Contractors Spent a Decade Improving Escalation Clauses, but the Problem Underneath Remains Unnoticed

The Volatility Is Bigger Than The Clauses Cover

Overall construction input prices rose about 7.4% year over year in July 2026, according to Associated Builders and Contractors’ analysis of U.S. Bureau of Labor Statistics data.

The monthly change looked calm: just 0.1%. But that number hides what was happening underneath. Natural gas prices moved more than 10% in one month. Crude petroleum dropped almost 12%. Lumber and steel kept climbing. ABC’s chief economist also said materials prices were likely to keep rising in the months ahead. A single monthly number can’t capture that kind of movement. Some materials are climbing quickly. Others are falling just as fast. Some barely move at all.

An estimate built from one point in time can’t capture that spread either, no matter how accurate the takeoff was that day. That’s where the limits of escalation clauses become clear. A clause can cover steel, copper, or diesel because someone saw the risk and negotiated around it. It can’t cover a risk nobody saw coming.

And the materials that cause trouble aren’t always the obvious ones. Sometimes they’re the materials that looked stable when the estimate was built and started moving months later, somewhere between bid submission and mobilization.

Confidence Is Running Ahead Of The Pricing Discipline Behind It

Despite input prices sitting more than 7% higher than the prior year, contractors still expect their profit margins to expand over the next six months, according to ABC’s Construction Confidence Index.

That could mean the market is strong and contractors have enough pricing power to protect their margins. But there is another possibility: firms may be relying on a few negotiated clauses to cover a much bigger pricing risk than they have actually mapped.

The gap becomes most obvious at buyout. An estimate reflects prices from the day the takeoff was done. Then weeks pass before the award. More time passes before the buyout. By the time subcontracts are signed, the market may have moved.

Sometimes it moves on to the materials covered by the escalation clause. More often, the surprise comes from something that wasn’t covered at all.

That’s when a subcontractor’s number comes in over budget on a scope nobody thought was high-risk.

Estimating Built The Wrong Muscle

The industry’s response to volatility has been mostly contractual. Firms have gotten much better at negotiating who carries the risk when prices change. They haven’t gotten nearly as good at checking whether the original estimate is still right when it matters. Those are two different things.

That shows up most clearly in how teams are staffed. Contract administrators and estimators negotiating escalation language report to different functions than the people responsible for tracking cost after award, and the two rarely compare notes until a budget review forces the conversation. By then, the gap between the original number and the market has already widened.

A takeoff gives a number that is accurate for the moment it was done. But everything that happens after that, including awards, buyouts, and procurement, often assumes the number is still accurate.

In a market where some materials can move by double digits in a single month, relying on that assumption carries real risk.

Fixing this does not require abandoning escalation clauses – it requires treating the estimate itself as something that gets checked again, not just once, at the moments when volatility actually does the damage.

What Does That Look Like In Practice?

A few changes can separate firms that manage this well from those that find the problem the hard way.

First, check pricing at defined points after bid day. At a minimum, that means revisiting awards and buyouts. The goal is simple: close the gap between the price used in the estimate and the price the project will actually have to pay.

Second, look at risk by trade and material. A steel-heavy structural package and a labor-heavy finish scope don’t face the same kind of price risk. Applying a single inflation assumption across the entire estimate can obscure that difference.

Third, use current market data when making buyout decisions. Don’t keep relying on the price that was current when the takeoff was built. If a material cost has fluctuated since then, the estimate needs to reflect that before the purchase decision is made. This is easier when the estimating process moves fast, which is why estimators are increasingly turning to AI-based takeoff and estimating tools like Beam AI to cut out manual work and essentially rethink how a takeoff gets built in the first place. Otherwise, the estimate is accounting for a price that no longer exists.

Fourth, assign clear ownership for tracking the estimate after it’s submitted. Right now, an estimate is often treated as finished the moment it’s handed to the project team, with no one accountable for checking it against reality as the job moves forward. Someone needs to own that number the same way someone owns the schedule.

The Clause Was Never The Whole Answer

Escalation clauses still matter. They remain one of the few contract tools that recognize a simple reality: prices can change after a contract is signed. Any contractor negotiating without one for a volatile material is taking on that risk with no protection. That part isn’t really in question.

What is worth questioning is what the clause quietly assumes about everything it doesn’t name: that those numbers are fine, simply because nobody flagged them. That assumption gets less scrutiny than the clause itself ever does.

Seven percent input price growth in a year is not, on its own, the risk. The risk is a bid that went out the door and was never opened again.

Shiva Dhawan is the Co-Founder and CEO of Attentive.ai, a company that is transforming how the construction industry operates through AI-powered preconstruction platforms.

A mechanical engineer turned entrepreneur, Shiva started Attentive.ai based on three core beliefs: AI will change industries, images have huge untapped potential, and solving the customer’s problem should always come first.

With Shiva leading the way, Attentive.ai has become one of the fastest-growing AI companies in construction technology. Its flagship platform, Beam AI, supports takeoff and estimating for over 1,200 customers, while its newest launch, BIM CoPilot, handles the entire BIM workflow, from multi-trade modeling and coordination to shop drawings. The company now has 900+ team members and more than $12 million in annual revenue, helping contractors use AI to improve how they bid, build, and grow.

Before founding Attentive.ai, Shiva worked as a business consultant at Kearney and then later became CEO of a deep-tech service company, where he grew the business to $2 million in annual revenue. He earned his Mechanical Engineering degree from IIT Delhi and has built a career focused on technology, design, and industry transformation.

Attentive.ai provides AI-based software for takeoffs, estimating, and bid management, along with fully managed BIM services.

Its portfolio includes Beam AI for AI-based blueprint and aerial takeoffs, estimating, and bid management, and BIM CoPilot for fully managed BIM services. The two offerings support contractors across critical stages of the construction lifecycle, from bidding for more projects to executing them successfully.

Beam AI supports takeoffs and estimating through two workflows. Its Done For You workflow provides 99%+ accurate, QA-checked takeoffs and estimates across 15+ trades, while its Do It Yourself workflow delivers instant AI takeoffs for HVAC, plumbing, and steel. Beam AI also provides aerial measurements for landscaping, paving, snow removal, and facilities within 2 to 10 hours. Beyond takeoffs and estimating, Beam AI offers bid management capabilities that capture ITBs from your inbox and help teams track bid statuses, due dates, owners, RFIs, and addenda in one organized view.

BIM CoPilot provides fully managed BIM services handled by experienced BIM experts. It helps project teams expand their BIM capacity without adding headcount or managing additional software, while reducing clashes, minimizing rework, and protecting project margins.

Attentive.ai is trusted by 1,200+ businesses across the U.S. and Canada and rated 4.9 across G2, Capterra, and Software Advice.