What Is a Rise and Fall Clause in a Construction Contract?
A rise and fall clause is a contract term that allows the contract price to move up or down during the course of the works, based on agreed, documented changes in the cost of labour, materials or plant. It exists to share the risk of cost escalation between the contractor and the principal, rather than locking the contractor into a fixed price that has to absorb every cost increase on its own.Rise and fall clauses are most common on longer-duration contracts — civil, commercial and government work — where the build program is long enough that costs can genuinely move before the job is finished.
Key takeaways
- A rise and fall clause lets the contract price adjust during construction to reflect real changes in labour, material or plant costs, rather than fixing the price at tender and leaving it there regardless of what happens to costs.
- It shifts escalation risk away from the contractor and onto the principal, because cost increases are passed through instead of being absorbed inside the original price.
- Rise and fall is most common on longer government, civil and commercial contracts, and much less common on short residential jobs where a simple escalation allowance is more practical.
- Adjustments are usually calculated against an agreed index — such as a government-published cost index — or documented supplier price increases, applied to a defined base date and a defined portion of the contract sum.
- Because it works in both directions, a rise and fall clause can reduce the contract price if relevant costs fall, not only increase it — it is a genuine adjustment mechanism, not a one-way price increase.
What a Rise and Fall Clause Does
A rise and fall clause sets out, in the contract itself, how and when the contract price will be adjusted if the cost of labour, materials or plant changes during construction — instead of leaving the contractor to either absorb any cost increase or pad the original price to cover a guess.
It works both ways: if the nominated cost index or documented rates go up, the principal pays more; if they genuinely go down, the contract price is reduced. Most clauses only apply to specific, named cost categories rather than the whole contract sum.
Where Rise and Fall Clauses Are Used
Rise and fall clauses show up most often where a build program is long enough for costs to realistically move, and where the principal has the administrative capacity to manage index-based adjustments through the life of the contract.
- Government and public infrastructure contracts, often tied to a published cost index
- Civil and large commercial builds with programs of 12 months or longer
- Contracts let well before major material orders are locked in
- Multi-year framework agreements where rates are set once and used across many jobs
How a Rise and Fall Adjustment Is Calculated
Most rise and fall formulas compare a cost index, or a documented supplier price, at the contract’s base date against the same measure at the time the work is carried out, then apply that percentage movement to the portion of the contract sum affected.
| Item | Value |
|---|---|
| Labour cost portion of contract sum | $250,000 |
| Index value at contract base date | 118.4 |
| Index value at time of works | 124.9 |
| Percentage movement | 5.5% |
| Rise and fall adjustment | $250,000 × 5.5% = $13,750 added to contract sum |
Rise and Fall vs a Fixed-Price Escalation Allowance
A rise and fall clause and a fixed-price escalation allowance solve the same problem in opposite ways: one adjusts the price later against real cost movements, the other locks in a single upfront guess and leaves the price untouched from then on. Most residential and small commercial jobs use the simpler fixed allowance because there is no ongoing contract administration to manage.
Whichever approach a job uses, the starting point is the same — a clear, editable set of rates to build the original price from. My Trade Hub’s editable rates library keeps labour, material and plant rates in your control, so whether you are padding a fixed price or setting the base rates a rise and fall clause will later be measured against, the numbers stay visible and adjustable rather than locked inside a one-off spreadsheet.
Frequently asked questions
What is a rise and fall clause?
A rise and fall clause is a contract term that adjusts the contract price during construction to reflect agreed changes in the cost of labour, materials or plant, sharing the risk of cost movements between contractor and principal instead of fixing the price at tender.
How is a rise and fall adjustment calculated?
It is typically calculated by comparing an agreed cost index or documented supplier rate at the contract’s base date against its value at the time the work is carried out, then applying that percentage movement to the specific portion of the contract sum the clause covers.
Does rise and fall only increase the contract price?
No — because it tracks a real index or documented rate, a rise and fall clause can reduce the contract price if the relevant costs fall, though in practice upward adjustments are far more common than downward ones.
Is rise and fall common on residential building contracts?
It is less common on typical residential jobs, which tend to have shorter programs and simpler contracts — rise and fall is used more on longer government, civil and commercial contracts where administering an index-based adjustment is worth the effort.
What is the difference between rise and fall and cost escalation?
Cost escalation is the underlying rise in costs over time; rise and fall is one specific contractual mechanism for dealing with it, formally adjusting the contract price as costs move, rather than absorbing the movement inside a fixed, one-off price.
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