# NEC ECC: X1 - Price Adjustment Factor - Proportion Calculation

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Contract: Un-amended NEC3
Option: C

Query: Price Adjustment Factor calculation Proportions

Example:

Price Adjustment factors stated in Contract data:

POWDD increase in month = £10,000

Direct Staff - 10% - BCIS Inflation Index
Labour - 20% BCIS 3E1
Material - 5% BCIS Material Cost Index
SC - 55% - Not adjusted

When working out the proportions do  Price Adjustment Factor how do the proportions come in to play in the forumla. I am confused to how you apply these. Do you take the  (L-B)/B for each of these and add them together i.e.

1:

Direct Staff - 10% - BCIS Inflation Index B = 10 L =12 = (12-10)/10=0.2 @ 10% = 0.02
Labour - 20% BCIS 3E1 B=15 L=20 = (20-15)/15 = 0.33 @ 20% = 0.06
Material - 5% BCIS Material Cost Index B=5 L=7 (7-5)/5= 0.4 @ 5% = 0.02

PAF = 0.02+0.06+0.02= 0.1

PWDD x PAF / 1 + PAF = £10,000 x 0.1 / 1+0.1 = £909.09
asked May 22, 2019
edited May 22, 2019

## 1 Answer

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You have applied the correct calculation, although I came up with an adjustment amount of £963.86, due to the number of decimal places, that is 20% x 0,33 (a third) is actually 6.67%.

I usually have a 2 step calculation on an excel spreadsheet, with the first calculation listing the elements in column 1, the stated proportions in column 2, the base indice in column 3 and the latest indice in column 4.

The next step I calculate the increase in the indices as a percentage (L-B)/B for each element and then multiply by the proportion, totalling these to give the PAF (as a percentage)

The Net PWDD is then mulitplied by PAF/(1+PAF) to give the adjustment amount.

In your case it is;

Direct Staff - 2.00%
Labour - 6.67%
Material - 2.00%

Totalling 10.67%

£10,000.00 x 10.67%/110.67% = £963.86

Under NEC3 you also repeat the calculation where an Index changes (often an index is provisional before being firmed up at a later date), although this doesn't occur under NEC4.
answered May 23, 2019 by Panel Member (25,740 points)
Thanks Andrew. I am back dating a calculation that hasn’t been done for quite a sum so wanted to be sure of the calculation proceeding as the previous team had carried this calc out in different manor not applying the proportions just linking the index value totally to that element of cost in month I.e running through line by line of the application and separating out staff, labour and material costs and using them as POWDD in the calculation with the full index PAF not proportioned.
One issue I noted was that your percentages added up to 90%, (10+20+5+55) so I assume you also have a stated 'non-adjustable element' of 10%, so that it adds up to 100%.