International Door & Operator Industry

NOV-DEC 2018

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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V O L U M E 5 1 I S S U E 6 D E C E M B E R 2 0 1 8 16 Continued from page 14 acquired and therefore a lot more exposure if the costs go up. Unfortunately for contractors, it is not common to have such a clause included in the contract. If the escalation is significant enough and is based on a widespread economic fluctuation – which the tariffs certainly could lead to – the parties may determine it is both equitable and necessary to amend the contract to ensure that performance does not become economically catastrophic. The ConsensusDOCS consortium developed the 200.1 amendment for "Potentially Time and Price-Impacted Materials," which sets out a method for establishing the market price as of the date of the amendment. It also explains how to equitably compensate the contractor, should the material price increase significantly or else be unavailable for a significant period of time. The American Institute of Architects (AIA) does not have a similar clause or document, but it has recommended that for such materials, the owner and architect should identify them prior to bid and provide for them as allowances. If you get such a provision, then you as a dealer may be able to recover escalation costs. For public works, there may be less availability of relief. The Federal Acquisition Regulations ("FARs") have a provision that permits cost recovery for changes in "federal excise taxes and duties." Similarly, the AIA A201 general conditions allow for recovery for changes to "sales, consumer, use or similar tax." However, it is not clear whether the tariffs imposed by the president would even qualify for either provision. Moreover, since the tariffs apply only to foreign steel and aluminum as raw materials, the impact on the costs for domestic materials, or for the finished goods (i.e., the doors, runners, fasteners, etc.), may not be subject to these contractual protections at all. Since the standard contract forms likely don't offer sufficient protection, the best approach for IDA members who may be worried about the impacts of cost escalation - whether from the tariffs or otherwise - is to negotiate particularized clauses into their contracts or subcontracts. Having specific language is the safest method, if not the only one, to be confident you can recover the financial cost if materials shoot up from the latest round of trade wars. Dealers Can't Rely on Force Majeure An alternative option contractors have attempted to use when there is significant cost escalation is to seek relief pursuant to the "force majeure" provision of a contract. "Force majeure" is sometimes described as an "act of God" or an unexpected outside force that is not the responsibility of either party. Depending on the language in a contract, the "force majeure" clause can provide an excuse for failure to perform when one of the identified events or triggers occur. Some of these events, such as war, disaster or strikes (which aren't restricted to the workers of the contractor), are relatively common and consistent. Other items which could be listed, but aren't always, can be critical for determining whether the clause will give you relief. A few years ago, another trade association faced a significant impact to its annual convention because of mass rioting in a major city. That rioting led the association to cancel the show. However, because the governmental officials had not instituted any sort of controls on access to the facilities, a poorly drafted "force majeure" clause could have exposed that association to the worst case scenario of having to pay for its expenses at the convention hall and hotel, but not for being unable to hold the show. This is also a cautionary note for making sure companies are properly insured for such perils! Similarly, contractors who don't have their contract language in order can be seriously exposed. In one federal case, a contractor's claim for recovery pursuant to force majeure items (cost escalation for labor shortages, material shortages and the impact of a hurricane) was rejected because of the language of its contract: "Contractor's sole and exclusive remedy for a Force Majeure event is an extension of time," the contract read. "Under no circumstances whatsoever shall Contractor be entitled to compensation as the result of a Force Majeure event." As a result, the court had no difficulty denying the claim for additional costs. For door dealers, the impact of the steel and aluminum tariffs on doors and related parts could either be cost escalation or potentially even a near-impossibility of getting the items at all. Substantial price escalation could be a force majeure event, but likely it would only apply if the escalation made it impossible or commercially impractical to perform the work. If the contractor can satisfy this proof, then he or she could be entitled to get out of the contract, or (as with the contractor in the federal case) have the timing of performance excused. However, neither of these outcomes are as satisfying as getting paid the actual cost for purchasing the door and related materials. Conclusion The impacts of the Trump tariffs have already rolled through the industry. Those who were prepared may have been able to weather the cost increases better than others. But given the super-charged state of construction, it is safe to assume that another material or product shortage, or a significant cost increase for labor or materials, could be right around the corner. Accordingly, IDA members are advised to prepare for these shocks in advance by negotiating provisions into their contracts. A little bit of contractual foresight can make a big difference in the long run. 16 International Door & Operator Industry™ Continued on page ## Brian J. Schoolman is an attorney with Safran Law Offices in Raleigh, NC. Safran Law Offices has focused on the Construction Industry for more than thirty years, and is proud to have worked with and supported IDA from its inception more than two decades ago. For more information, please contact Brian at bschoolman@safranlaw.com, or visit us at safranlaw.com. LEGAL&LEGISLATION

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