Material Cost Claims 2025: UK Construction How-to Guide
When a project budget unravels because steel prices have jumped overnight or timber costs have doubled since you signed the contract, knowing your legal position becomes urgent.
UK construction businesses are facing unprecedented price fluctuations, and the difference between profit and loss often comes down to what your contract actually says about rising material prices.
Getting your construction contracts right from the start protects your business when material costs spike. Our experienced lawyers offer practical advice on contract drafting, price escalation clauses, and dispute resolution to safeguard your margins in unpredictable markets.
Material Price Escalation Hitting UK Builders
Since early 2020, construction costs have risen by an average of 39%. Some materials have seen far more dramatic increases. Fabricated steel jumped 66%, diesel climbed 141%, and lumber costs tripled. Materials now eat up between 35% and 60% of total project costs, making price swings genuinely dangerous to business survival.
Labour hasn’t stayed still either. Electricians secured 14.4% wage increases in a single year, with scaffolders gaining 9.3%. These aren’t one-off adjustments but part of a sustained cost trend that shows no sign of reversing.
The consequences are visible in insolvency statistics. Construction accounted for one in nine business failures across the UK in 2023. When major suppliers collapse, they leave hundreds of millions owed throughout supply chains. Getting cost allocation right in your contracts matters more than ever.
Who Carries the Risk Under Your Contract?
Three main contract types determine who absorbs unexpected cost increases.
- Fixed-price contracts lock in a total sum. If costs rise after signing, the contractor carries that loss unless formal written variations are agreed.
- Cost-plus contracts pass additional costs to the client, who pays expenses plus an agreed fee. This protects contractors but requires transparent tracking.
- Target cost contracts split the risk between both parties. Savings and overruns are shared.
The critical protection for contractors is a price escalation clause. This allows the contract price to adjust when specific materials exceed defined thresholds. Construction firms avoid padding bids with huge contingencies while protecting themselves from market shocks.
Good escalation clauses need four elements. They identify which materials are covered, set baseline prices, specify what percentage increase triggers adjustment, and link to objective price indices like BCIS (the Building Cost Information Service). This keeps pricing disputes factual rather than argumentative.
Legal Routes for Inflation Construction Disputes
When material costs spike mid-project, several legal routes might help you recover additional expenses.
- Variation procedures let contractors adjust prices when project scope changes or materials need to be substituted. Under JCT DB 2016 contracts, if the client instructs changes to deal with material problems, contractors can claim extra time and costs. Construction businesses should always get a written agreement from the client before proceeding.
- Price adjustment clauses link the contract to official UK construction cost data. When indices show material prices rising, the contract price adjusts automatically. Both parties use the same published figures, reducing arguments.
- Extreme event clauses cover major disruptions like war or disasters that stop work progressing. These might give time extensions, but rarely help recover costs from normal market price increases.
- NEC4 contracts (New Engineering Contract) give clearer grounds for claims. Contractors can recover time and money when clients instruct changes, provide information late, or unexpected events occur.
- FIDIC contracts (international forms for larger projects) recognise major events, including war and government actions causing material shortages. Strict notice rules apply, but cost recovery is possible.
Whatever your contract, winning claims requires documentation. You will need to submit notices on time, follow the specified procedures exactly, and keep detailed records proving both what caused delays and what they cost you.
Avoiding Cost Overruns in Construction Projects
Build contingency into your pricing. Industry practice suggests 5% to 10% of the total project value. Keep this money separate from your working capital so it’s actually there when material costs jump.
Buy early when you can. Identifying materials with volatile pricing and securing them before you actually need them removes uncertainty. Bulk buying and long-term supplier agreements help, though you need to balance this against storage costs and cash flow.
Know your suppliers’ financial health. Monthly checks on credit scores and payment histories give early warning of insolvency risk. Paying promptly builds relationships that mean suppliers prioritise your orders when materials become scarce.
Use technology to track spending. Businesses using proper inventory management software report 20% less waste. Automated estimating software speeds up the process of calculating material quantities from drawings and helps you spot cost overruns while there’s still time to act.
Discuss risk sharing upfront with clients. Honest conversations about market volatility often lead to reasonable compromises.
Get substitution rights in your contract. When specified materials become expensive, being able to propose alternatives keeps projects moving and costs manageable.
When Disputes Happen
Adjudication delivers the fastest resolution. This statutory process under the Construction Act aims for decisions within 28 days and works particularly well for payment disputes and cost disagreements. The Housing Grants, Construction and Regeneration Act 1996 backs your right to interim payments and lets you suspend work if you’re not paid.
Negotiation and mediation cost less than formal proceedings and preserve business relationships. Given that everyone in the supply chain faces similar cost pressures, collaborative problem-solving often works better than aggressive enforcement. Renegotiating the deal might sound like giving in, but it can be the smartest move. If enforcing your strict rights drives the other party into insolvency, you still don’t get paid, and the replacement contractor will face identical material cost problems.
Arbitration and litigation remain available but expensive options when nothing else works.
Get legal advice early, ideally during contract drafting. Once disputes start, catching up on missed notice requirements and procedural failures becomes difficult and costly.
Looking Ahead
Industry forecasts from BCIS suggest building costs will rise another 14% by 2030, with tender prices up 15% and civil engineering facing 24% increases. This isn’t a temporary blip that will resolve itself.
Modern contracts need price adjustment clauses, material substitution rights, realistic programmes, and clear provisions for extensions when markets move. Review your existing contract portfolio now to identify which projects leave you dangerously exposed.
Labour shortages, energy prices, supply chain issues, and trade policy are likely to continue influencing construction costs. Businesses that recognise these challenges and build protections into their contracts tend to be better positioned to maintain healthy margins. Understanding your contractual rights around material cost increases can make a significant difference to your business finances.
If you need support reviewing your contracts or managing cost disputes, our team can provide practical guidance based on your specific circumstances. Contact us today for tailored advice for your business.
