Contract Price Adjustment

Contract Price Adjustment

Most companies in the industry don’t sell directly to consumers but to national, provincial or local governments, parastatals, private corporations or other companies in the industry requiring inputs for their own production. Lead times between tender, order and delivery can be considerable – often a year or more.

Therefore, it is important, especially in times of high inflation, for tendering companies to have a way of adjusting their contract prices to compensate unforeseen cost increases during the period between tender and delivery.

The division consults on CPA formulas and escalation calculations which allows tenderers to adjust delivery prices in line with unforeseen cost increases. This SEIFSA service assists companies to conclude contracts that allow for price adjustment provisions that are fair and equitable to both parties. The value of this service to companies is in excess of R7 billion a year in escalation claims on contracts.

The monthly SEIFSA Price and Index Pages publishes 140 indices that measure changes in the costs of manufacturing inputs in the industry. By including data from these indices in a Contract Price Adjustment (CPA) formula, a company can calculate the average changes in costs of labour, steel, transport and other inputs affecting the final cost of manufacture.

The division regularly reviews the make-up of the various indices generated by SEIFSA in order to ensure that they remain relevant and accurate.

The titles in the series of CPA handbooks, published by EC Services, are Theory of Price Adjustment, Price Adjustment Calculations and Price Adjustment in Practice.

Recognised as the experts on CPA, the division holds regular practical workshops on price adjustment provisions countrywide.

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