ABSTRACT
The escalation provision in Contract allows monthly adjustment on the payment that Contractor claims against progress due to variation in the consumer price index. Lump sum turnkey EPC mode contracts seldom have this provision, as this provision if applied defeats the purpose of the lump sum concept. If the price of cement and steel varies, Contractor can accrue substantial loss provided the Project requires large quantities of steel and cement. Although an EPC Contractor is not eligible for the price adjustment, there is an opportunity to fight for price escalation when the original contract period is extended on account of delays. From the IMF website, annual shifts in CPI can be obtained to estimate the escalation for any country. A sample calculation is provided for the escalation cost for the period beyond the original contract period.
