A rise and fall clause allows the parties to increase or decrease the Contract Sum during a project to reflect changes in the cost of materials, fuel and labour. An escalation clause serves the same purpose, although most versions only let the Contractor increase the price.
Most Australian fixed price lump sum contracts don’t include either mechanism, and the Contractor or Subcontractor then has to bear the increased costs.
Key takeaways
- Most Australian construction contracts do not contain rise and fall clauses or escalation clauses.
- These price adjustment clauses can protect Contractors and Subcontractors from rising prices of materials, diesel, steel and concrete on construction projects in Brisbane, Queensland and around Australia.
- Unfortunately, most Contractors and Subcontractors don’t realise they can ask for a rise and fall clause or an escalation clause to be inserted in their contract.
- Depending on the type of project and the risk of price rises in materials and consumables, consider whether your business should request that a rise and fall clause or escalation clause is inserted in the contract, whether fixed price lump sum or otherwise.
- Government Principals include rise and fall clauses more often than private developers, so Contractors bidding government and infrastructure work should check the tender documents before pricing the whole risk into the bid.
What is a rise and fall clause?
Under a rise and fall clause, sometimes called a price adjustment clause, the parties adjust the Contract Sum during a project to reflect movements in the cost of materials, fuel, plant and labour. The Contractor claims a rise and fall adjustment when prices go up, and the Principal recovers the difference when prices come down.
The parties have to settle four elements before the mechanism will work in practice. First, they agree on a published index. Next, they record a base date and the index number applying at that date. They then agree what portion of the Contract Sum can be adjusted, and finally they set a time limit for making a claim.
Contractors get the most value from these clauses on projects running beyond about 12 months, on projects with a heavy materials content, and on projects priced many months before work starts on site. Steel, concrete, electrical cable, plastics and diesel often move the furthest, and those movements can erode a Contractor’s margin quickly.
Subcontractors carry the same exposure as Head Contractors and usually have far less capacity to absorb it. Price a structural steel package in one quarter, start fabrication three quarters later, and the movement in steel alone can take the whole margin for that project.
What is an escalation clause?
An escalation clause, also called a price adjustment clause, lets the Contractor receive increases to the Contract Sum if the cost of nominated inputs goes up after the base date.
What are other names for rise and fall clauses and escalation clauses?
Australian lawyers and Principals use several names for the same escalation provision, including price escalation clause, cost escalation clause, cost adjustment clause, price adjustment clause, CPI adjustment clause and cost fluctuation clause. Search the contract for all of them when trying to find out whether your contract has a clause of this nature in it.
How is a rise and fall clause and an escalation clause different?
The two clauses differ in the way they allow the Contractor or Subcontractor to claim price changes.
A rise and fall clause adjusts the Contract Sum both ways, so the Principal recovers money from the Contractor if the index falls, while the Contractor is paid additional amounts if the index rises.
Escalation clauses are often drafted to move one way only, so that they increase the Contract Sum. This is why Contractors and Subcontractors prefer them and Principals usually push back.
How are rise and fall and escalation clauses different from Variations?
Contractors can claim a Variation when the Superintendent directs a change to the scope of the Works. Under a rise and fall clause or an escalation clause, the Contractor recovers money without any change to the scope of the Works, when the cost of the materials has gone up (or down in the case of a rise and fall clause).
Where can price adjustment clauses be found in the contract?
Most price variation mechanisms appear in the Special Conditions, the Annexure, the Contract Particulars or a schedule, rather than in the General Conditions of Standard Form Contracts.
Asking for a rise and fall clause or an escalation clause to be added
Most fixed price lump sum contracts in Australia today do not contain a rise and fall clause or an escalation clause, and very few Principals offer one. Nothing stops the Contractor or the Subcontractor asking for one to be added. Raise it in the Statement of Departures with the tender response, or during contract negotiations before signing.
AS 4000-1997, AS 4000:2025 and AS 4902-2000 leave all price movement risk with the Contractor. Standards Australia released AS 4000:2025 on 30 June 2025 and deliberately left the risk allocation between the parties untouched, so a Contractor moving from the 1997 edition to the 2025 edition gains nothing on construction cost escalation (Source).
Neither AS 2124-1992 nor AS 4300-1995 includes one, although Standards Australia drafted both at a time when these clauses were far more common in the industry. Clause 41 of each contract deals with Daywork and states that Daywork amounts are not adjusted for rise and fall even if the contract provides for rise and fall adjustment. That wording tells you the drafters expected the parties to annex their own clause.
