15 ways contractors can mitigate inflation risk

1.     Avoid firm price deals and include a price adjustment mechanism in upstream contracts.

2.     Ensure price adjustment mechanisms cover all required scope.

3.     Negotiate favourable trigger conditions and threshold levels for dates and unit prices.

4.     Include PC or Provisional Sums for price sensitive / uncertain work scope.

5.     Propose use of target cost or cost-plus contracts (eg NEC Option C - and select Option X1 !).

6.     Check that pain/gain share incentive arrangements have realistic target cost benchmarks.

7.     Thoroughly ‘market-test’ pricing right up to point of contract execution.

8.     Structure contracts such that the commercial deal is agreed ‘as you go’ in sequential phases.

9.     Retain contractual rights to use, or at least propose use of ‘equal and approved’ products.

10.   Ensure that design programme will allow you to maximise early procurement potential.

11.   Challenge design for more efficient and less cost sensitive solutions.

12.   Use locally sourced products and components where possible.

13.   Drill deep into supply chain to understand sourcing, custody, shipping and title.

14.   Use standardised and repeatable design solutions to benefit from bulk purchasing.

15.   Collaborate and negotiate relentlessly.