Readjustment formula concept

The readjustment formula is a contractual mechanism used mainly in construction and civil works projects to adjust the initially agreed prices, with the objective of maintaining the economic and financial balance between the parties in the face of variations in the costs of inputs, labor and other relevant factors during the execution of the contract. This mechanism is essential for long-term contracts, where economic conditions can change significantly.

The price readjustment seeks to prevent any of the parties from assuming unexpected losses or profits due to inflationary fluctuations or changes in the prices of materials and services. The formula applied is generally based on official price indices or the composition of contract-specific costs, allowing for a fair and transparent update of values.

Importance in civil works and construction contracts

In civil works contracts, the term for execution can extend for months or years, which exposes the parties to economic risks due to inflation or price fluctuations in inputs. The readjustment formula is an essential instrument to mitigate these risks and guarantee the continuity and viability of the project.

Without proper readjustment, the contractor could face considerable losses that would affect the quality or completion of the work, while the client could be forced to renegotiate terms or assume additional costs. Therefore, readjustment contributes to preserving financial stability and trust between the parties.

Furthermore, the existence of a clear and regulated mechanism for readjustment facilitates financial planning, risk management and project supervision by supervisory bodies and contracting entities.

Main objectives of the readjustment formula