Indexation is intended to reflect the time value of money given the long-term duration of a PPP project. Over the life of the Project, certain monetary thresholds (such as Insurance values) and payments for certain Services will be Indexed on the basis that the long-term risk of inflation is outside the control of Project Co. The capital component of the Service Payment linked to the design and construction of the Works is not typically Indexed given the shorter length of the Development Phase during which the construction component costs are incurred, i.e. the rate of inflation can be reasonably forecast.
The Indexes Schedule sets out the applicable indices (derived from Australian national sources), the frequency of indexation to apply in each case (typically annually or quarterly), and the methodology which will apply if an Index ceases to be published by the relevant independent source.