Price adjustment and indexation
How a UK public contract price follows costs: fixed prices, indexation clauses, NEC and JCT fluctuations, the indices used and the clauses to check.
Updated on September 5, 2026
Price adjustment is the mechanism that moves the price of a public contract as costs change. A fixed price stays as tendered for the whole term. An adjustable or indexed price moves periodically, up or down, according to a formula written into the contract, usually built on a published index. A one-off adjustment between the tender date and the start of delivery, where that start comes late, does the same job once rather than repeatedly.
How it works
There is no statutory rule in the United Kingdom that forces a buyer to allow indexation: the form of price is a contract term, set in the contract conditions and in the standard form chosen. What the clause has to state is the base date, the index or basket of indices, the frequency of adjustment, any fixed portion excluded from adjustment, and any cap or collar.
The common patterns are:
- NEC4 secondary option X1, price adjustment for inflation, which applies a base date index and a weighted formula to amounts due;
- JCT fluctuations, where option A covers changes in tax and levies only, and the formula options track published construction cost indices;
- framework and services contracts, where an annual review clause allows a change by CPI, CPIH or a sector index on written notice, often once a year and sometimes capped;
- fixed prices for short contracts, single deliveries and most goods orders.
The indices used come mainly from the Office for National Statistics, for consumer prices, producer prices and services producer prices, and from BCIS for construction resource and tender price indices. In Ireland the standard public works contracts include their own price variation rules, with a fixed price period followed by indexation.
Where a contract has no adjustment clause, a mid-term increase is a modification, and the Procurement Act 2023 only permits modifications in defined cases: a clear review clause already in the contract, unforeseeable circumstances, low-value changes within stated limits, and a few others, with a contract change notice published for the larger ones.
What it means for a bidder
The form of price is one of the biggest risks you take. On a multi-year fixed-price contract, every cost increase is yours. Read the price clause before you build the number, and if the price is fixed, either include a realistic allowance or ask the question during the clarification window; buyers do sometimes add an indexation clause after a bidder raises it.
On an indexed contract, check that the index actually reflects your cost base: a construction tender price index does nothing for an energy supplier or a staffing agency. Check the fixed portion too, since a formula with a large non-adjustable element passes most of the risk back to you.
Then make sure you claim it. Indexation is rarely applied by the buyer's finance team on its own; it is for you to calculate the factor at the review date, apply it to the rates in the schedule of rates or the pricing breakdown, and invoice accordingly.
Example
A civil engineering firm wins a four-year highways maintenance framework with a county council, with a maximum value of £600,000. The contract conditions apply NEC4 option X1 with a quarterly review against a road-works cost index and a 10 % non-adjustable portion. When bitumen prices jump, its rates follow the index and its margin holds. A competitor on a neighbouring fixed-price contract absorbs the increase.
Frequently asked questions
What is the difference between a fixed and an adjustable price?
A fixed price never changes. An adjustable price moves at set review dates by a contractual formula, throughout the term.
Can indexation reduce my price?
Yes. The formula works both ways, and a fall in the index reduces the rates payable.
Can I ask for an increase that is not in the contract?
Only through a modification the buyer agrees and the Procurement Act 2023 permits. It is never automatic, so negotiate the clause before signature rather than after.