Rachelle Hare practised as a Construction Lawyer in Queensland in the early 2000s, when Principals and Contractors regularly inserted rise and fall clauses into construction contracts by way of special conditions. Asking for one today is not asking for anything novel. The Australian construction industry used these mechanisms for decades and understood them well.
Contractors reviewing an amended or bespoke contract should also read the order of precedence clause. Drafters often leave “no rise and fall” wording in several places, and a rise and fall clause added later by special condition can conflict with that wording. The order of precedence clause tells the parties which document wins, so make sure the special condition ranks above the General Conditions before signing.
Rachelle Hare – In My Experience
Contractors rarely raise price escalation during tender negotiations. Most of them assume the standard form cannot be changed, even though they will happily lodge a Statement of Departures on insurance, liquidated damages and time bars.
I also see Contractors spend hours arguing about liquidated damages while accepting unlimited material price risk without bringing this up. Many believe they cannot have a price adjustment clause in a fixed price contract.
Get expert help with your price adjustment clause
20 years ago in the Australian Construction Industry, it was common for lump sum contracts, including those based on AS2124 and AS4000 to have rise and fall clauses (also called "Escalation Clauses") in them for these types of unexpected price rise. It enabled the Principal and Contractor to share the "pain" of those costs rises, and helped keep a number of construction companies from going insolvent.
Today, Rachelle Hare uses her 25+ years' experience in the Construction Industry in Brisbane, Queensland and Australia as well as her 6 years of experience as a Commercial Manager to help Contractors, Subcontractors and Suppliers draft contracts, review contracts to decide whether they should be signed, including from a legal and a commercial perspective, and assists with negotiation and management of all types of Construction Contracts.
Rise and fall clauses in the international standard forms
Contractors bidding offshore or working for an international Principal meet these clauses far more often than they do in Australia. Under the FIDIC Red Book 2017 the parties opt in by including schedules of cost indexation, and any other movement in costs stays inside the Accepted Contract Amount. NEC4 handles it through Option X1 for price adjustment for inflation. The JCT Design and Build form gives the parties three fluctuations options to choose between in the Contract Particulars.
The GC21 costs adjustment formula
The New South Wales Government publishes the GC21 Edition 2 suite free on the buy.nsw website and updated it most recently on 7 April 2026 (Source). Contractors who want to see how an Australian rise and fall mechanism is put together can download the contract and read the drafting for themselves.
GC21 deals with the mechanism in three places. Clause 55 covers the Contract Price. Contract Information item 41 is headed Rise or fall adjustments, and the Principal decides there whether the mechanism applies at all. Schedule 7 is headed Costs Adjustment Formula and contains the formula, the indices and the adjustment factor.
The mechanism only applies if Item 41 has been completed in the executed Contract Information. If Item 41 is left blank, the Contractor carries the whole movement in materials and labour for the life of the contract, in the same way as under an unamended AS 4000.
Contractors bidding New South Wales, Australian Capital Territory and South Australian government work meet GC21 in the tender pack regularly. Read Schedule 7 before pricing the tender.
How rise and fall clauses are calculated
Contractors calculate the adjustment in broadly the same way under most clauses. Take the index number published for the claim period, subtract the index number recorded at the agreed base date, divide the result by the base index number, and apply that percentage to the adjustable portion of the Contract Sum.
Many clauses use a more sophisticated formula than this, with separate weightings for labour, materials, fuel or particular trades. The example below illustrates the basic calculation only.
Example of a rise and fall calculation
Picture a civil Contractor constructing a bridge under a $12,000,000 fixed-price contract. The contract includes a rise and fall clause, but only for reinforcing steel because both parties recognised that steel prices were particularly volatile when the contract was negotiated.
The Bill of Quantities includes $1,250,000 for reinforcing steel. The contract states that only this amount is subject to adjustment using the nominated steel index published by the Australian Bureau of Statistics.
| Input | Figure |
|---|---|
| Contract Sum | $12,000,000 |
| Value of reinforcing steel subject to adjustment | $1,250,000 |
| Base index at the agreed base date | 120.0 |
| Index published for the claim quarter | 126.0 |
| Movement | 6.0 index points |
| Adjustment percentage | 5.0% |
| Rise and fall adjustment | $62,500 |
Subcontractors run exactly the same calculation on their own numbers. A reinforcing steel Subcontractor holding a matching subcontract would perform the same calculation using the value of its own adjustable work.
This example is only intended to illustrate the calculation
The index numbers in the table illustrate the calculation only. The actual figures would come from the published index nominated in the contract, which is commonly an Australian Bureau of Statistics release but may instead be another agreed industry or commodity index.
