Selection and Weight Determination of Factors for Price Adjustment Formulae Based on Bill of Quantities

This study investigates the effectiveness of standard price adjustment formulae for construction contracts in Portugal. Price adjustment is a mechanism that aims to adjust contractual values to market price fluctuations in labor, materials, and equipment. Such formulae are often generalized and applied in contractual practices without being properly tailored to the specific characteristics of each project. To fill this gap, this study, informed by convergent proposals, builds on the argument that the use of different bill of quantities (BOQs)-based price adjustment formulae for the same contract is fairer, more equitable, and with greater capacity to cushion sudden variations in prices. Using a case study, consisting of a public construction contract, the study analyses price differences obtained through the application of the standard formula and compares them, over different periods, with those obtained through the use of two alternative calculation formulae specifically developed according to the project’s characteristics. The performance of all scenarios was evaluated against the evolution of the growth rate of the construction cost index (CCI). The results demonstrate that the standard formula, even when it is readjusted, provides disproportionate results. In contrast, the BOQ-based price adjustment formulae, developed according to different phases of the works, provide results that are very close to those obtained by CCI-based escalation. The behavior of these customized formulae, even during periods of high price indices increases, closely tracks that of inflation. The results of the study call for the enactment of a more comprehensive legal mechanism so that all cost elements of a construction project can be properly reflected in price adjustment methodologies.