Materials escalation clause for small businesses – Radio Guesting January 14, 2022

Materials escalation clause for small businesses – Radio Guesting January 14, 2022

| News & Updates

00:00

Currently in downtown Phoenix. It’s 65 degrees.

00:03

At FR Law Group, we approach the law from a business perspective because we share your business mindset by representing hundreds of companies over decades. Our firm has the business acumen necessary to help your company create a sound budget while avoiding the usual pitfalls. Get the benefit of our national-level experience without the national-level price tag. FR Law Group, the right team to have on your side. Call 602-566-7425 or visit frlawgroup.com.

00:42

So welcome back everyone, we are live on Facebook. I want to say hi to everybody out there. Like us and follow us, we’re going to be sharing the show later on today. Put into the, you know, into Facebook, the networking Arizona and watch us in here doing here it is really pretty fun to do and, you know, check it out. So I’m going to go in with my next guest who I’m really excited about having him on. I have with me, Richie Edwards, and he’s an attorney with FR Law Group. You know, I’m so excited, I’ve met you the last time that you were here. We’re going to be talking about something a little bit different and I want you to explain what we’re going to talk about and how it’s applicable to many people out there, many businesses. So welcome to the show, tell everybody a little bit about yourself and what you do.

01:33

Great. Thanks, Carol. So like you said, I am an attorney with the FR Law Group. I’ve been there for a little while and I do– Troy’s been on here before, he does a lot of the business recovery and insurance stuff. Another partner there does primarily construction law. So I get the benefit of doing a little bit of both in those and today, as you said, I want to talk about something that’s particular to construction law but I think has wide applicability to all business contracts particularly, small businesses. In the construction contract, that’s called a material escalation clause, the materials escalation clause is something that assigns risk to one party or the other. In a quick example, a general contractor wants to build an apartment complex with hundred units and he signs up a number of subcontractors. Each one of those subcontractors gets a contract. Let’s say the steel contractor has to provide X number of steel, they have a contract and it is for X amount at the very beginning of the project. Included in the X amount are all the different materials that he’ll use as well as his labor. Now, the materials escalation clause, what it does is it assigns risk. It says if the cost of one of these materials goes up, who has to pay for it? Is it the general contractor, so his price goes up? Does the subcontractor have to eat it and he makes less money? Who gets to deal with it? And it’s important, particularly now, as things are always shifting, prices are changing, inflation’s coming. Who’s going to be caught with that burden? It can be the difference in you making money or losing quite a bit on a particular job.

03:07

Well, when you said that it’s applicable to many businesses and you said particularly small businesses, give me an example of what you mean by that in terms of who. Let’s talk a little bit about like an incident that would happen. Like here at the radio station, when their mics go up or something like that.

03:28

That’s exactly right. That’s a great example. So a radio station, maybe a clothing company, you know, a small business that makes T-shirts, the radio station. Typically, smaller businesses, as we know, have a little bit less bargaining power. Right? So you’re buying mics from a big, I presume, national company. Sells to a thousand radio stations across the country and they sort of set their prices. They probably dictate their contracts to you and you’re stuck sometimes with what they say. Now, if we ignore the material escalation clause, these big businesses with all the power, their clauses are going to be very favorable. It’ll say, “if our prices go up, you have to buy it no matter what.” you’ve agreed to buy a hundred mics, you got to buy a hundred mics, you get to buy them at the new price, and we get paid more money no matter what. Now, if you have somebody negotiate that for you, you can get it well. If the price goes up, we either get the option to not buy the mics or we can get to buy them at the old price. We split the difference. There are a number of different ways you can do that. Now, the example I was thinking about, the radio station works perfectly. One I think about sometimes is a small business, maybe that creates clothing for a school clothing for sports teams, something like that. They’re getting their bulk T-shirts from somewhere that’s a national company and they have their prices. If imports/exports duties go up, prices go up. That national company is going to charge more and the cost either get passed on to you and I as consumers or that small business has to lose some of their profit. 

04:57

Do they have to let them know? Like in advance? I’m saying… their prices go up sometimes and certain things, we understand that. A lot of people say, “Well, that’s the cost of doing business”. But if you’re saying that it’s in the contract, “who’s going to eat that?” it could be very costly for that small business. That’s where you come in?

