Procurement & finance
Escalation Clause
A contract provision allowing prices to be adjusted for movements in the cost of specified materials or labour, usually against a published index. It shares a risk neither party can control, instead of assigning it to whoever was less careful.
Without one, a fixed-price contract on a volatile commodity is a bet. The contractor prices the risk in — which the employer pays for whether or not the risk materialises — or prices it out and takes the loss when it does.
The design of the clause is where the arguments are: which index, which materials, what threshold before it triggers, and whether it works in both directions. A clause that only escalates upward is not risk-sharing.