The federation is following concerns that volatile material prices could lead to firms going bankrupt

One of the industry’s largest trade federations is asking clients to link contract prices to material prices.

The Electrical Contractors Association (ECA) has written letters to more than 800 of its members that are involved in in drawing up contracts for clients, pushing for this. It wants contracts to be linked to the government’s Building Cost Information Service material prices indexes, which track price fluctuations.

In May, Galliford Try said it had negotiated with clients to vary the price of contracts to depend on material costs and had requested their wider adoption. The ECA letter follows concerns that the current volatility in material prices could see firms going bankrupt because of unpredictable commodity price rises.

Ken Tracey, commercial director of the ECA, said: “Volatile material prices are a life-and-death matter for our members. We are calling on clients to be more far-sighted as this is about making sure your supply chain remains intact.”

Material prices rose by 6.8% in 2010, according to RICS tender price information, and have broadly continued to rise this year. BCIS index-linked contracts were common during the eighties but almost vanished during the nineties recession.