Price Escalation Clause
The contract price adjusts when material or input costs change.
What it means
A price escalation clause lets the contract price adjust when specified costs change — most commonly materials like lumber, steel, fuel, or asphalt. It typically defines a benchmark (a published index or supplier quote), a trigger (a change beyond an agreed percentage), and how the adjustment is calculated and documented. Some clauses run both ways, lowering the price when costs fall.
Why it matters before you sign
In a fixed-price contract without an escalation clause, the party doing the work usually absorbs cost spikes alone — whichever side you are on, know who carries that risk before signing a long project.
In a contract, it looks like this
The escalation clause adjusted the steel line item whenever the published index moved more than 5% from the bid-date baseline.
This definition is a general, educational explanation — not legal advice. XOsign provides AI-assisted document tools and does not provide legal advice; consider consulting a qualified attorney for guidance on your specific situation. Requirements vary by state.
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