05:26

Correct. That’s where we come in and it’s particularly helpful we’re there right from the very beginning. So that we can negotiate that contract with the big person, it’s admittedly a little more difficult, if the contract is already signed, to try to get around a bad price escalation or material escalation clause. But if we’re there from the very beginning, we negotiate that and figure out a way to make that either more beneficial for the small businesses or at the very least, let this small business know, “Here’s your risk. Your risk is many thousands of dollars if a price goes up”. So maybe you need to pre-purchase a number of things in bulk, maybe you need to three think that steel, find a different supplier if they won’t renegotiate. So right from the very beginning, we can let you know what your benefit is, what your risk is and then help you proceed in along one path or the other depending on what your appetite for it is

06:21

FR Law Group, they work nationally and their website is frlawgroup.com. You can call them. Their phone number is 602-566-7425. They do free consultations and you know, the thing is, that they are also local here. Even though your are local here, as a matter of fact, right here in Phoenix yet you can help anyone from anywhere listening to this. Obviously, when somebody is thinking about purchasing something, when is the best time to call you?

06:57

Well, we think the best time to call us is right from the beginning of any deal, particularly between businesses. Now, that’s maybe a little bit biased because admittedly we get paid by the hour, we’re going to get paid earlier if you sign up with us earlier in the deal. But the reason I say that is because the expertise at our office, we’re often able to anticipate and avoid problems that are much more costly down the road. If we can help you get into a really well-written and beneficial contract that avoids risk, then you avoid so much more heartache, years, months, decades down the road of on-litigation.

07:35

And what you’ve done at FR Law Group is they’ve taken their expertise of, corporate and big and they’ve made it so that the smaller person, they can get that type of service. I want to talk a little bit about that. Can you go ahead and explain that a little bit?

07:54

Yes, of course. So, that’s exactly right. The partners that FR Law Group come from larger multinational corporations, large really big law firms that are across the country and world, and servicing very big clients, they have that corporate expertise that is what any of the big businesses want and typically what a small business can’t get. What they’ve done now is created this small firm, local here in Phoenix, but able to help across the country that tailors our work to small businesses. So we can provide a small business, a level of expertise that one of your big corporations chase any of the other big ones will have but at a lower cost and tailored to the small business because there are going to be problems, challenges that a small business might face that may be slightly different than those that–

08:40

A contract is a contract whether you are a corporation or whether you’re small.

08:46

That’s correct and that’s exactly right. That’s 100% the contract is the contract and what I mean by different is, things may be more important to you, that aren’t necessarily as important to change

08:59

Right, and I have to say you’re so right. Because sometimes like, if they lose, so it’s a little bit, they don’t really care. But when you’re a small business and you are– it’s all you know, you put your heart and soul into this and whatever it is that you’re trying to do, money is money. Especially now and then this, to a small business owner.

09:20

Correct. That’s exactly right. And so we want to, from the very beginning, give you a high level of service that gives you a level of risk that you’re comfortable with. Knowing we’re going to go forward, it’s the best contract you can have and you know your risks and the maximum benefit you can get from that and we can do that right from the beginning.

09:37

They do free consultations, their website is frlawgroup.com, their phone number is 602-566-7425 and they work nationwide. You know, it’s so important that people are proactive. Is that what we’ve been talking about a little bit today? Being proactive and getting somebody before anything happens. Now, one of the things that you wanted to talk about, and I think what we’re going to do is we’re going to go to a break first– I got a new board operator– so we’re going to go to a break first before we get in. We’ll talk a little bit more about this when we come back. It’s BABA. I think I said that right? Okay, so we’re gonna go to Rick, we’re gonna come back, and we’re gonna talk further. Check it out. Hold on.

13:32

So welcome back, everyone. We’re talking with Richie Edwards and he’s an attorney with FR Law Group. And just before we went on a break I said we’re going to be talking about BABA. I had asked you what that is, Build America Buy America Act, and we’re going to talk a bit about that. So first of all, what is it?

