The Renaissance of Rise and Fall Clauses Kiri Parr February 20231
Seminars, articles, and LinkedIn posts have become saturated with discussions of rise and fall clauses – the contractual mechanism to adjust a contract price when the costs of labour and materials fluctuate. This clause is by no means new, and we are experiencing its latest renaissance. However, can an examination of this clause’s past tell us anything new? Set out in this article is the simple and uncontroversial story of the history of rise and fall clauses in Australia. Like clockwork, they emerge in response to periods of high inflation and price uncertainty. Often driven by war. As inflation falls and the market stabilises, rise and fall clauses fade into disuse. But in researching this history a second story emerged. History reveals our industry’s repeated struggle with the transition from low to high inflation periods and back again. This story, what it means and what we can do about it is discussed below. The takeaway message - plan for the transition phase. The History The first reference to rise and fall clauses is found unsurprisingly after the First World War and the subsequent housing boom. This boom was driven by the introduction of the War Homes Act, designed to assist returning servicemen build affordable homes. The instability of prices and the emergence of the clause is reported in the Cessnock Eagle and South Maitland paper, which records:2 The uncertainty as to the future price makes it almost impossible to quote in any industry, but more in especially in the iron and steel trade, without a sliding clause authorising the sellers to increase their prices, if cost of coal (or other raw materials) are increased on them.
And that: 1
This article is based on a presentation given by Kiri Parr on 16 February 2023 for the Australian Institute of Quantity Surveyors and sponsored by Bond University. 2 BUILDING AND CONSTRUCTION JOTTINGS. (1919, December 5). The Cessnock Eagle and South Maitland Recorder (NSW: 1913 - 1954), p. 2. Retrieved February 3, 2023, from http://nla.gov.au/nla.newsarticle99444713