Glossary
Plain-language definitions of the terms that show up in price escalation and contract price adjustment clauses. Each entry is self-contained and links to the mechanics it depends on.
An averaging window is the number of consecutive published index values a price escalation clause averages before using the result in its formula. A 3-month window smooths a single volatile month; a 1-month window tracks the latest value exactly.
Full definition →The base period is the month whose published index value a price escalation clause treats as the starting point. Every later adjustment compares a current index value to the value from this fixed month, usually the month of contract signing or bid submission.
Full definition →A cap is the maximum price adjustment an escalation clause will pass through in a period; a floor is the minimum. Together they bound how far the covered price can move regardless of how far the index moves.
Full definition →A collar is a cap and a floor used together on the same escalation clause, so the price adjustment is confined to a band, for example no more than plus 6 percent and no less than minus 6 percent in any year.
Full definition →The Consumer Price Index measures the average change over time in the prices urban households pay for a fixed basket of goods and services. In contracts it is used for rent reviews, wage-linked terms, and long service agreements rather than for raw-material costs.
Full definition →De-escalation is the downward half of a price adjustment clause: when the chosen index falls below its base value, the covered portion of the price is reduced by the same ratio mechanism that would have raised it.
Full definition →Economic price adjustment is the US federal government's term for a price escalation clause in a fixed-price contract. The Federal Acquisition Regulation defines three standard EPA clauses at FAR 52.216-2, -3, and -4.
Full definition →The Employment Cost Index measures the change in employer labor cost, wages plus benefits, holding the mix of jobs fixed. Labor-heavy service and construction contracts use it to escalate the workforce portion of a price without re-pricing the whole contract.
Full definition →An escalation clause (also called a price escalation clause or price adjustment mechanism) is contract language that adjusts a price up or down over time using a named index, a formula, and a schedule, so neither party carries the full risk of cost changes between signing and delivery.
Full definition →The escalation factor is the multiplier a clause produces by dividing the current index value by the base index value. A factor of 1.10 means a 10 percent increase; it is applied to the covered portion of the price, not always the whole contract.
Full definition →A not-seasonally-adjusted index reports the actual measured price change, including regular seasonal swings. Price escalation clauses use NSA data because the seasonally adjusted version is a modelled estimate that agencies revise and that two parties cannot independently reproduce.
Full definition →The Producer Price Index measures the average change over time in the selling prices domestic producers receive for their output. It is the index most business-to-business escalation clauses use, because it tracks wholesale input costs rather than retail prices.
Full definition →Publication lag is the gap between the month an index measures and the date the statistical agency releases that value. A clause has to say whether it uses the preliminary figure available at adjustment time or waits for the final, revised one.
Full definition →The reference period is the year a statistical agency sets an index equal to 100, so all other values read as a percentage of it. It is a property of the index itself, not of any contract, and it is not the same as a clause's base period.
Full definition →A successor series is the index a clause switches to when its named series is discontinued or restructured by the statistical agency. A well-drafted clause names the successor, or a method for choosing one, in advance.
Full definition →A true-up is a later correction to a price adjustment that was calculated from a preliminary index value, once the final revised value is published. The difference is billed or credited in a subsequent invoice.
Full definition →WPU and PCU are the two BLS Producer Price Index series-code families. WPU codes track a commodity by what it is; PCU codes track the output prices of an industry defined by NAICS code. Many materials appear in both, at different values.
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