Cost Fluctuations Under NZS 3910:2023 — Can You Claim Material and Labour Price Rises? (NZ)

Steve Parker
3 days ago
6 min read

Quick answer: Under NZS 3910:2023 the presumption flipped. A cost fluctuation adjustment applies by default, and the parties must actively exclude it in Schedule 1. Under the 2013 edition fluctuations were opt-in and usually switched off. If you priced a tender assuming your rates were locked for the duration, check which way your contract actually runs.

Most contractors we see still price as though escalation is entirely their problem. That was a reasonable assumption under NZS 3910:2013, where the fluctuation mechanism sat dormant unless someone deliberately turned it on, and almost nobody did. It is no longer a safe assumption. The 2023 edition of the standard form starts from the opposite position, and a tender priced without checking which way Schedule 1 has been filled in is a tender priced on a guess.

What a cost fluctuation clause actually does

A cost fluctuation clause — the older trade term is "rise and fall" — adjusts the Contract Price during the job to reflect movement in the underlying cost of labour and materials between the date the tender was priced and the date the work was actually carried out.

It cuts both ways, which is the part people forget. If input costs rise, the Contractor recovers part of the increase. If they fall, the Principal gets the benefit. The clause is not a contractor bonus; it is a mechanism for taking a specific, unpriceable risk out of the tender and dealing with it on measured evidence after the fact.

The commercial logic is straightforward. On a lump sum contract with no fluctuation provision, the Contractor carries the full escalation risk for the whole programme. The only rational response is to price a contingency for it. On a long job in a volatile market, that contingency is either far too large — and the tender loses — or far too small, and the margin evaporates somewhere around month fourteen. A fluctuation clause removes the guesswork from both sides of that trade.

The 2013 position: opt-in, and usually switched off

Under NZS 3910:2013 the fluctuation mechanism lived at clause 12.8, with the calculation method set out in Appendix A. Critically, it was an election. The parties had to positively record in Schedule 1 (the Special Conditions) that fluctuations would apply. If the box was not filled in — and in the great majority of contracts it was not — the Contract Price was fixed, and every dollar of escalation sat with the Contractor.

That is the position most NZ estimators have internalised, and it is why "fixed price" and "no rise and fall" became effectively synonymous on the average commercial job. It is also why the escalation shocks of the early 2020s landed so hard on contractors rather than being shared: the standard form had a perfectly good mechanism for sharing them, and it was almost never switched on.

What changed in NZS 3910:2023: the default reversed

NZS 3910:2023 inverts the presumption. The standard form now provides that a cost fluctuation adjustment shall be made unless the parties specifically agree otherwise. The election in Schedule 1 is still where the answer lives — but the question has changed from "did anyone turn this on?" to "did anyone turn this off?"

For a Contractor, that is a materially different starting point. On an unamended 2023 contract, escalation is a shared risk by default rather than a wholly transferred one. For a Principal, the same change means an unamended contract exposes the project budget to index-linked adjustment for the life of the works, which is exactly the sort of thing that ought to be a deliberate decision rather than a drafting oversight.

The practical failure mode is obvious once you name it. A Contractor prices a 2023-form tender on 2013-form instincts, loads a heavy escalation contingency into the rates, loses the job on price — and the contract it lost on had fluctuations running by default the whole time. The mirror-image failure is a Principal who never reads Schedule 1, budgets a fixed sum, and meets the first fluctuation adjustment as a surprise.

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How the adjustment is calculated

The Appendix A method is index-based rather than actual-cost based. That distinction matters more than any other detail in this article.

The calculation runs off two indices published by Stats NZ: the Labour Cost Index and the Producers Price Index. Measured movement between the tender date and the applicable quarter is applied to the value of work carried out in that quarter, with default weightings that recover a proportion of each movement — conventionally 40 percent of the measured labour movement and 60 percent of the measured materials movement. The adjustment is worked quarterly and flows through the ordinary payment cycle.

Two consequences follow, and both are commercially significant:

It is not a reimbursement of what you actually paid. The indices measure the market, not your invoices. If your supplier lifted a specific line 30 percent while the relevant index moved 6 percent, the clause recovers against the 6 percent. A fluctuation clause reduces escalation exposure; it does not eliminate it.
The weightings and the formula are negotiable. The percentages, the indices used, and in principle the whole formula can be varied in Schedule 1. On a job with an unusual labour-to-materials ratio — a heavy plant civil package, or a labour-dominated fit-out — the default split may be a poor fit for your actual cost structure, and it is worth pricing what the default weighting does to your recovery before you accept it.

Because the adjustment moves the amount owing, it has to be carried properly into the payment cycle. Under the Construction Contracts Act 2002, a payment claim must state the amount claimed and indicate how that amount was calculated. A fluctuation adjustment that appears as an unexplained line item invites a payment schedule that knocks it out under section 21, and the argument then runs on process rather than entitlement.

Where the risk actually sits: Schedule 1

None of the above tells you what your contract says. Schedule 1 does, and Schedule 1 is where the standard form gets rewritten.

The most common pattern we see on a 2023-form contract is the fluctuation provision quietly deleted in the Special Conditions, restoring the 2013 outcome without saying so anywhere a tenderer would notice. The second most common is a partial amendment: fluctuations retained, but with a threshold, a cap, a shortened measurement window, or a substituted index that changes the recovery profile substantially. Both are legitimate drafting. Neither is visible unless somebody reads the schedule against the base form and prices the difference.

That is a tender-time task, not a claim-time one. Once the tender is submitted, the position is priced whether or not anyone understood it. This is the same discipline that applies to the Special Conditions generally in an NZ building contract, and it belongs in the same pass as the rest of your tender pricing method. Where a specific input is genuinely unpriceable, a provisional sum may be a cleaner device than a contingency buried in the rates.

What this doesn't tell you

This is the standard-form position, and the standard form is a starting point rather than an answer. What actually governs your job is the conformed contract: the exact wording of Schedule 1, whether the fluctuation provision survives, which indices and weightings apply, what the measurement dates are, and whether any threshold or cap has been inserted. Clause numbering also moved between the 2013 and 2023 editions, and heavily amended contracts renumber again — so a clause reference from an article is a signpost, never a citation for your contract.

Nor does an index-linked recovery tell you whether your project is adequately protected. If your cost structure is concentrated in a few volatile lines, index movement may track your real exposure poorly in either direction. Where the sums are material, price a contingency for the gap between measured index movement and your actual buy prices rather than assuming the clause closes it.

Where a second opinion pays for itself

Reading a fluctuation position correctly takes about twenty minutes and changes the tender number. It is a narrow, high-leverage check: whether the provision survives in your Schedule 1, whether the weightings suit your labour-to-materials mix, what the recovery looks like across your programme on plausible index movement, and what contingency the residual gap justifies. Trueworks does that as an analyst — not as your lawyer and not as your engineer of record — so the assessment stands on its own terms and you can hold it up to the other side.

For the broader service, see tender pricing and rate checks.

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