X1 in Contract but not being used

We have option X1 on our contract but the contractor has not utilised this i.e. they have not adjusted the prices etc. for inflation for the duration of the contract and do not intend to. Is there any ramifications etc. of not utilising X1 and final accounting the project?

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The Project Manager is the party that assesses the amount due. The Project Manger should therefore adjust the Prices under X1 even if the Contractor has not made an allowance for same within its applications for payment.

On a more general note, if the Contractor is unaware the X1 is used, or is working under the mistaken assumption that it is not used, then in my view the Project Manager has a positive duty to correct this misunderstanding. This flows from clause 10.2 and the obligation to work in a spirit of mutual trust and co-operation. I refer to the courts comments in Costain v Tarmac (2017) where it was noted that this clause:

"would extend to a positive obligation… to correct a false assumption…”

To answer your final point directly - the worst case ramification of not correctly applying X1 as you go along, would be the Contractor taking the account into adjudication to have the interim amount due figures increased to allow for X1. This would likely be payable plus late payment interest.