The formula in one line
adjusted portion = covered portion x (current index / base index)
The term current index / base index is the escalation factor. A factor of
1.10 means the indexed cost has risen 10 percent since the base period. You
apply that factor to the part of the price that is actually exposed to the
indexed cost, not to the whole contract.
A worked example
A supply contract has a scope tied to hot-rolled structural steel. The clause names BLS series WPU101704 (Hot Rolled Steel Bars, Plates, and Structural Shapes). The base index is the value for the bid month and the current index is the value for the delivery month. You can look up any cited series on the index lookup.
Take a contract signed in September 2025 with $500,000 of hot-rolled steel scope, invoiced in September 2026.
| Base index, Sep 2025 | 277.952 |
| Current index, Sep 2026 (revisable) | 319.693 |
| Ratio, 319.693 ÷ 277.952 | 1.1502 |
| Amount at signing | $500,000 |
| Adjustment added to that amount | +$75,087 |
Live figures from the stored series, updated when the provider publishes. Sep 2026 can still be revised, so a clause should say whether the invoice uses the first published value or is trued up later.
The steps are always the same: divide the current index by the base index to get the factor, multiply the covered scope by the factor, and subtract the original scope to get the adjustment.
A cap changes the last step. As a round-number example, a 12 percent annual cap on a 500,000 dollar scope passes through at most 60,000 dollars. Any adjustment above that is either forfeited or carried forward, depending on how the cap is written.
Weighted multi-index formulas
Most real scopes have more than one cost driver. A composite formula blends several factors by their share of the covered cost:
factor = 0.55 x (steel now / steel base)
+ 0.30 x (labor now / labor base)
+ 0.15 (fixed, not escalated)
The weights above are illustrative. They should reflect the actual cost make-up of the scope and should sum to 1. The fixed portion is the part that does not move: it keeps the formula from over-recovering when one input spikes.
The standard contract forms
Two published forms are widely referenced:
- FIDIC Red Book, Sub-Clause 13.8 (Adjustments for Changes in Cost) in the 1999 edition, 13.7 in the 2017 edition, provides a table-of-adjustment-data formula with a fixed coefficient plus weighted index terms.
- NEC secondary Option X1 (Price adjustment for inflation) also compares index values at a base date and at the assessment date.
Both are composite formulas of the form above. If a contract adopts one, the Contract Data or table still has to be filled in with real series and weights.
Where the formula goes wrong
- No series code. "The steel index" is not a number. Name the exact code.
- Base and current measured differently. Use the same averaging window for both.
- The whole price escalated. Escalate the covered portion only.
- No cap. An index spike then passes through in full.
- Weights that do not sum to 1. The fixed term is usually what is missing.
Related
- Escalation clause analyzer: paste a clause and get the formula it implies, the undefined terms, and a risk score.
- How escalation clause base periods work
- Price adjustment caps and floors
- Escalation factor