Work out contract value escalation instantly with clear inputs, formula shown and shareable results.
Escalation clauses usually apply only to a defined portion of contract value — typically labour and specified materials — with the remainder held firm. Compounding the index over the elapsed years and applying it to that portion only gives the correct revised value.
Escalation factor
Factor = (1 + Annual escalation rate)^Years
Escalated value
Value = Escalatable portion x Factor + Fixed portion
Indicative calculation. Actual entitlement depends on the escalation clause wording, the specified index, base date and any caps or collars. Not legal advice.
Because profit, overhead and pre-purchased materials are not exposed to inflation. Escalating the whole value overcompensates the contractor.
Compounded, if the clause references an index level. Simple escalation understates the increase over multi-year terms.