Steel Price Spikes and Supply Disruptions: Protecting Your Business

One of the most important realities of fixed-price contracting is that courts generally hold contractors to their pricing commitments, even when steel prices rise unexpectedly. Courts treat a fixed price as the contractor’s promise to absorb that risk. In one case, structural steel nearly doubled and the contractor still had to perform. The court found that dramatic increases in steel prices “do not rise to the level” of an event warranting relief from the contract.ⁱ Established case law reinforces this principle: a rise in the market “is exactly the business risk which business contracts made at fixed prices are intended to cover.”ⁱⁱ Even a claim that performance became “impracticable” fails unless the added cost is “extreme and unreasonable.”ⁱⁱⁱ Ordinary market fluctuations in raw material prices typically do not qualify.

The takeaway is simple: This problem cannot be fixed after prices move. Protection has to be built into the contract before it is signed. In fact, one court pointed out that the losing party “chose not to include” the very protections (a price cap, a cost-sharing mechanism, or a walk-away right) that would have saved it.^iv Risks can be managed before a bid is submitted, during contract negotiations, and after the contract is signed through disciplined pricing, scheduling, procedure, and notice practices.

Managing Project Risks: Early Considerations

Before Bid

• Do not assume pricing will remain open. Identify assumptions on which the pricing is based, including the anticipated award date, issued-for-construction drawing date, submittal review duration, material release date, and shipment window.
• Shorten the proposal window. Limit the amount of time the market can affect the quoted price by keeping the proposal open for five to ten days or fix an expiration date to the proposal.
• Be aware of bid bonds. A bid bond may limit a contractor’s ability to decline work that has become unprofitable due to price increases; consider whether the proposal can expressly condition pricing on timely acceptance, receipt of design information, and authorization to purchase materials.

Before Signing

• Escalation clause tied to an index. Link the steel price to a published number like the government’s Producer Price Index, so the price moves automatically if the market moves.
• A clear trigger and a cap. Spell out the exact percentage that sets off an adjustment, and cap how far it can go. Use a hard number, not fuzzy words like “material” or “substantial,” which invite speculation and disputes.
• Tariff/change-in-law language. Say plainly that new or higher tariffs after signing entitle the contractor to a price adjustment. Most contracts do not clearly cover tariffs.
• Force Majeure. Describes an event which may excuse performance, such as the inability to acquire raw materials from the mills, a natural disaster, pandemic, or terrorist acts. Typically, a contractor is only entitled to additional time, not price increases; therefore, escalation provisions should be included in the agreement.
• Baseline-and-true-up. Set a placeholder steel price initially and adjust it up or down to the actual cost when the steel is purchased.
• Look at the project schedule. Identify the schedule dates that drive pricing risks, such as submittal and shop drawing approval timelines, RFI response deadlines, and when materials must be released to preserve quoted pricing. Present the planned baseline schedule and have it incorporated into the contract documents.
• Buy early. Negotiate terms that allow the purchase of raw materials immediately and payment within 30 days to preserve quoted pricing.
• Look at the Prime Contract. Prime Contracts may contain provisions that flow down and provide relief for price increases.

And on the business side: watch the market, buy long-lead steel early, and keep substitute suppliers available.

Sample Clauses

These are intended as starting points rather than final language. Complete the relevant provisions and have counsel tailor them to the position and applicable state law before use.

1. Steel Price Adjustment (Index-Based)

The Contract Price includes an amount for structural steel based on the [Producer Price Index for [series]] published by the U.S. Bureau of Labor Statistics as of [date] (the “Baseline”). If, when [Contractor/Supplier] buys the steel, the index has risen more than []% above the Baseline, the Contract Price increases by [100% / []%] of the amount above that []% threshold, backed by invoices and index data. [If the index falls more than []% below the Baseline, the price drops on the same basis.]

Impact: This ties the price to an objective number and allows the parties to share the difference if they choose.

2. Trigger and Cap

No adjustment applies unless the cost of [structural steel] rises more than []% above the amount included in the Contract Price for that material. The total increase under this Section will not exceed []% of the original Contract Price.

Impact: A hard percentage avoids arguments over vague words; the cap keeps the other side comfortable. 

3. Tariff / Change-In-Law

If, after the date of this Agreement, any new or increased tariff, duty, tax, or change in law raises [Contractor’s/Supplier’s] cost of furnishing steel, [Contractor/Supplier] is entitled to an adjustment of the Contract Price and, if needed, the schedule, through the change-order process, with documentation of the added cost. This applies only to changes taking effect after the Effective Date of the Subcontract, which were not previously known.

Impact: This names tariffs directly instead of hoping that a general clause covers them.

4. Baseline-and-True-Up

The Contract Price includes a baseline steel cost of $[___] per [ton/unit]. When the steel is purchased, the price is adjusted by the difference between that baseline and the actual documented cost — any increase paid to [Contractor/Supplier], any decrease credited to [Owner].

Impact: Nobody has to guess the price at bid time. 

