📨 Contractor’s Digest – Daily Rundown

📅 March 7, 2025

🚧 Today’s Highlights

🔹 Lumber Prices Soar to 30 Month High – What It Means for Your Next Bid
🔹 3 Payment Terms Every Subcontractor Should Include in Contracts

📉 What’s Happening?
According to a recent article in the Wall Street Journal, lumber prices have soared to a 30 month high due to tariff announcements from the Trump administration. While it remains to be seen how long these tariffs will be in place, and what the eventual outcome will be, it also raises the question:

Should you adjust your estimates or include material price escalation provisions in your contracts?

1️⃣ Increased Project Costs & Profit Margin Squeeze 💰
With lumber prices soaring to a 30-month high, contractors risk losing profit if they don’t adjust their estimates accordingly. Fixed-price contracts that were signed before the tariff announcement may now cost significantly more to complete, cutting into already tight margins.

2️⃣ Client Hesitation & Potential Project Delays ⏳
Homeowners and developers may postpone or cancel projects due to rising costs, waiting to see if prices stabilize. This can disrupt cash flow for contractors and subcontractors, making it crucial to educate clients on why price adjustments are necessary and offer flexible solutions.

3️⃣ The Need for Material Price Escalation Clauses in Contracts 📑
Without a material price escalation clause, contractors may be forced to absorb cost increases, leading to financial strain. Updating contracts to pass a portion of unexpected cost hikes onto clients can protect your business from unpredictable market shifts.

💡 Take Action:
✔️ Review and update contract clauses to account for material cost fluctuations.
✔️ Reassess bids and estimates for upcoming projects to reflect the new lumber pricing.
✔️ Keep clients informed about market conditions and offer options to adjust project timelines or material selections.

Many general contractors include "Pay-If-Paid" clauses, meaning if they don’t get paid, you don’t get paid. This shifts all financial risk to you and should be avoided whenever possible.

Instead, negotiate for a "Pay-When-Paid" clause, which means:
✔️ You will get paid—eventually (even if there’s a delay).
✔️ The GC still has an obligation to pay you within a reasonable time, regardless of when they get paid.

📌 Action Step: Before signing a contract, review the payment clause carefully. If it says "Pay-If-Paid," push back and request "Pay-When-Paid" instead.

Instead of waiting until the end of a project for a lump-sum payment, establish a progress payment schedule to ensure steady cash flow.

✅ Define clear milestones (e.g., 30% at material delivery, 50% after rough-in, 90% at substantial completion).
✅ Include a payment due date (e.g., “Invoices must be paid within 14 days of submission”).
✅ If possible, require a deposit upfront to cover material costs.

📌 Action Step: Structure payments so you're not fronting too much labor and materials without getting paid.

If there’s no penalty for late payments, some GCs will delay paying you as long as they can. A strong contract should include:

✔️ Late Payment Penalty: Example – “Invoices not paid within 15 days will incur a 5% late fee.”
✔️ Interest on Overdue Balances: Example – “Outstanding payments accrue interest at 1.5% per month.”

📌 Action Step: Be firm about enforcing late fees. If a GC consistently delays payments, reconsider working with them in the future.

✔️ Review your subcontract agreements and add these terms if they’re missing.
✔️ Always discuss payment expectations upfront before starting a job.
✔️ If a GC pushes back, be willing to negotiate—but don’t agree to terms that put all the risk on you.

📌 Legal Tip: Always include a price fluctuation clause ( aka a material escalation provision) in your contracts so you’re not locked into outdated material pricing.
😂 Contractor Humor: “Why did the electrician break up with his girlfriend? She kept short-circuiting his plans!”

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👷‍♂️ Stay safe, keep building smarter!
— Benjamin Patton