13:51

That’s a great question. So BABA, in one form or another, has been around for a really long time. And what it is, is requirements that producers, companies use materials typically that were produced in America, right. Build America, Buy America. So the new version went into effect with the infrastructure bill that was signed in November of last year. When that was signed, it included some new provisions on the Build America, Buy America Act. What it did really was, it extended the scope of that act and heightened the requirements that people have to make. So under the old provisions, it was limited to maybe steel and iron. Only certain projects had an impact, but not nearly as widespread. What it’s done now is it covers many more materials that are used in construction on top of steel and iron and it heightens the requirements of the percentage of that material that has to be produced or purchased from an American company or produced in America to be able to be used on infrastructure and construction projects throughout the country.

14:59

Okay, so we’ve talked a lot about steel and iron, and let’s talk about how bringing that down now to the smaller business too.

15:07

right. So what it really is, in my opinion, it hasn’t gone into effect. The bill was signed in November, the Build America, Buy America provisions are likely going to go into effect middle of May of this year. So it hasn’t gone into effect, so its impact is a little bit unknown, but I believe and we believe that it’s going to cause costs and prices to increase on certain construction projects. Now, in the construction projects then affect everybody down the line and affect other types of businesses when that cost increase hits, and we talked a little bit in the last segment about getting to us early and being prepared, if you’re under an old contract or purchase agreements, or heaven forbid, using materials that no longer comply with the Build America, Buy America Act. You’ll not be in compliance, you’ll maybe be met with fines, not given contracts and see your price go up and that’s something we certainly want to avoid for any small business construction or otherwise in Arizona.

16:08

Well, the best thing to do is to call and you say to call early, because one of the things that you’ve said the most today to me is that, a lot of times when you see people after the fact. When it’s after the fact, first of all, it’s harder to fix the problem, right? But what you say is that people end up like they try and they don’t think about doing this, or they try and do it on their own. They don’t hire and then they end up paying way more.

16:40

That’s exactly right. So we’re thinking about it, maybe a small subcontracting drywall company, a small window company, and they think, “Man, it’s gonna be expensive to go to a lawyer to review this contract, pay them and I don’t really have the cash and I’m just trying to get started.” So sometimes they’ll download a form contract from online, sometimes they’ll get it from a friend, Dr. Google. And wow, that’s exactly right. And they’ll go in those contracts aren’t necessarily totally bad. But they have certain things in them that aren’t necessarily applicable to your certain deal that you want to do.

17:15

Well, I think more than anything, you don’t understand the lingo.

17:18

That’s exactly right. And you don’t maybe know what something means in the legal world that’s different from yours. So when you do that, and I understand it, it’s cheaper. We’re all trying to save money and get it done. But when you save that money on the front end, often, there’s something wrong with the contract that hurts you on the back end, and then you’ve got to start to litigate, you have to go to court, you get sued, or maybe you don’t get paid what you’re expecting to get paid. Now you have to come to us. And that process, unfortunately can take many months and often years to resolve, spend more money on it, and doesn’t always get the best, best solution that you would have gotten maybe earlier on in the process.

17:57

Well, the phone number to call it’s 602-566-7425, they do free consultations, the website is frlawgroup.com, and they work nationwide. They’re located here, though they’re located right here. They’re local, but they can help anyone from anywhere. What is and I hope I’m saying that right? Pertinent impact.

18:19

Right? So with respect to the Build America, Buy America, the BABA act, its impact right is I think pertinent not just to someone that’s looking to go into the construction business or a construction company, but the lessons that we can learn are pertinent to all of us now. Especially in this inflationary and climate that we’re still in the COVID-19 world, right, or the post-COVID-19 world. So the lessons I think we can learn just very quickly from the BABA is that there are requirements that you and I don’t have any control over, that are going into effect or not, and they’re going to cause price increases for businesses, they’re going to change contracts. And if businesses don’t prepare for that, they get hit at the end with fines, costs, bad contracts, expensive litigation. And that’s the same with all of us, whether it be inflation goes up, whether our insurance contract didn’t cover a pandemic and we had bad insurance, business policy, a number of things. If we weren’t prepared for changes, then it’s going to be more expensive on the back end. I know this is something that’s beneficial to us, so you can take it with a grain of salt, but if you come to us early, we can help you, I believe truly better than anyone in the valley, prepare your small business for the risks that you’re going to face in the climate. And I’m not saying I have a crystal ball and I know what’s coming next, but we know the things that are hard in a contract, the things that typically get fought over, the things that might cause you to lose money. We can go and we can prepare you for those in the backend whether it’s Build America Buy America acts, whether it’s that your T-shirt your cotton prices went up, whether it’s your mics went up. Whatever it is, we can help you prepare for it now so that when it comes you can go at it face it with peace of mind, and know that your business is in the best place that it possibly could be.

