know. No. You just need a reliable daily dashboard that flags these macro signals for you. If you know the signals are turning red, you can alter your defensive contracting strategy long before your local domestic -only competitors even realize the weather is changing. Okay, let's shift into that defensive strategy then, because we know the cost wave is coming. We do. The fundamental question is, how do you actually protect your margin on a project that you are bidding today but won't even finish until 2028? That's the million -dollar question. And the industry default for this is the material escalation clause. But any contractor listening knows that just Throwing a generic the owner pays if prices go up clause into a contract is basically a quick way to get
your bid tossed straight in the trash. It really is. A poorly drafted escalation clause is frankly worse than no clause at all. Oh, interesting. Why? Because it signals to the owner that you don't actually know how to manage risk. You're just trying to pass the buck. Ah, I see. The strategy right now requires a highly specific tiered approach. You really need to structure your escalation clause with a hard 5 % to 10 % threshold. And the mechanics of that threshold are crucial for getting the owner to actually sign the document. Because if you set a 5 % threshold, you as the contractor are legally agreeing to absorb the first 5 % of any documented material cost increases. Exactly. And that absorption is your leverage in the negotiation. Right. It proves to the project owner that you have skin
in the game. You are looking them in the eye and telling them, I am a professional. I can manage the normal day -to -day volatility of the local market. But the clause explicitly states that any documented wholesale price increase that breaches that 5 % threshold is passed directly through to the owner via a change order. Precisely. You protect your profit margin from catastrophic global -level inflation, and the owner is protected from being nickel -and -dimed over minor local fluctuations. Right. It's like building a financial seawall before the hurricane makes landfall. Exactly. contract, you really have to execute aggressively in the pre -construction phase too. Let's talk about early supplier pricing lock -ins. Yes, crucial step. The traditional rhythm of commercial construction allows for subcontractor
pricing to be locked in, what, maybe 90 days before the bid submission? Usually. But in a volatile market with a global cost wave incoming, a 90 -day window is a massive vulnerability. It's a huge liability. You have to systematically compress that window. The goal is to shrink the subpricing window down to 45 days prior to submission. Okay, cut it in half. Yes. And furthermore, you need to mandate 60 -day price holds from your sub's post award. Wow. I know it's tight, but every single week you shave off the gap between locking in your sub's price and receiving the notice to proceed from the owner. That is a week of inflation risk permanently removed from your ledger. And that requires focusing intensely on the right material categories, doesn't it? Like, not everything needs a strict 45 -day lock.
Right. You don't need to do this for drywall screws. Exactly. You prioritize steel fabrication and ready -mix concrete because those are the most capital -intensive and the most exposed to those global energy shocks we discussed. Spot on. But here is the critical failure point I see constantly right now. What's that? A contractor will fight tooth and nail to get an escalation clause in the prime contract with the owner, right? Yeah. But then they turn around and use standard boilerplate subcontracts with their subs. Oh, man. That is a fatal administrative error. It's devastating. Your prime contract escalation language absolutely must flow down flawlessly into every single subcontract. Right. Because if your mechanical sub is exposed to
the Australian copper shock and they don't have escalation protection flowing through you to the owner, they're just going to go bankrupt halfway through the bill. Exactly. And when a major sub defaults, the general contractor is left holding the bag. Yeah. You're scrambling to find a replacement at a massive premium, and you've entirely destroyed the project's profitability. Okay, so we are painting a very logical picture of how this should work internally. But let's bring the owner back into the room for a second. Sure. If I am a developer financing a $50 million commercial build, my entire pro forma is based on cost certainty. Of course it is. So if a contractor sits across the table from me and demands an open -ended escalation clause above 5%, my immediate
reaction is going to be no. Oh, absolutely. I am paying the contractor to guarantee the price. Why would I voluntarily absorb the risk of some unpredictable global market? Won't owners just laugh you out of the room? Well, if you present the escalation clause as an ultimatum, yes, the owner will absolutely reject it and probably laugh at you. Right. The success of this negotiation hinges entirely on education. You have to stop acting like a vendor who's just negotiating a price tag, and you have to start acting like a risk management consultant. I like that. A psychological shift. Very much so. Because the owner's desire for cost certainty, it's an illusion in an inflationary environment. A guaranteed maximum price from a contractor who hasn't factored in global cost wave is literally just a piece of paper. It won't actually get the building
finished when that contractor goes insolvent in month 18. So how do you practically break that illusion for the owner without, you know, overwhelming them with too much global economic data and scaring them away from the project entirely? You build what we call a three scenario bid inflation model. OK. You do this for any project with a timeline stretching 12 to 24 months. Instead of just sliding a single static number across the conference table. you present three distinct mathematical models. Right. And you populate those models using Smart Business Automator's Market Intelligence Report. So the owner sees immediately that you are relying on objective, verifiable data, not just guessing. Let's walk through what those three scenarios actually look like in a live presentation. Sure. So the first model is your base case. This is the scenario
