Page 18 - GSABA Builder Brief October 2020 Issue

Lumber Woes
FEATURED ARTICLE
Got You Down?
By Don Shelton, Bush, Rudnicki, Shelton, P.C.
The TAB contracts package saves the day, again. The industry-leading form set that builders have grown to love is forward thinking and not reactionary like other form sets. We have seen a half dozen or so new issues this year alone. One of those is the massive increase in lumber prices.
In the custom home context, many builders are seeing margin losses of $20,0000 to $25,0000 per home because of increased lumber prices. If your business model is cost-plus, you are not as affected
- other than a cranky customer. In the fixed-price, build- job context, I sure hope you are using the TAB contract set.
Although it is not a fun conversation to have with
a customer, the TAB contract set has contemplated material price increases for over a decade. Is a portion of the increased lumber cost chargeable to the customer? Yes, it is.
The subject provision is referenced in the contract as the “Escalation of Certain Material Categories” provision. It is found in Section 16(T) of the contract.
In short, the provision says that in the event there is a price increase in certain material categories over 25% from the average of those materials purchased by you, the builder, in the past 30 days after the signing of the subject contract with your customer, the amount over the 25% can be chargeable to the customer. The categories of building materials that are generally subject to this provision are: drywall, insulated wiring, soffit, plywood, OSB, structural members, concrete, steel and petroleum-based roofing products.
While this turns an otherwise fixed-priced contract into a partial risk-sharing contract, it is a fair provision in the custom home market wherein the build can take many long months, and the owner can delay the project for long periods of time for design, engineering, selections, etc., much of which is out of the control of the builder. Conversely, in the spec home market, the
builder has control of when the builder is going to purchase products and the builder can increase the price until the date of sale. Also, the builder still eats the first 25% of the increase, so it is not all on the customer. It just makes sense and is a fair, balanced provision in this market segment.
So, how do you make use of this provision? To exercise the provision, the builder would simply give notice to the owner and provide evidence of such material price increases through the builder’s own documentation. The builder and customer would then execute a standard TAB Change Order form that is a part of the contract set showing the increased price payable by the customer. If your customer refuses to sign a change order, the customer is in breach. That’s when you call one of the fine lawyers at Bush Rudnicki Shelton, P.C.
Again, this is one of many gems in the TAB contract set that are there to help the builder for the unknowns and unexpected circumstances.
This article is a revision of an earlier piece by published in the Texas Builder, the Official Publication of the Texas Association of Builders. That article was authored by Joseph O’Bell and Roel Garcia, attorneys at the Austin office of Bush Rudnicki Shelton, P.C. You may contact any of the firm’s lawyers in Austin or Arlington by calling 512- 263-8408 or 817-274-5992.
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OCTOBER 2020 | GREATER SAN ANTONIO BUILDERS ASSOCIATION