This guide deals with the application of price adjustment provisions in contracts for goods, works and installations. Price adjustment is a change in the total price of a contract to account for legitimate changes in the cost of its performance. The price adjustment provisions contain formulas designed to protect both the borrower and the contractors from price fluctuations. Price adjustment formulas allow contractors to offer more realistic prices at the time of tendering by estimating the actual impact on costs. Different price adjustment formulas are used for contracts of different sizes and for different components. If the prices are adjustable, the following method is used to calculate the price adjustment [see Annex to this CSC for a model price adjustment formula] GCC 17.1 Supply of GCC sample 17.1 aThe type and terms of payment to be made to the supplier under this contract are as follows: Payment for goods delivered from abroad: Payment of the foreign currency portion is made in Section VIII (BTN). By using SEIFSA`s price and index pages (PIPS) in a CPA, the buyer can be sure in the contract that market-related increases will be paid to suppliers (as determined by the CPA calculation) to ensure sustainability/improved profitability. A contract that does not contain a clause to adjust current price changes during the performance of the contract is called a fixed-price contract. If the period between the date of the contract offer and the completion date is so short that the contractor`s or supplier`s costs vary to a negligible extent, a contractor can be expected to enter into a fixed-price contract. (g) At the beginning of each option year, within 5 days of the start of the option period, the agent will process an amendment to the contract in which the prices for the option year are adjusted according to the then-current percentage of the change in the index point, if any, reflecting the new adjusted prices for that first contract adjustment period during that option year.

If a formula and its component definitions have been clearly defined and contractually agreed, the escalation calculation process is quite simple. 5. At the beginning of the first option year and each subsequent option year (and for each contract adjustment period referred to in point (d) during that option year, if different), the agent shall recalculate the contract prices or price units for that first option year on the basis of any change between the adjustment index and the basic index, from the initial contract award date to the beginning of the first option period and on the basis of the new option period. Annual prices of the contractor`s options. Suppose that the contractor`s bid price for the first option year for the example item above was $25.50 and that the calculations listed in paragraph (e)(1) of that clause at the beginning of the first option period reflected a 6% change in index points. The new contract price for this sample at the beginning of the first option period would be calculated as follows: $25.50 × $0.06 = $1.53, $25.50 + $1.53 = $27.03. The contracting officer would process an amendment to the contract that reflects a revised contract price of $27.03 for the first contract adjustment period in the first option year. If the overall inflation rate increases, a contractor`s or supplier`s cost is likely to change in a relatively short period of time, so that if a supplier commits to a fixed-price contract, it has no certainty that it will maintain its profit margin.

When concluding a fixed-price contract for an extended period, the supplier should include an emergency provision for inflation in the price or offer. (1) For all calculations made during the respective contract period, the initial contract price or the post prices for that contract term (e.B. base year) and recalculations shall be made for each contract adjustment period referred to in point (d) during that contractual period. Maximize the potential benefits of their contracts by using SEIFSA PIPS in their CPA calculations. An important aspect of restoring escalations in a contract between two parties is the inclusion of an agreement between both parties on all aspects of a contractual escalation or CPA. The basic logic of a CPA is to adjust the strike price (the price at the beginning of the reporting period) by means of a market-related change to calculate a new price to ensure a fair result for both parties […].