Session D, Track 3
November 14, 2014
Jim Haining, CPSM, CPSD, C.P.M., A.P.P., MBA
Sr. Purchasing Analyst
Clark County Nevada
• Reflect prices in fluctuating markets
• Multi-year contracts
• So 1st and 2nd year of multi-year contracts are not front-loaded or
“padded”
• Removes subjectivity out of supplier’s price increase request
• Easier contract administration
• Increase staff’s efficiency, reduces need to solicit/bid annually
• Develop language that:
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Is clear
References an index that is appropriate to the commodity or service
Limits your company’s exposure
States frequency of adjustment
• Determined by commodity or service
Allows for escalation and de-escalation
• Prices and indexes fluctuate
Puts requirement to request adjustment on supplier
Provide for missing or discontinued data
Defines mechanics of price adjustment
Prices shall not be subject to change during the initial contract year, thereafter, they may be price
adjustments. All price adjustment requests, including suitable proof, shall be submitted, at least 30
calendar days in advance of Supplier’s expectation of price increase commencement, to [Company],
[Address]. Price increases shall not be retroactive. A price adjustment can only occur if Supplier has been
notified in writing of Company’s approval of the new Price(s). Only one written price adjustment
request(s) will be accepted from the Supplier each year. The reference months/period and indices to be
used to determine price adjustments will be the most recent published index between 14-16 months prior
(using the final index) and 2-4 months prior (using the first-published index) to the anniversary date of the
Contract, using the price index specified below.
Consumer Price Index: (or Producer Price Index)
The Consumer Producer Price Index (CPI) (or PPI) – All Urban Consumers, U.S city average (Series ID =
CUUR0000SA0). (Customize accordingly) The price adjustment per annual request will be no greater
than the lesser of percent of CPI (or PPI) change for the 12 month period or 3 percent, whichever is less,
for an increase or decrease.
Suitable Proof: Print-out of price index and calculated increase/decrease (or other)
Price Decrease: Company shall receive the benefit of a price decrease to any item during an annual
period if the CPI (or PPI) decreases. If, at the point of exercising the price adjustment provision, market
indicators and the CPI (or PPI) shows that the prices have decreased, and that the Supplier has not passed
the decrease on to Company, Company reserves the right to place the Supplier in default, terminate the
contract, and such actions will reflect adversely against the Supplier in determining the responsibility and
non-responsibility of the Supplier in future opportunities.
• Prices shall not be subject to change during the initial contract year
(or period if less than 1 year), thereafter, they may be price
adjustments. All price adjustment requests, including suitable proof,
shall be submitted, at least 30 calendar days in advance of
Supplier’s expectation of price increase commencement, to
[Company], [Address]. Price increases shall not be retroactive. A
price adjustment can only occur if Supplier has been notified in
writing of Company’s approval of the new Price(s). Only one written
price adjustment request(s) will be accepted from the Supplier each
year. The reference months/period and indices to be used to
determine price adjustments will be the most recent published index
between 14-16 months prior (using the final index) and 2-4 months
prior (using the first-published index) to the anniversary date of the
Contract, using the price index specified below.
• Consumer Price Index: (or Producer Price Index)
• The Consumer Producer Price Index (CPI) (or PPI) – All Urban
Consumers, U.S. city average (Series ID = CUUR0000SA0).
(Customize accordingly) The price adjustment per annual
request will be no greater than the lesser of percent of CPI (or
PPI) change for the 12 month period or 3 percent, whichever is
less, for an increase or decrease.
• Suitable Proof: Print-out of price index and calculated
increase/decrease (or Letter from Manufacturer/Distributor, or
other)
• Price Decrease: Company shall receive the benefit of a price
decrease to any item during an annual period if the CPI (or PPI)
decreases. If, at the point of exercising the price adjustment
provision, market indicators and the CPI (or PPI) shows that the
prices have decreased, and that the Supplier has not passed
the decrease on to Company, Company reserves the right to
place the Supplier in default, terminate the contract, and such
actions will reflect adversely against the Supplier in determining
the responsibility and non-responsibility of the Supplier in future
opportunities.
• Discontinued Price Index: Should the above-referenced price
index be discontinued or otherwise no longer be published by
the U.S. Bureau of Labor Statistics, a similar index may be
mutually agreed to in writing by both parties.
• Drastic Price Decrease: Company shall receive the benefit of a
price decrease to any line item at any time during the Price
Adjustment Period if the decrease exceeds 15% of the contract
price. If, at the point of exercising the price adjustment
provision, market media indicators show that the prices have
decreased which is confirmed by the specified Price Index, and
that the Supplier has not passed the decrease on to Company,
Company reserves the right to place the Supplier in default,
terminate the contract, and such actions will reflect adversely
against the Supplier in determining the responsibility and nonresponsibility of the Successful Bidder in future opportunities.
Price may be adjusted again at the normal time allowed by the
contract.
• What other considerations do you take into consideration?
• What other clauses/language do you use?
• If you have more than one commodity or combination of
commodity and service.
• Separate
• Specific index for each commodity or service
• Line 1 for product
• Line 2 for labor
• Combination (Composite)
• i.e. Electric Transformer
• 20% labor
• 50% steel
• 30% oil
• Weight each index increase in the calculation
U.S. Bureau of Labor Statistics (most widely recognized source)
• Consumer Price Index (CPI)
• Monthly data on changes in prices paid by Urban Consumers
• Broken into general and regional categories
• Producer Price Index (PPI)
• More specific to particular commodities
• Measures changes in selling prices received by domestic producers
• Employment Cost Index (ECI)
• Measures changes in labor costs
• Published quarterly
• Import/Export Prices
• International Price Program
• The CPI for All Urban
Consumers (CPI-U) is the index
most often reported by the
national media.
• The CPI for Urban Wage
Earners and Clerical Workers
(CPI-W) is the index most often
used for wage escalation
agreements.
• Industry Data
Commodity Data
• Consider what you are buying
• Review the various indices (both CPI and PPI)
• Consider using a regional or city based index
Click on Subjects
Tab
• www.bls.gov
Click Here for
CPI
Click Here for
CPI Databases
or Here
Click Here for
Top Picks
Select desired
index
Select “Retrieve
Data”
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Base period 1982-84
Base date index = 100
August 2014 = 237.852
237.852 means that the prices in August 2014 are 137.852%
higher than the Base Date (1982-84)
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Index one year ago = 233.877
Current index = 237.852
237.963 / 233.877 = 1.01747
1.747% change from previous year (rounds to 1.7%)
• Or let the website calculate the change
Click Here
Select
12-month Percent
Change
Specify your
Year Range
Select
“Retrieve Data”
Download
spreadsheet if
you desire
12-month
percent
change
% change from
last year
• CPI annual increase is
1.7%
• Notice the latest data is
August 2014
(this was taken on October 13,
2014)
Select
One-Screen
Search
Search for
your Industry
• www.indexmundi.com
• www.metalprices.com
• Other……………
• Keep supplier from front padding their pricing on multi-year
contracts
• Remove subjectivity out of supplier’s price increase request
• Reflect prices in fluctuating markets
• both escalations and de-escalations
• Administer the contract correctly
• Verify your Supplier’s request for a price increase
• Reduce need to compete annually