Cost escalation (price change) clause

Master Builders is aware that rising costs in labour and building materials, due to a variety of factors, make it difficult to price building work.

Master Builders ‘cost escalation clause for increased costs of labour or materials’ (price change clause) helps allocate the risk of fluctuating building costs fairly between the builder and the client. It allows the price of the contract to change according to changes in the building expenses (labour or materials), within certain limitations. The price changes are calculated based on price indexes published quarterly by the Australian Bureau of Statistics (ABS).

Price change & residential contracts

If the Master Builders Residential Building Contract is to include a price change mechanism it will need to contain a relevant cost escalation clause (price change clause). Master Builders recommends the cost escalation clause for increased costs of labour or materials (price change clause) be inserted into its contract as a special condition. In using this price change clause, progress payment Method B must be adopted (refer to RBC – Item 21 Progress Payments).

If a price change applies, the increase or decrease in the contract price reflects a change in the cost of supplying labour and materials to the works in accordance with Master Builders price change formula.

Example & guide to preparing claims

Master Builders has produced an example price change scenario, with a guide to preparing three different price change claims. The example demonstrates how to apply the price change formula to Master Builders Residential Building Contract in order to calculate the increase or decrease in building costs at various stages throughout the contract.

Download the kit

Download Master Builders Cost Escalation clause for increased costs of labour or materials kit and accompanying example spreadsheet.

How to access the ABS indexes

Under the cost escalation clause, the price change for the supply of labour or materials is calculated based on price indexes published quarterly by the Australian Bureau of Statistics (ABS).

You will need to access figures from the ABS Labour Price Index (labour index) and the ABS Construction Industry Producer Price Indexes (materials index).

To access the labour index, follow these steps:

  1. Go to Labour Price Index/Downloads on the ABS website.
  2. Under the heading ‘Time Series Spreadsheets’, click on the green .xls icon to download the Microsoft Excel spreadsheet entitled Table 5b. Total Hourly Rates of Pay Excluding Bonuses: Sector by Industry, Original (Quarterly Index Numbers).
  3. Within the ‘Series ID’ column of this ABS spreadsheet, you will find a link to a file entitled ‘A2603019J’ (row 15).
  4. This will open a second tab within the spreadsheet, where the relevant labour index column for the construction industry will be highlighted. Scroll down to the bottom of the page to find the figures for the most recent quarter.

To access the materials index, follow these steps:

  1. Go to Producer Price Indexes/Downloads on the ABS website.
  2. Under the heading ‘Time Series Spreadsheets’, click on the green .xls icon to download the Microsoft Excel spreadsheet entitled Tables 16 and 17. Materials used in house building, index numbers and percentage changes by state capital city.
  3. Within the ‘Series ID’ column of this ABS spreadsheet, you will find a link to a file entitled ‘A2390507X’ (row 15).
  4. This will open a second tab within the spreadsheet, where the relevant materials index column for the construction industry will be highlighted. Scroll down to the bottom of the page to find the figures for the most recent quarter.

You can also visit the ABS website to access general information about using price indexes in contracts.

Need more information?

If you have any questions about using a cost escalation (price change) clause in your contacts, phone us or email us your enquiry.