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# Construction Law/Related to Formula for Escalation

Question
Question
sir, my question relates to the following.

Formula for Escalation- Labour component
V1 = 0.85 P K1/100 *(L1-L0)/L0

Where, V1 = Amount of price variation,
P    = Cost of work done during the period,
K1  = Percentage of labour component in the project cost,
L0   = Basic consumer price index,
L1   = Average consumer price index
Formula for material component shall be similar as above with appropriate changes to the material specific.
Q1. Why 0.85 of P is taken.
Q2. In case, while estimating any work contractors profit restricted to 7.5 % instead of 15 %. Is the formula changes to 0.925 0f P.

Dear Kishor Kalita
Hello
pleasure to listen with good question.
1.In escalation/price adjustment formulae for various components.P stands for cost of work done during the period. Factor 0.85 taken as Area Cost Factor for the project site.
2. Area Cost factors are based on local construction costs of labor, material, and equipment, and other factors such as weather, climate, seismic, mobilization, overhead and profit, labor availability,and labor productivity. Cost of work done during the period is Ps can be calculated as below;
Ps=P(Fs/Fo)
where
P- value of work done during the period.
Fs- Area Cost Factor of State of site location.
Fo- Are Cost factor of National capital area.

I hope you will be appreciate the answer.

with due regards

SANJAY KHANDELWAL

#### Sanjay Khandelwal

##### Expertise

I can answer related to the various construction contracts forms related with disputes and claims.Expertise in to evalute the extension of time,cost and profit claims.I can answer regarding the contract management in civil works.

##### Experience

I have the experience of construction industry, as a consultants,executor of construction activities of infrastructure development like road and buildings. I have the experience of various software related to design of highways and quantity evaluation.

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I am life member of Indian Road Congress,INDIA I am presently employed with M/s Lion Engineering Consultants,INDIA

Education/Credentials
My educational qualifications are as below: I am engineering graduate from MITS, INDIA,1987 I have completed my Post graduation from NIT,INDIA,2011