Reasons for Price variation:

• Economic changes
• Political changes
• Changes in Budgetary provisions
• Changes in Wage structure by labour commissioner
• The most important in case of construction industry is that the product is sold before they are made

All these factors have to be considered and provided for in the contract condition in such a way that the primary objectives of completion of project and completion at an optimum price are achieved.

The compensation for escalation for material, Labour & Fuel shall be marked out as per the formulas given below:

For material:

$Vm= \bigg[70×\frac{\{0.88V-(C+S)\}}{100}\bigg]×[W1-W10/W10]$

Vm= Variation in material cost

V= Value of work done during the period under reckoning excluding advances of material if any

C= Cost of cement used in work

S = Cost of steel used in the work

W1 = Average all India wholesale price index for all commodities for the period under reckoning as published

W10 = Average all India wholesale price index for all commodities during the month of opening of the tender as published.

For Labour:

V1= [30{0.88V-(C-S)}/100] [I1-I10/I10]

V1= Variation in labour cost,

I1= W1

I10= W10