What is a price variation clause?
A price variation clause adjusts the contract rate when the cost of labour, fuel, steel or cement moves during the contract, so that a multi-year project is not priced on the day it was tendered.
Also called escalation clause, price adjustment.
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Price variation clause in plain words
The clause names the inputs it covers, the index each one is measured against and the period between adjustments. On a long project it is the difference between a margin and a loss, and it is claimed, not granted.
Why does price variation clause matter?
The adjustment is only paid if it is claimed, with the index figures, inside the window the contract allows. An unclaimed escalation on a three-year job is a straightforward loss on work already done.
Where does price variation clause mislead?
The formula, the indices and the covered inputs differ between contracts, and a clause can be excluded entirely. There is no standard rate to assume; the clause itself is the only source.
What do people get wrong about price variation clause?
- Measuring the claim from submission
- The exposure begins in the period the costs moved, not when somebody got round to filing. Measured from submission, months of exposure never appear.
- Assuming a standard formula
- Escalation clauses vary by contract and some works exclude them. Quoting a rate from another project is how a claim gets rejected on its first reading.
How does Crestline measure price variation clause?
Crestline treats a price variation claim as its own case, measured from the period it covers rather than from the day it was submitted, so a claim that is late is visible as a delay rather than as an absence.
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