A rise and fall clause is a contract provision that adjusts the contract price when the cost of specified inputs changes after the date of tender. The clause identifies which inputs are covered, sets a base index or base price, and provides a formula for calculating the adjustment when costs move relative to that base.
The purpose of the clause is to allocate cost fluctuation risk between the principal and the contractor. Without one, the contractor carries all cost risk. With one, some or all of that risk shifts to the principal.
Rise and fall clauses appear under various names: price escalation clauses, cost adjustment clauses, CPI adjustment clauses, or fluctuation clauses.
No. The majority of private sector construction contracts in Australia are fixed-price lump-sum contracts with no cost adjustment mechanism. Rise and fall clauses are more common in government contracts, long-duration infrastructure contracts, and contracts involving significant materials procurement.
If you do not know whether your contract has a rise and fall clause, check the full contract document including all schedules and annexures. Search for: rise and fall, price adjustment, cost adjustment, escalation, fluctuation, CPI adjustment, index adjustment. The clause will not be implied. If it is not written in, it does not exist.
AS 4000: check Special Conditions carefully. No automatic mechanism exists in the standard General Conditions.
AS 4300: same search applies. Check Schedule 1 and any Special Conditions.
NEC4: Option X1 is the price adjustment for inflation option. Check whether Option X1 is listed in the Contract Data as a selected option. If it is not listed, it does not apply.
GC21 Edition 2 (NSW Government): Schedule 7 deals with cost reimbursement. Check whether Schedule 7 has been completed in the Contract Particulars.
AS 2124: check Special Conditions and any Schedule provisions.
The clause selects one or more published indices as the reference point. Common indices include the ABS Producer Price Index, the ABS Consumer Price Index, or a project-specific materials index.
The clause sets a base date, usually the date of tender or contract execution. At each payment milestone, the current index value is compared to the base value. If the current value is higher, the contractor is entitled to a price adjustment.
The clause typically specifies which portions of the contract value are subject to adjustment. A clause that applies to 40 per cent of the contract value provides 40 per cent of the protection, not full protection.
The base index does not match actual cost increases. A clause that adjusts on CPI will not accurately reflect a 67 per cent diesel increase.
The clause was not included in back-to-back subcontracts. If your head contract has a rise and fall clause but your subcontracts do not, the protection does not flow through.
Notice obligations have not been met. Many clauses require notice of a claim within a specified period. Missing the deadline can extinguish the entitlement.
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The absence of a rise and fall clause does not mean there are no options. It means the options require more effort, more documentation, and in most cases a commercial negotiation rather than a straightforward contract claim.
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Rachelle Hare is a construction lawyer and business adviser with 25 years of experience, including in-house roles at Thiess, Laing O’Rourke, Acciona, DHA, and UGL. She advises construction businesses on contracts, cost recovery, risk, procurement, commercial strategy, and business structuring across Queensland and Australia.
