Glossary
Base period
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.
Also called: base month, reference month, base date.
The base period fixes the denominator of an escalation formula. If a clause
sets March 2026 as the base and the March 2026 index reads 250.0, then a
later month reading 275.0 gives a ratio of 275.0 / 250.0 = 1.10, a 10
percent increase applied to the covered portion of the price.
Two drafting choices matter. First, name a single month or a short average,
not "the date of this contract" (which is ambiguous when signing spans
month-end). Second, decide whether the base is the month of signing, the
month of the bid, or the month work begins; on a project with a long gap
between bid and award those can differ by a full inflation cycle.
For materials sold on annual price-increase letters, a single base month
can land just before or just after the yearly step change. A first-quarter
average base avoids that.
See how base periods work and the
related reference period and
averaging window.
Related terms
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.
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.
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.
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.
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