Price escalation calculator
Use this only if your contract has a price adjustment clause. The index formula Pn = a + b(Ln ÷ Lo) + c(Mn ÷ Mo) adds a fixed part to weighted index ratios. The weights and the fixed part must add up to 1. The adjustment is (Pn − 1) × the value certified for the period.
The formula
The calculator evaluates Pn = a + b(Ln ÷ Lo) + c(Mn ÷ Mo) + … where a is the fixed, non-adjustable part and b, c and the others are the weights of up to four components: labour, materials, plant and other. Lo, Mo are the base indices and Ln, Mn the current indices. The price adjustment for a period is (Pn − 1) × the value certified in that period. A result below 1 gives a negative adjustment, which is a credit.
The weights and the fixed part must add up to 1. If they do not, the calculator says so and shows no result. A component with a weight needs a base index above zero. A component with a weight of 0 is ignored. The index values are yours: take them from the source your contract names, because this page names no index source.
| Component | Weight | Base | Current | Weight × current ÷ base |
|---|---|---|---|---|
| Fixed part | 0.30 | 0.3000 | ||
| Labour | 0.30 | 100 | 108 | 0.3240 |
| Materials | 0.25 | 100 | 112 | 0.2800 |
| Plant | 0.10 | 100 | 103 | 0.1030 |
| Other | 0.05 | 100 | 101 | 0.0505 |
| Pn | 1.00 | 1.0575 |
From Pn to money
Pn is 0.30 + 0.324 + 0.28 + 0.103 + 0.0505 = 1.0575. The adjustment rate is 1.0575 − 1 = 5.75%. On AED 1,056,000 certified the adjustment is 1,056,000 × 0.0575 = AED 60,720.
Check your contract first
Most UAE lump-sum contracts are fixed price unless the contract says otherwise, so use this only if your contract has a price adjustment clause. The clause fixes the formula, the weights, the index source and the dates. The FIDIC publications page describes the standard forms, but this page does not cite a sub-clause. Follow the wording in your contract.
Where it fits
The adjustment is a payment item on the certificate. See interim payments and the interim payments guide. Contract terms sit in projects and tenders. Related: payment certificate and payment certificate calculator, retention calculator, advance payment recovery calculator, VAT calculator, variation order calculator, extension of time calculator, delay damages calculator, bank guarantee cost calculator, BOQ line total calculator, subcontractor payable calculator.
Worked example
A contract has a price adjustment clause with a fixed part of 0.30, labour 0.30 (index 100 to 108), materials 0.25 (100 to 112), plant 0.10 (100 to 103) and other 0.05 (100 to 101). Pn = 0.30 + 0.324 + 0.28 + 0.103 + 0.0505 = 1.0575. On AED 1,056,000 certified this period, the adjustment is 1,056,000 × 0.0575 = AED 60,720.
Questions people ask
Does every contract allow price escalation?
No. Many lump-sum contracts are fixed price. Use this only if your contract has a price adjustment clause.
What is the fixed part?
The portion of the price that never adjusts, written a in the formula. It is usually set in the contract.
Why must the weights add up to 1?
Because the formula divides the price into shares. If the shares do not add up to the whole, the result would be wrong, so the calculator rejects them.
Where do the index values come from?
From the source your contract names. This page does not name or recommend an index.
What does a negative adjustment mean?
The current indices have fallen below the base, so the formula gives a credit for that period.
What if a component has a weight but no base index?
The calculator asks for a base above zero, because the ratio cannot be calculated.
Can I use fewer than four components?
Yes. Give unused components a weight of 0 and they are ignored.
Is the adjustment applied to the whole contract?
It is applied to the value certified for the period, as the calculator multiplies (Pn − 1) by that amount. Your clause may exclude some items.
Is VAT included?
No. The adjustment is shown before VAT. VAT at 5% applies as it does to the rest of the certificate.
Does this follow a FIDIC sub-clause?
This page cites no sub-clause. It shows the common index formula arithmetic. Follow your own contract wording.