Price variation provisions

In times of inflation it may be advisable to include clauses within the contract which set out how the contractor is to be reimbursed his extra costs due to any inflation of prices after he has tendered. Without such a clause the contractor has to add a margin to his prices to cover expected inflation, so he runs a risk he might not have allowed enough while the employer runs the risk that he might have to pay more than the actual inflation increase.
Calculating extra costs due to inflation can be complicated and time consuming for the contractor and the employer’s supervisory staff, so that often a formula using officially published indices of prices is used instead. The contract has to set out how such indices will be used (see Section 16.8).