5. Combination Clauses

Seller’s Contract Sum (including but not limited to labor, material, transportation prices) are based on current prices at the time of the Proposal. Any significant price increases (meaning a price increase exceeding []% of the price at time of the Proposal) in materials, transportation, labor, or other services necessary to perform the Work that occur during the period of time between the date of the Proposal and substantial completion of the Project, shall cause the Contract Sum to be equitably adjusted by an amount reasonably necessary to cover any such increase. Likewise, if the completion of the Work is extended more than six (6) months beyond the anticipated substantial completion for such Work, then the Contract Sum shall also be equitably adjusted.

Impact: This combines the protective clauses outlined above to provide the most concise, cohesive protection.

What to Do When Prices Increase

The following steps can be taken in response to significant price increases:

1. Read the contract first. Find every clause that can help, including escalation, tariff/change-in-law, force majeure, contingency, and the change-order process, before communicating with the other side.

2. Check the clock. Note the notice deadline in each of those clauses. This is the step people miss, and missing it can wipe out a valid claim.

3. Send written notice, now. Put the other side on notice in writing, in the form the contract requires. If a supplier is involved, the law often expects prompt notice to the buyer of any delay or shortfall as well.

4. Document everything, as it happens. Save dated supplier quotes and invoices, index numbers, tariff and government notices, and all emails and letters. Escalation and change-order requests have to be backed up with this proof.

5. File the request the contract allows. Submit a price adjustment or change order through the contract’s process, with supporting documentation attached.

6. Early involvement of counsel can help preserve options and avoid missed deadlines when significant issues arise.

Supply Chain and Availability Risk

Price is no longer the only risk. Increasingly, steel fabricators are encountering situations where material is unavailable within project schedules at any price. Extended mill lead times, limited production capacity, allocation programs, and raw material shortages can delay material procurement by months and, in some cases, years.

Contract Protections to Consider

• Revise the Force Majeure Clause. “Neither Party shall be liable for delays in performance caused by events beyond its reasonable control, including acts of God, fire, flood, severe weather, labor disputes, war, terrorism, civil unrest, governmental action, embargoes, tariffs, transportation interruptions, epidemics, pandemics, utility failures, cybersecurity incidents, or other similar events.  Without limiting the foregoing, a Force Majeure Event shall specifically include: (a) shortages of structural steel, plate, bar stock, coil, or other raw materials required for fabrication; (b) mill allocation programs; (c) mill shutdowns, production curtailments, or manufacturing interruptions; (d) transportation or logistics disruptions affecting the delivery of steel or raw materials; and (e) the inability of Seller, despite commercially reasonable efforts, to procure required raw materials from its customary suppliers within the time contemplated for performance.  Upon the occurrence of a Force Majeure Event, Seller shall be entitled to an equitable extension of time for performance. If the Force Majeure Event increases Seller’s cost of performance, including increased costs of labor, materials, procurement, transportation, storage, or fabrication, the Contract Sum shall be equitably adjusted to compensate Seller for such additional costs.”
• Procurement schedule provisions. Tie project milestones to realistic fabrication and procurement durations and reserve the right to adjust schedules if material availability changes.
• Material substitution rights. Allow equivalent material sources, mills, or specifications when approved substitutes are available.
• Owner-caused delay protection. Ensure delayed approvals, RFI responses, and design revisions entitle the contractor to schedule extensions and compensation where they impact material ordering.
• Early procurement authorization. Obtain authority to release and purchase long-lead materials immediately after award.
• Availability contingency language. Clarify that quoted pricing and schedules are based on current supplier lead times and market availability.
• Notice procedures. Promptly notify the owner or upstream contractor when procurement information indicates lead times may affect project milestones.

If material shortages develop after contract execution:

• Review force majeure, excusable delay, suspension, and change-order provisions.
• Document supplier communications showing lead-time increases and unavailable inventory.
• Provide contractual notice immediately.
• Mitigate by exploring alternative suppliers, fabrication sequencing, and substitute products where permitted.

Bottom Line

• The courts will not rescue a fixed-price deal just because steel spiked. The risk is the contractor’s unless the contract says otherwise.
• Real protection gets written in before signing: an escalation or adjustment clause with a clear trigger, a cap, shared risk, a walk-away right, and tariff coverage.
• When prices move, act fast and in order: Read the contract, watch the deadline, send written notice, document everything, and use the contract’s own remedy.

The GRSM Structural Steel team can review standard contracts and current projects to help identify and incorporate these protections into future steel packages. For more information, contact Angela Richie, Chair of the Structural Steel Practice.

This bulletin is general information, not legal advice, and the sample clauses are not ready-to-sign language. The rules that apply to any contract depend on its terms and its governing law.

ⁱFargo Mgmt., LLC v. City of Worcester, No. 2012-1028C, 2014 WL 7466746 (Mass. Super. Nov. 21, 2014).
ⁱⁱEcology Servs., Inc. v. GranTurk Equip., Inc., 443 F. Supp. 2d 756 (D. Md. 2006).
ⁱⁱⁱWaddy v. Riggleman, 216 W. Va. 250, 606 S.E.2d 222 (2004).
^ivFargo Mgmt., LLC v. City of Worcester, No. 2012-1028C, 2014 WL 7466746 (Mass. Super. Nov. 21, 2014).