What type of contract benefits from adjustments based on price indices?

The type of contract that benefits from adjustments based on price indices is one that includes provisions for escalation based on fluctuating costs. A fixed price with escalation contract is specifically designed to address scenarios where the price of materials or labor may change over time. This type of contract allows for a set base price, but also incorporates mechanisms to adjust that price according to specific indices, such as inflation or changes in market conditions. This ensures that the contractor is adequately compensated for increases in costs beyond their control, making it a valuable option for long-term projects where price volatility is a concern.

In contrast, other types of contracts do not typically allow for such adjustments. Cost-reimbursement contracts cover the actual costs incurred plus a fee, but do not tie the payment to price indices; rather, they accommodate the actual expenses. Time and materials contracts pay for the actual time worked and materials used, which may vary but are not specifically adjusted according to indices. Negotiated contracts generally involve a set negotiation on terms without automatic adjustments for inflation or price increases. Therefore, fixed price with escalation contracts uniquely provide for adjustments based on price indices, allowing for more stability in partnerships amid fluctuating economic conditions.