Inflation, price fluctuation, and estimate validity.
Construction prices do not stand still. Material costs can move 20% in a quarter, supplier lead times stretch, and a quote given today may be uneconomic to deliver in six months. Managing price fluctuation and setting clear validity periods is a core commercial skill.
Authored by Alexandr Vreme & Maksym Vasylkov
Published — Next review
Why material price volatility matters
In recent years, the UK construction industry has experienced extraordinary price swings. Timber prices rose more than 80% in 2021 before partially correcting. Structural steel, copper, insulation materials, and fuel have all shown volatility of 15–30% within single contract periods.
For a contractor pricing fixed-price work, a 20% rise in a material that accounts for £40,000 of a £200,000 contract represents an £8,000 margin hit — potentially wiping out net profit entirely. Forward-looking pricing must account for this.
Fluctuation clauses
Construction contracts typically use one of two approaches to price fluctuation:
- Firm prices (fixed price): The contractor bears the risk of price increases (and keeps the benefit of any decreases). This is the default for most domestic and small commercial contracts. To protect margin, the contractor must build a risk allowance into the tender and set a validity period within which prices are fixed.
- Fluctuating prices: The contract allows for adjustment if material or labour costs move beyond an agreed threshold (typically 5–10%). Increases above the threshold are passed to the client. This is more common on long-duration contracts (18+ months) and is usually based on published indices such as the BCIS (Building Cost Information Service) material price indices.
Typical validity periods
Setting the right validity period balances the client's need for time to consider the quote against the contractor's exposure to price changes:
- Subcontractor quotes: 30 days is standard. Many suppliers now quote shorter windows (14–21 days) on volatile materials.
- Main contractor tenders: 60–90 days, with a clear statement that the price may be revised if acceptance comes after expiry.
- Framework or negotiated contracts: 90–120 days, often with a built-in price adjustment mechanism for the later period.
Always state your validity period prominently on the tender or quotation document. A quotation that does not specify a validity period may be held open indefinitely in common law, leaving the contractor exposed.
BCIS material price indices
The BCIS (Building Cost Information Service, part of RICS) publishes monthly material price indices covering over 60 categories of construction materials and labour. These indices are widely referenced in fluctuation clauses as an independent, authoritative source for measuring price change.
For example, a fluctuation clause might state that the contract sum will be adjusted if the relevant BCIS material price index changes by more than 5% between tender date and the month of delivery. The adjustment is calculated as index change minus threshold, applied to the value of affected materials.
Miniature example
A contractor prices a steel-framed commercial unit and issues a quotation valid for 30 days at £155,000. The client accepts on day 45. In that 15-day gap, steel prices have risen 18%:
| Scenario | Amount | Notes |
|---|---|---|
| Original quotation (valid 30 days) | £155,000 | Expired before acceptance |
| Steel element within quotation | £18,500 | 12% of contract value |
| Steel price increase at acceptance (18%) | £3,330 | Additional cost to contractor |
| Revised price (using fluctuation clause) | £157,800 | £155,000 + £2,800 (steel increase − 5% threshold) |
In practice, if the quotation has expired, the contractor would issue a revised quotation rather than relying on a fluctuation clause. The fluctuation clause approach only applies if the contract with the client already includes a fluctuation mechanism.
Protecting your margin
Beyond fluctuation clauses and validity periods, contractors can protect margin by:
- Obtaining supplier price holds for the duration of the contract before submitting a fixed-price tender
- Ordering long-lead materials immediately upon contract award (rather than waiting for the programme start)
- Including a specific material price risk allowance in the tender for volatile commodities
- Using provisional sums for materials where prices are moving rapidly
- Reviewing supplier prices quarterly and adjusting unit rates for ongoing framework agreements
Questions to ask
- Do my terms and conditions include a material price escalation clause?
- How long do my key suppliers hold their prices for, and do I have written confirmation?
- What validity period do I state, and is it clearly visible on every quotation?
- Am I tracking BCIS indices for the materials I price most frequently?
- If I cannot pass on price increases, have I built an adequate risk allowance into my fixed-price bids?
Related guides and tools
Understand how validity interacts with acceptance in our guide to quote validity, acceptance, and expiry. See how prices vary across the country in regional construction price differences. Use the Quotation Generator to issue professionally dated quotes with clear validity terms.