In multi-month contracts in pesos, price adjustment is what keeps the price fair for both parties. The most common form is the polynomial formula: each cost component is adjusted with its own index.
1. The polynomial formula
P = P₀ × ( a·MO/MO₀ + b·EQ/EQ₀ + c·GO/GO₀ + d·IPIM/IPIM₀ + e )
- P₀: bid price (at the base month). P: adjusted price.
- MO, EQ, GO, IPIM: labor, equipment, diesel and wholesale price indices; with subscript 0, the base-month value.
- a, b, c, d: the weight of each component in the cost, which must come from the price analysis. e is the fixed part (not adjusted). The weights add up to 1.
Calculator with updated indices: Adjustment formulas.
2. Which indices to use
| Component | Usual index |
|---|---|
| Labor | Base wage under the applicable collective agreement (Petroleros, UOCRA, Camioneros, UOM) or INDEC's wage index. |
| Equipment and spare parts | INDEC's IPIM (overall level or the machinery and equipment chapter) or the official dollar rate, if imported. |
| Fuel | Diesel price (Energy Secretariat, Res. 1104/2004) in the province where the work is done. |
| Transportation | FADEEAC transportation cost index. |
| Materials | IPIM or INDEC construction cost indices (ICC) by chapter. |
What matters: official indices or ones published by a recognized body, issued every month and verifiable by anyone.
3. Application rules
- Base month: normally the bid month or the one before. It must be in writing.
- Frequency: monthly, quarterly or semiannual.
- Trigger: the adjustment applies only if the change exceeds a threshold (for example 3% or 5%).
- Provisional indices: if an index has not yet been published at the time of invoicing, the latest available is used and corrected when the final one comes out.
- Advance payments: the portion of the price collected in advance is not adjusted.
- Delays: if the contractor is late through its own fault, the adjustment is calculated with the indices of the month in which the work was due.
- Renegotiation: a clause requiring the price to be reviewed if any component changes by more than a large percentage (for example, 20% in a month).
4. Example
Transportation service with a price of $ 1,000,000 per month at the base month. Weights: labor 40% (Camioneros), diesel 30%, IPIM 20%, fixed 10%. If in the adjustment month wages rose 12%, diesel 8% and IPIM 6%:
P = 1,000,000 × (0.40×1.12 + 0.30×1.08 + 0.20×1.06 + 0.10) = 1,000,000 × 1,084 = $ 1,084,000
For the buyer and for the bidderA formula with weights that do not reflect the real cost structure ends up favoring one of the parties. Requesting (or submitting) the price analysis and building the formula from it avoids disputes throughout the contract.
General guide based on common industry practice; it does not replace legal, tax or accounting advice for each case.