where you basically just extrapolate the current localized U .S. pricing trajectory forward for 24 months. It is the cheapest option, and it is inevitably the number the owner's financial team probably wants to see. Of course. But you immediately follow it with scenario two. The UK signal case. Right. This is where you apply the current six -month lagged UK inflation rate to the specific high -risk materials in your bid, the steel, the cement, the copper. You lay out the data for them. Yes. You show the owner the 30 -year high in the UK. You calmly explain the historical two - to four -quarter transmission delay. And you mathematically demonstrate exactly what happens to the project's budget when those global wholesale increases hit the U .S. supply chain. And then you present scenario three, the
stress case. This applies full signal transmission. It basically models what happens if the UK energy spike, the Canadian labor deficit, and the Australian copper shock all hit your specific supply chain simultaneously at their peak severity. Exactly. And the execution of the actual bid revolves around scenario two. The UK signal case. Yes. You price your actual hard bid to the UK signal case. You look the owner in the eye and tell them, this is the realistic cost. of building this facility based on global leading indicators. Right. But you use scenario three, the stress case, as the mathematical justification for your escalation clause. You negotiate the clause to cover the gap between the realistic UK signal case and that catastrophic stress case. And this
fundamentally changes the psychology of the room. It really does. You aren't asking the owner for a favor anymore. You are laying out the macroeconomic reality of the next two years. You are basically saying, look, I am tracking global material shortages so that when this project is 80 % complete, we actually have the financial mechanisms in place to get the doors open rather than halting construction because a random... Opera Spike bankrupted the electrical contractor. Precisely. Because owners despise risk, sure. But an unfinished, half -built asset sitting on incredibly expensive real estate. That is their absolute worst nightmare. Oh, a total disaster. When you provide that evidence -based context, you shift the escalation clause from feeling like a sneaky contractor cash grab. To feeling like an essential mutual insurance
policy. Right. They accept the clause because you have mathematically proven that you are the only contractor in the room fully prepared to manage the incoming storm. And honestly, the alternative is terrifying. Just imagine the contractor who is relying purely on domestic signals right now. Oh, man. They bid a massive 24 -month project based entirely on yesterday's U .S. material prices. They win the bid. They celebrate because, hey, they beat. Beat out three other firms. Popping champagne. But they have just locked themselves into a rigid contract right as a massive, predictable wave of inflation is crossing the Atlantic. Winning a massive bid under those conditions isn't a victory. It is a corporate death sentence. It really is. They might secure the project today, but the sheer velocity of the incoming cost wave
will completely consume their profit margin and, honestly, likely the operational capital of the entire company before the foundation is even poured. You just cannot build a scaling construction business by winning a race to the bottom, especially when the bottom is about to completely drop out. No, you can't. But operating at this level of sophistication, you know, managing tiered escalation clauses, compressing subcontractor pricing windows, analyzing global signals, it requires a tremendous amount of administrative bandwidth. That's a lot to juggle. If your project managers are spending their days manually digging through chaotic email threads just to find a sub's outdated pricing sheet, they are going to miss the macro shifts entirely. Exactly. To execute this defensively,
the intelligence has to be paired with real operational infrastructure. Which is exactly why we need to talk about having the right tools for the job. Smart Business Automator operates as an AI project assistant specifically designed for this exact level of complexity. Yeah, it's game changer. It automatically organizes your project documents, generates real -time daily logs, detects schedule risks long before they snowball, and even summarizes critical meetings so your team can actually handle a higher volume of work safely and efficiently. Because you just cannot manage advanced supply chain risks if your internal data is a mess. Exactly. You can visit smartbusinessautomator .com to see exactly how it can safeguard your operations. It all comes down to foresight, really. The data is available. The historical patterns
are clear. The only variable left is whether a firm chooses to adapt its contracts before the pressures arrive domestically. Well said. We have seen the lightning. calculated the distance, do not get caught standing in the open when the funder finally hits. If you know a contractor who is pricing long -term bids right now or struggling with material cost risks, send them this episode. It could save their profit margin on their next major project. Hit follow on whatever app you're listening on so you don't miss tomorrow's Intel. And be sure to check out smartbusinessautomator .com. Take care, everyone. Disclaimer. This podcast is for informational purposes only and is not financial, legal, tax, or investment advice. advice.