Different clauses also calculate adjustments differently. Some apply a single index to a nominated value of work, while others use separate weightings for labour, materials, fuel or imported components. The clause should always be read carefully before preparing or assessing a claim.
If the fixed price contract includes no cost adjustment mechanism, the Contractor will be required to absorb the increase in the cost of labour, materials and other inputs unless another contractual entitlement applies.
How should Contractors negotiate the index, the base date and the adjustable portion?
- Ask the Principal to write a specific published index into the clause. The Australian Bureau of Statistics publishes Producer Price Indexes, Australia every quarter. Contractors on building and civil projects want the Output of the Construction industries series, and builders on housing projects want the Input to the House construction industry series. The parties will argue about the number every quarter if the clause only refers to inflation, to CPI or to market movement.
- The index has to reflect what the business actually buys. A broad construction index will not track a large movement in one input. A civil Contractor whose real exposure is diesel wants two indices in the clause, being a construction index for the bulk of the work and a fuel index for the diesel, with the split between them stated. The clause can apply the construction index to 80 per cent of the adjustable portion and the fuel index to the remaining 20 per cent.
- The base date should normally be the tender date rather than the contract execution date. The Contractor prices the job at tender, and prices keep moving while the Principal runs its evaluation and its internal approvals.
- Negotiate the adjustable portion up towards the real materials and labour content of the job. If a Principal proposes a low percentage, ask what that figure is based on and put your own cost breakdown against it.
- Claim windows are often surprisingly short. Most clauses require the claim within a set period after the Bureau publishes the figure, and a Contractor who misses that period loses the adjustment for that quarter. Diarise the quarterly publication dates from the day the contract is signed.
- Caps, collars and thresholds change the value of the whole mechanism. Some Principals only start paying once the movement passes a stated percentage, and others stop paying above a ceiling, so model both figures before agreeing to either.
- Where the Principal will agree, a one way escalation clause is generally more favourable than a two way rise and fall clause, because a two way clause lets the Principal recover money from the Contractor if the index falls.
Rachelle Hare – In My Experience
Some Principals reject any mention of a rise and fall clause because it changes their internal approval process, not because they object to the money.
Once I work that out, I stop arguing about principle and start narrowing the clause to two or three named materials with a cap on it. That is usually a number the Principal’s Project Director can take upstairs and get signed off.
Rise and fall clauses in Australian government contracts
Government Principals include rise and fall clauses far more often than private developers because the mechanism adjusts the Contract Sum both up and down. Escalation clauses are much less common. They generally only increase the Contract Sum, so the Principal carries additional risk without receiving any benefit if prices fall.
Government agencies publish their contracts as well, so Contractors can read the mechanism before deciding how much risk to price into the tender.
South Australia went furthest during the materials shortage of 2021 and 2022. On 6 September 2022 the Department for Infrastructure and Transport announced that rise and fall clauses would be inserted into all Commercial Construction General Building Contractors contracts with the Department, effective from August 2022, and allowed claims on contracts signed from 1 January 2022 (Source).
Contractors holding those contracts also had to include comparable rise and fall clauses in all subcontracts and supply agreements and pass the rise and fall payments on.
Rise and fall clauses in subcontracts and supply agreements
Head Contractors should decide deliberately whether to insert a rise and fall clause into their subcontracts and supply agreements, rather than doing it as a matter of course.
If the Head Contractor holds a rise and fall clause in the head contract, a matching clause down the chain protects the position. The Head Contractor claims the movement from the Principal, pays the Subcontractors for the same movement, and keeps the margin it priced.
Without a matching clause in the head contract, the same drafting costs the business money. The Head Contractor pays the Subcontractors for every price rise and recovers nothing from the Principal, so leaving the clause out of the subcontracts is the better commercial position.
AS 4901 and AS 4902 subcontracts include no rise and fall clause, so a Head Contractor who wants one has to add it. Carry across the whole mechanism from the head contract, being the index, the base date, the adjustable portion, the claim window, any caps or thresholds, and the supporting particulars the Principal requires.
Timing needs attention too. The subcontract claim window should close before the head contract window, so the Contract Administrator can collect the Subcontractor figures, check them against the published index, and lodge one supported claim with the Superintendent before the head contract window closes.
Rachelle Hare – In My Experience
I have seen Head Contractors copy a rise and fall clause straight out of a government head contract into their standard subcontract, then win the next three jobs on private lump sum terms.
They spent two years paying material price escalation down the chain with nothing coming back the other way. Match the subcontract to the head contract in front of you, not to the last one you signed.
