Which clause is included in contracts due to potential uncertainties in labor or material prices?

The inclusion of an escalation clause in contracts serves to address the uncertainties associated with labor or material prices. This clause allows for adjustments to the contract price based on fluctuations in the costs of materials or labor that occur after the contract has been signed.

Escalation clauses typically specify how price changes will be calculated, often referencing indexes or other economic indicators. This is vital in industries where material prices can fluctuate significantly due to market conditions, supply chain issues, or economic policies, as it helps protect the contractor from unforeseen increases in costs that could lead to financial losses.

By allowing for price adjustments, escalation clauses provide a balanced approach and help maintain the financial viability of the contract throughout its duration, accommodating both parties in light of changing economic conditions. This is especially important in construction projects, where timelines can span several months or years.