20:08

So when they call and give it, let’s say they know that they’ve got this first year, it’s a great time to be talking about this. It’s a new year and they know that they make these purchases that are going to be coming up, right? Call you when? Call you, you know, before you’re even going to make that purchase? Talk to you about the purchase that they’re planning? How does that look? 

20:31

Right, I think you want to call once you know what you want to purchase when you want to purchase it, and likely who you want to purchase it with. Then what we’ll do, you call us, we give you the consultation, we talk, and we spend a lot of time getting to know you, your business, and what you’re really looking for in a business. For somebody, one provision of the contract might not be that important and another may be and it might be different for each individual. So what we really want to know is for you, as a business owner, what are your goals? Where do you want your business to go this year, next year, and in 10 years? What risks do you really want to avoid? At that stage, the beginning of your contracts, we can then negotiate with the other side and say, “we’re just simply not going to accept something that gives them this risk they don’t want to do”, we walk you through it. Then that contract that you have, once it’s over, you know where to purchase, you know, what you’re getting, you know, the risk you’re facing and as a business owner, I think that’s valuable. Because it allows you to use your skills now in your business world, and leave the legal to us and you can focus on doing what you do best.

21:32

That number is 602-566-7425. So I want to ask you what I’m thinking of the other person that said, small business owner. So let’s say we were to get into a contract with one another and I know that I’m going to be purchasing X, Y, and Z. Could you help them with being able to keep that price at that price? You know, obviously, through whatever that contract was going to be when the next one they purchase again, I’m sure that’s different. once the contract is– can you help them with that?

22:07

Yes, certainly. And what we would really want to do is we make sure, “Hey, this is maybe a two-year purchase contract or a 10 order purchase contract, that this price that we’re agreeing on, is going to be the same”. There are a couple of ways we can do it. We can make sure that the seller is forced to sell those things on their contract terms or we can say if you’re going to raise prices, you got to give us a break somewhere else, you have to do something. But yes, at its core, we can make sure that you get the benefit you expected when you sign the contract. Then after your second purchase order, things haven’t changed and now you’re stuck trying to find a new supplier or trying to deal with increased costs.

22:45

Right. And I think that’s a smart thing. But there are people like you said, the most thing that people do is they wait. And is it too late or Can you talk to him? I mean, this is important, you know, so maybe they don’t know what their contract says. Can they speak to you and say, “Hey, you know, I’ve got this contract? I’m not sure. I think they’re going to raise the prices”. What are your thoughts on that?

23:10

Certainly, it’s never too late. That’s number one. Number two, come to us, we’ll look over the contract and we can tell you what to expect in the contract. And then you have a couple of options. If the other side is has broken their contract, they’ve not done what they agreed to, well, then we can maybe go to litigation, we can get involved and try to get your benefit or if it’s right before that we can try to renegotiate with the other side and say, “Hey, we know you’re looking to raise prices. Let’s renegotiate and try to get better terms for everybody, instead of you just imposing this on our client”. So no, it’s certainly not too late. If you can’t get us at the beginning, we understand it happens. We’ll help you now and do the best for you as we can going forward to make sure you’re taken care of

23:53

And explain to them again, how FR Law Group has brought the corporate world to make it easier on the small business person, and as you said earlier, for a little bit more affordable to go.

24:05

That’s exactly right. Well, our two founding partners come from very large national law firms dealing with very large national businesses and national and even international deals. They’ve taken that expertise, the things that are very important, and they’ve brought it here to Phoenix to small businesses for a much cheaper and more affordable rate so that we can tailor that big, big city quote-unquote experience to you and I here in Phoenix.

24:30

And they’re local here but they can help everyone anywhere, so it’s nationwide. They do free consultations, their phone number is 602-566-7425. You gotta check them out on their website, it is frlawgroup.com Hey guys, you know what it is a new year and you have to make sure that you are taking care of and you have to know what your it is all about contracts. That’s what a lot of choice says it’s all about the contracts and knowing what they say 602-566-7425. It’s frlawgroup.com.