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A price variation clause adjusts the contract price by the movement in a named index between the base date and the adjustment date, subject to a cap that limits the buyer's exposure. The cap also protects the supplier when the index falls, if it is symmetric.
Index movement
Change % = (Current index / Base index - 1) x 100
Revised price
Revised = Original price x (1 + Applied variation), bounded by the cap
Indicative estimate only. Fees, entitlements, limits and formulas vary by jurisdiction, statute, policy wording and the facts of the case. This is not legal, tax, insurance or financial advice — confirm with a qualified professional or the relevant authority.
Symmetric caps are fairer and easier to agree. A one-way cap that only limits increases will be priced into the bid as a risk premium.
The clause should nominate a successor index or a mechanism for agreeing one. Without it, the escalation provision can become unworkable.