Last edited 05 Jul 2019

Fluctuations in construction contracts

Fluctuations provisions in construction contracts provide a mechanism for dealing with the effects of inflation, which on large projects lasting several years can be very significant. On smaller projects, the contractor will be expected to take inflation into account when calculating their price (a firm price). On larger projects, the contractor may be asked to tender based on current prices (prices at an agreed base date) and then the contract makes provisions for the contractor to be reimbursed for price changes to specified items over the duration of the project (a fluctuating price).

Fluctuation clauses in contracts may allow for:

Generally the contractor is not entitled to fluctuations after the completion date.

The amount of fluctuations may be calculated from nationally published price indices (for example Joint Contracts Tribunal (JCT) bulletins or public records) rather than calculating actual cost increases which could be very time consuming.

Payment calculations are then based on a project programme for activity and a payment chart against the programme resulting in a cash flow projection. Quarterly percentage assessments of inflation are then added to the projected figures allowing for price fluctuation.

If industry negotiated labour rates are known in advance or a particular commodity such as steel is subject to spiralling price rises, additional allowances may come into play.

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