Rise and fall clauses and escalation clauses in residential building contracts
Home owners challenge these clauses far more often than commercial Principals do, and the Queensland District Court delivered the leading Australian decision. In Perera v Bold Properties (QLD) Pty Ltd [2023] QDC 99, decided on 12 June 2023, Judge Ken Barlow KC declared a price escalation special condition void and unenforceable (Source).
Mr and Mrs Perera signed a fixed price new home contract for $645,370 in August 2022 on a Housing Industry Association standard form. The builder later told them it intended to increase the price by $51,342 because of increased material costs. Judge Barlow accepted all three of the owners’ arguments.
The first ground was uncertainty. The special condition allowed the builder to move to its own current base price at its own discretion, and a clause that is not tied to objective criteria the owner can test may be void for uncertainty.
The second ground was the warning. Section 14(6) of Schedule 1B of the Queensland Building and Construction Commission Act 1991 requires a warning on the first page of the contract schedule where the price can change, together with a brief explanation of the effect of each clause that can change it (Source). A bare list of clause numbers does not meet that requirement.
The third ground was unfairness under the Australian Consumer Law. That finding reaches well beyond Queensland, because the November 2023 amendments widened the unfair contract terms regime for standard form contracts with consumers and small businesses.
State legislation restricting these clauses in residential work
Two states go further than Queensland and restrict these clauses by statute. Both parliaments had the same objective, being price certainty for home owners. A home owner borrowing against a fixed valuation cannot absorb a price rise the way a commercial Principal can, so the legislation requires the price agreed between the builder and the owner to be as close to fixed and final as possible.
Section 13 of the Home Building Contracts Act 1991 (WA) prohibits a builder from entering into a home building work contract that contains a rise-and-fall clause. The section carries a penalty of $10,000 and makes the clause void. Section 13(4) preserves narrow exceptions, covering costs imposed on the builder by a written law, increases in taxes and duties after the date of the contract, and delays in commencement beyond 45 working days (Source).
Section 15 of the Domestic Building Contracts Act 1995 (Vic) restricts cost escalation clauses in domestic building contracts. A builder cannot enter into a domestic building contract containing a cost escalation clause unless the contract price is more than $500,000 or the clause is in a form approved by the Director, and the penalty is 100 penalty units. Section 15(3) makes the clause void unless the builder gives the owner a notice in the approved form before signing and the owner signs or initials the clause (Source).
No Australian state or territory imposes any restriction on rise and fall clauses or escalation clauses in commercial, industrial or infrastructure contracts. The parties to a commercial construction contract anywhere in Australia can agree a contract price adjustment mechanism in whatever terms they negotiate.
Asking a Principal for a clause after the contract is signed
Signing the contract does not stop the Contractor asking the Principal to introduce a rise and fall clause later, and the request works far better with a written proposal attached than with a general complaint about costs. Put it to the Superintendent and the Principal’s representative in writing, and set out the index, the base date and the adjustable portion the Contractor wants.
The Contract Sum belongs in the same conversation, because a clause added part way through a project only pays movement from the amendment date forward. If the Principal inserts the clause and leaves the Contract Sum untouched, the Contractor keeps carrying everything the market did between the date of tender and the date of the amendment.
Any agreement should be recorded in a Deed of Variation signed by both parties. A Variation to the Works and a variation of the contract itself are two different documents, and the Superintendent has no power to change the terms of the contract.
Rachelle sets out the alternatives for Contractors whose Principal refuses on the page dealing with cost increases under a fixed price contract.
Rachelle Hare – In My Experience
Most Contractors never ask me for a rise and fall clause. I raise it with them. I see too many businesses price a job on today’s steel and concrete rates, sign up for two years, and put nothing in the tender for what those rates will do in the meantime.
On any project running longer than a year, I often suggest that Contractors ask the Principal for a fixed price contract with a Rise and Fall Clause limited to material cost changes and a small number of narrowly defined circumstances. A narrow clause gives the Principal a number it can budget for and defend internally, and I have had Principals agree to material movement in the same meeting where they had already said no to an open mechanism.
I also tell Head Contractors to think hard before they put a rise and fall clause into their subcontracts. If you do not hold a matching clause in your head contract, you are paying your Subcontractors for price rises that you cannot claim back from the Principal.
How to engage Rachelle
In a Construction Contract Review, Rachelle reads the clause, tests the index against what your business actually buys, checks the base date against your tender date, checks the adjustable portion against your materials and labour content, checks the claim window, and then tells you what to put to the Principal and what to price if the Principal says no.
