We are a project manager on an ECC Option C contract and have a query about the use of option X1 on price adjustment for inflation. We understand how the total of the prices is updated for inflation, but are struggling with the update to the schedule of cost components element of defined cost.
In accordance with clause X1.5, the total of the prices is updated every time the amount due is assessed, which ensures the target cost remains in line with inflation and the defined cost that the contractor is being paid. In the case of subcontractor work, which will be based on current costs (i.e. including inflation), this makes sense, as you would assume that the rate at which subcontractor’s quotes increase due to inflation would be matched by the price adjustment factor (PAF) update to the total of the prices.
However, as part of the defined cost, the contractor’s schedule of cost components is also used, which is priced at the base date. We are struggling to understand how this element is updated for inflation, if it is? Or is it covered within the fee?