Hi OP, Don't worry. They use a different way of working out % hence the -1 in the formula. That won't stop you getting the right answer.
It might be helpful to work out the problem in words then apply the maths.
The supplier incurred $600k of costs. We don't want to reimburse them for all cost increases as they won't have an incentive to minimise these if they don't have skin in the game. But we want to reimburse them for some of the cost increases to prevent them from doing a shoddy job or walking away so we'll reimburse them for 80% of the costs increase.
We have a price index to refer to so they can't just say prices have increased for inputs without evidence. For the period in the questions, this index started at 250 and increased to 300. These price indices run over time so that's why they don't start at 0. So the costs have increased by 20% (300/250) and the new total would be 120% of the original sum.
The question doesn't ask what the total fee payable is (that would be £696), it wants to know how much the notional increase in this proportion of the fee that can be increased due to cost rises.
There's lots of different ways of doing the arithmetic and the -1 in the formula has thrown you but to get the result, translate the scenario words once you understand it into numbers.
What's 80% of £600k? The simple way is 0.8 x 600 = 480. How much does this £600k need to increase by? If you multiply it by 300/250 to give $576 but the question just wants the increase, not the new total hence the -1 in the formula. $576-$480 = $96k which is the answer. As it's multiple choice, just try and keep the nature of the question from the words in your mind then work out the % in the way you are most comfortable if they don't want to see working out and forrmulae.
Is it the equivalent of CIPS? CCM (the old IACCM?) or world sourcing (the old NOS?)
Does that make sense or has it confused it further?
Good luck.