Recent News

Price Adjustment in Contract | How to Calculate Escalation

 Price Adjustment in Contract

Price Adjustment is cost control mechanism to adjust the escalation. If the project period is longer than 24 months, client might propose price adjustment in order to bear market escalation that might occur. Provision of Price Adjustment is stated in SCC Clause 53.1 of contract document. Maximum amount of price adjustment is stated in SCC 49.1 of  a contract document. 

Index of Price Adjustment

  • pn = price adjustment factor
  • A = coefficient. This is also fix coefficient. Generally its value is 0.15.
  • b = labor coefficient or proposed weightage of labor in escalation. Shall be submitted by contractor while bidding.
  • c = construction material coefficient. Shall be submitted by contracted while bidding.
  • d = equipment coefficient. Shall be submitted while bidding.
  • Ln = Current Labor index value 
  • Mn = Current Construction Material index value
  • En = Current Equipment index value
  • Lo = Base period Labor Index Value
  • Mn = Base period Construction Material index value
  • En = Base period Equipment index value

Base period is the time frame of 30 days before the bid is published. Example: if the bid is published in 16th of June 2020, the base period is 16th of May 2020 i.e May/June index will be effective.

Thus, Lo=495.97, Mo=103.45, Eo=107.74. 

Lo index is listed in SWRI and Eo & Mo in WPI.

If the IPC is submitted in 4th May 2021, then the Ln, Mn, En shall be drawn from index of 4th April  2021, i.e March/April.

Thus, Ln=514.53 , Mo=108.21 , Eo=113.51

Assume the contractor had proposed coefficient as follow:

  • A=0.15
  • b=0.15
  • c=0.4
  • d=0.3

Then as per formula: pn=A+b x Ln/Lo + c x Mn/Mo + d x En/Eo = 0.04  

Assume the IPC amount is 1000000 (excluding VAT & PS), then the price adjustment amount = 0.04 x 1000000 = 40000. In case the IPC includes mobilization deduction or insurance payment, the sum is not eligible for PA thus shall be deducted before multiplication.

I hope, you have well understood the price adjustment. Visit NRB website for indices.

*SCC - Special Condition of Contract

*GCC - General Condition of Contract

*PA - Price Adjustment

*ESC - Escalation


  1. Pls write about the latest breakdown of E value by NRB and the value to be taken in construction contract .

  2. If a contractor proposes coefficients to be used in a price adjustment scenario and does not include a particular construction input, let's say, bitumen. When calculating the price adjustment for work done in a period where bitumen was used, can if bitumen be included in the price adjustment calculation?

  3. Depends upon contract terms. In large projects you are asked to place the base rate for the highly fragile construction materials. But in general contract allows you to fill up the proportion only.

  4. I need un help.
    If contractual agreement have date less than 18monthy and time extension is applied for remedial of time than total time of contact and extension greater than or equals to 18momths then do the adjustment is applicable or not???

  5. Extension of Time is a method of settlement for Compensation thus Price Adjustment is applicable only till the Stipulated Completion Date, extension is not considered. Further, Price Adjustment are generally applicable for projects longer than 20 months.

  6. The project has a duration of 24 months, and there is a price adjustment clause that applies after 12 months. The project is currently in its 18th month, and three bills have already been issued. The price adjustment for the previous bills has not been claimed yet. The question is whether the price adjustment for the previous bills can be claimed in the 4th bill as well.

    1. Yes, this can be claimed in 4th Running Bill. But the price adjustment for 3rd Bill & 4th Bill can't be clubbed together. It shall be reflected as 3rd IPC PA & 4th IPC PA.


Please feel free to comment & suggest me.