Price volatility, benchmarks, qualifying your bid • Legal Desk, May 2021
By Dan Leduc
“Some electrical contractors have opted to limit holding the prices on tenders for much shorter periods than the standard 60 days“
By Dan Leduc
June 10, 2021 – As part of its post-pandemic recovery, China embarked upon a massive infrastructure program, guzzling up construction commodities and, thus, narrowing supply. So not only have prices increased on materials such as copper and steel, but there was no corresponding sense of prediction.
Most electrical contractors, suppliers and distributors were forced to hedge on material pricing. Some electrical contractors have opted to limit holding the prices on tenders for much shorter periods than the standard 60 days, with some holding their prices for just 3 to 5 days; that, in itself, causing even more turmoil in the industry.
Others may have qualified their bid submissions with wording that permits them to seek a subcontract price increase should the price of certain materials rise dramatically between the close of bid and the point at which that particular material needs to be purchased.
This can be an excellent way of managing the risks associated price volatility, but you also run the risk of submitting a non-compliant bid (because you have qualified it).
Should you choose to qualify your bid, however, that qualification regarding price increases should include a benchmark so that you can show the price increase from month-to-month for that particular commodity. The benchmark provides a baseline index at the close of bid; from this, you could demonstrate the dramatic price increase as you pursue recompense.
One such index, which appears to cover off almost all construction commodities, is the Producer Price Index (PPI), published by the U.S. Bureau of Labour Statistics [bls.gov/ppi]. In PPI Table 9 [tinyurl.com/77k7yeu6], you can find the producer price indices and percentage changes for numerous commodity and service groupings.
When it comes to “copper wire and cable”, Table 9 demonstrates a 26.7% price increase from March 2020 to March 2021, and a 4.1% increase from just February 2021 to March 2021 (which, annualized, would be a 49.2% increase).
So, if you are considering qualifying your bid to manage price volatility, and accept the risk of providing a non-compliant bid, a benchmark will make quantifying the recourse you seek that much easier.
Dan Leduc is a partner in the law firm of Norton Rose Fulbright LLP, and practices exclusively in the area of construction law. He is always happy to take on new clients from anywhere in Canada. Contact Dan at firstname.lastname@example.org.