Bangkok: The Cabinet approved measures to mitigate the impact on government contractors from the Middle East crisis, temporarily waiving the calculation of the K-factor to help maintain liquidity for businesses. The government emphasized its commitment to supporting both SMEs and the livelihoods of the people.
According to Thai News Agency, Ms. Ratchada Thanadirek, spokesperson for the Prime Minister's Office, revealed that the Cabinet meeting on May 19, 2026, approved measures to mitigate the impact on government contractors affected by the conflict in the Middle East. These measures aim to reduce costs and maintain liquidity for businesses impacted by rising energy prices, transportation costs, and material expenses.
These measures are aimed at assisting government contractors during periods of severe cost volatility, particularly those involved in construction and government procurement, many of whom are SMEs with limited working capital. If rising costs continue to exert pressure, it could negatively impact project delivery, employment, and economic activity in the area.
Ms. Rachada stated that the essence of the measure is to temporarily relax the method of calculating compensation for construction contracts with adjustable prices, or the K-factor, by deducting at a rate of plus/minus 2 percent from the previous plus/minus 4 percent, specifically for contracts with delivery installments between February 28 and September 30, 2026. This is to allow compensation costs to better reflect price changes. Furthermore, the price index at the month the head of the government agency approves the median price will be used instead of the price index at the month the bids are opened, to ensure the calculation aligns with actual costs during a period of rapid and volatile energy and material price increases.
The K-factor, or construction cost adjustment formula, is a mechanism used to compensate for changes in costs during project implementation, such as oil prices, construction materials, and energy costs. If costs increase beyond a predetermined limit, the government will pay additional compensation to the contractor proportionally to the actual increase. Conversely, if costs decrease, adjustments will be made in the same direction to ensure fairness for both parties.
The Prime Minister's spokesperson stated that similar measures were used during the subprime economic crisis to support businesses and mitigate the impact of highly volatile costs. Therefore, reintroducing these measures represents a choice of tools proven in past crises, adapted to the current energy crisis.
"In a situation where global energy prices are high and volatile, the Prime Minister prioritizes policies that mitigate the impact on all groups, including maintaining consumer purchasing power and supporting businesses, especially SMEs. Because when businesses have liquidity, government projects can continue, employment remains, and people have purchasing power, the economy can move forward," Ms. Rachada said.