FIDIC price adjustment calculator. See what the indices are worth.

The FIDIC price adjustment formula converts movements in published cost indices into a change in what you are paid each month. The value of the work in the period is multiplied by Pn. Pn is built from a fixed coefficient a plus a weighted ratio of current to base index for every cost element. A Pn of 1.0386 adds 3.86 percent to that valuation.

Sub-Clause 13.8 in 1999, Sub-Clause 13.7 in 2017

In the 1999 Red and Yellow Books the mechanism is Sub-Clause 13.8, Adjustments for Changes in Cost, and the formula is written into the General Conditions. The 1999 Silver Book offers it only through the Particular Conditions. The 2017 Red, Yellow and Silver Books moved it to Sub-Clause 13.7 under the same title and took the formula out of the General Conditions altogether. In 2017 the adjustment is whatever the Schedule(s) of cost indexation produce, so the formula itself lives in that schedule, though Sub-Clause 13.7 still carries the surrounding rules: one Schedule per payment currency, no adjustment to work valued at Cost or current prices, the provisional index, and the late-completion freeze.

Where the coefficients come from

Under the 1999 books the coefficients and index sources sit in the table of adjustment data in the Appendix to Tender. FIDIC's guidance describes the usual split. The employer names the cost elements, and the contractor completes the table with an index for each and a coefficient that approximates its share of the cost of the Works. Coefficient a is the non-adjustable portion that never moves. Together, a and the element coefficients must total exactly 1.000, which is why the calculator above will not run until they do.

Tender teams often treat this table as paperwork. It is a pricing decision. The coefficients you submit decide how much of a future cost rise you will ever see again. The 1999 wording lets them be revisited only where Variations have made them unreasonable, unbalanced or inapplicable.

Base date indices and the 49-day lag

The base indices (Lo, Eo, Mo) are the values on the Base Date, which the 1999 books define as 28 days before the latest date for submission of the Tender. The current indices (Ln, En, Mn) are the values on the date 49 days before the last day of the valuation period, because indices are published in arrears. Until the right figure is out, the 1999 wording has the Engineer determine a provisional index for the interim certificate, and the adjustment is recalculated once the real index is available. The optional date fields above apply both offsets for you.

Finishing late has a price here too. If the Works are not complete within the Time for Completion, later adjustments use one of two readings. It is either the index from 49 days before the Time for Completion expired or the current index, whichever is more favourable to the Employer. In a rising market that freezes your indexation at the lower figure, so an extension of time protects your indexation as well as your delay damages position.

No adjustment data, no adjustment

If the contract has no table of adjustment data or Schedule of cost indexation, the Sub-Clause does not apply and gives no adjustment for changes in cost. That is pacta sunt servanda at work: agreements must be kept, and the price is part of the agreement. FIDIC's own 2023 guidance on inflation is plain about it. If the Employer does not take the inflation risk, the Contractor bears it.

Even where the Sub-Clause applies, both editions deem the Accepted Contract Amount to include a contingency for any rise or fall in costs the formula does not fully cover. An index can be accurate and still miss your real cost increase. Not a flaw in the arithmetic. A risk you priced, knowingly or not. Some governing laws, including the civil codes of Qatar and the UAE, contain a hardship provision for exceptional and unforeseeable events that make performance excessively onerous. The threshold is high, and ordinary inflation rarely meets it.

Where the adjustment goes wrong

The errors that cost money are rarely conceptual. They are administrative. A base index is read on the wrong date. A publisher rebases its index series and nobody notices. A provisional index is never recalculated. Work valued at Cost or current prices, which the 1999 wording excludes from adjustment, is swept into the figure anyway. Each error repeats on every certificate until someone checks.

In the 1999 Red Book the adjustment is its own line in the monthly Statement under Sub-Clause 14.3, so it rides on the cycle explained in interim payment certificates. Whether you get indexation at all is settled when the pricing model is chosen, the trade-off set out in fixed price vs remeasurement vs cost-reimbursable. On lump sum work it will not rescue a variation priced at the wrong rate, which is the subject of variations on lump-sum and LSTK contracts.

At CALIM, we check price adjustment line by line against the table, the published indices and the certificates as part of our commercial management for SME contractors.

The formula is simple. Applying it correctly every month is where the money is.