Glossary
True-up
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.
Also called: reconciliation, retroactive correction, adjustment reconciliation.
Because of publication lag, an adjustment
often has to run on a preliminary index figure. Statistical agencies then
revise that figure for one to four months. A true-up clause says the
adjustment is recomputed once the value is final and the delta settled,
rather than left as-is.
Example: a quarterly adjustment used a preliminary index of 261.0 and
billed a 4.4 percent increase. The final value comes in at 262.5. The
recomputed increase is 4.6 percent, so a 0.2 percent top-up is added to
the next invoice.
Decide the trigger (any revision, or only one above a threshold), the
window (revisions stop mattering after N months), and whether a true-up
can reverse direction. Without a true-up, a preliminary-value clause is
simpler but locks in whatever the first print said.
See retroactive vs prospective price adjustment.
Related terms
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.
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.
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.
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.
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