On drafting, Rachelle writes the clause for your head contract and matching drafting for the subcontracts and supply agreements you issue, so the two documents work together instead of leaving your business exposed in the middle.
Engaging Rachelle takes four simple steps.
- Call or email with a short description of the contract and the project.
- Rachelle asks any questions needed to scope the work.
- Rachelle sends you a fixed-price quote.
- You approve the quote, complete the onboarding documents and engage Blaze Business & Legal.
Rachelle also handles the broader contract work around these clauses, including Construction Contract Drafting and Construction Contract Negotiation.
FAQs about rise and fall clauses and escalation clauses
What is a rise and fall clause in a construction contract?
A rise and fall clause allows the parties to adjust the Contract Sum during a project to reflect movements in the cost of materials, fuel, plant and labour, measured against a published index rather than against the Contractor’s invoices. The Contractor claims a rise and fall adjustment when the index rises above the figure recorded at the base date, and the Principal recovers money when the index falls. Most Australian construction contracts leave price escalation entirely with the Contractor, and a court will not read a clause into a contract that does not have one.
What is the difference between a rise and fall clause and an escalation clause?
Australian lawyers and Principals use both names for the same drafting, along with price escalation clause, cost escalation clause, cost adjustment clause and cost fluctuation clause. The two clauses differ in direction. A rise and fall clause moves the Contract Sum both ways and lets the Principal claw money back when prices fall, while a one way escalation clause only increases it. Contractors and Subcontractors should ask for the escalation clause, and should search their contract for all of those terms.
Where do Contractors find a rise and fall clause or an escalation clause in their contract?
Most rise and fall clauses and escalation clauses appear in the Special Conditions, the Annexure, the Contract Particulars or a schedule, rather than in the printed General Conditions. Search the whole contract, including any tender clarifications the parties incorporated by reference, for the words rise and fall, escalation, price adjustment, cost adjustment, fluctuation, index and CPI. On a GC21 Edition 2 contract, look at Contract Information item 41 and Schedule 7.
Which index should a Contractor ask for in a rise and fall clause?
Ask the Principal to write a specific published index into the rise and fall clause, rather than accepting a general reference to inflation or to market movement. The Australian Bureau of Statistics publishes Producer Price Indexes, Australia every quarter. Contractors on building and civil projects may consider the Output of the Construction industries series, and builders on housing projects may consider Input to the House construction industry series. If diesel or one commodity drives the exposure, ask the Principal to add a second index for that input and to state what share of the adjustable portion each index applies to.
Does AS 4000 include a rise and fall clause?
AS 4000-1997 and AS 4000:2025 leave all price movement risk with the Contractor, and so do AS 4902-2000, AS 2124-1992 and AS 4300-1995. Standards Australia released AS 4000:2025 on 30 June 2025 and left the risk allocation between the parties untouched. Clause 41 of AS 2124 and AS 4300 refers to rise and fall in the context of Daywork, which tells you the drafters expected the parties to annex their own clause. Contractors who want to request such a clause should raise it in their Statement of Departures or during contract negotiations.
Can an escalation clause be added after the contract is signed?
Signing the contract does not stop a Contractor asking for an escalation clause. From a negotiating perspective, this request may work better with a written proposal setting out the requested index, the base date and the adjustable portion. Negotiate the Contract Sum in the same conversation, because a clause added part-way through a project usually only pays movement from the amendment date forward. Record any agreement in a Deed of Variation or Deed of Amendment signed by both parties, since a Variation to the scope of the Works and a variation of the contract itself are two different documents.
Are rise and fall clauses allowed in residential building contracts?
Western Australia prohibits rise and fall clauses outright in home building work under section 13 of the Home Building Contracts Act 1991, with a $10,000 penalty and a narrow set of exceptions. Victoria restricts cost escalation clauses in domestic building contracts under section 15 of the Domestic Building Contracts Act 1995, unless the contract price exceeds $500,000 or the clause is in a form approved by the Director. Queensland allows them, although Perera v Bold Properties (QLD) Pty Ltd [2023] QDC 99 shows they must be tied to objective criteria and supported by the warning required by section 14(6) of Schedule 1B of the QBCC Act. None of these restrictions apply to commercial, industrial or infrastructure contracts.
Rise and fall clause and escalation clause advice for Contractors
Rachelle can advise whether your construction business should ask for a rise and fall clause or an escalation clause on a project, whether you should include one in your template subcontracts and supply agreements, and how to negotiate the terms with the Principal. Call or message Rachelle to discuss.
