Glossary

Escalation-clause terms

The words that decide whether an increase is billable: which index, which month, whether it compounds, whether notice is a condition, and whether last year can be reopened.

A

• Anniversary increase — An increase that happens on the anniversary of the contract, not necessarily on January 1.
• Auto-renewal — A term that continues for another period unless a party gives notice to stop it, sometimes taking a price increase with it.

B

• Base month — The earlier of the two months in a CPI ratio. Not the same thing as the index's reference base, such as 1982–84=100.
• Back-billing — Invoicing now for an increase that should have appeared on past invoices. Often not allowed.
• Billing true-up — A later invoice that corrects an earlier one, and only when the contract allows it.

C

• CPI adjustment clause — A clause that changes price by the ratio of two Consumer Price Index levels from a named series.
• CPI-U — The Consumer Price Index for All Urban Consumers, the index most commercial contracts mean by 'CPI.'
• CPI-W — The Consumer Price Index for Urban Wage Earners and Clerical Workers, a narrower index than CPI-U.
• Comparison month — The later month in a CPI ratio, the level that gets divided by the base month.
• Compounding — Applying this year's escalator to the fee already adjusted by prior years, not forever to the original fee.

E

• Escalation cap — The maximum a CPI or other index adjustment is allowed to change the price in that step.
• Escalation floor — The minimum change an index clause allows in a year, even when the index prints lower.
• Employment Cost Index — A quarterly BLS index of labor cost. It is not CPI, and CPI percents cannot be substituted for it.

F

• Fuel surcharge — A separate charge for fuel, not a substitute for a contractual escalator.

G

• Garbage and trash collection CPI — BLS series CUUR0000SEHG02, the index some hauling contracts name instead of all-items CPI.

I

• Index ratio — Comparison-month index divided by base-month index. The heart of a CPI adjustment.

N

• Not seasonally adjusted — The CPI treatment commercial contracts use: the published index, without the seasonal-adjustment factors BLS revises.
• Notice window — The period of written notice required before an increase is allowed to take effect.

O

• Original-base method — Recomputing the fee from the original price and the original index every year, instead of compounding annual steps.

P

• Price escalator — A contract sentence that changes the price on a schedule, by a fixed percent or by an index.
• Prevailing wage — A required wage on certain public work, set by a determination, not by the general minimum wage.
• Prospective increase — An increase that applies to future invoices only, from an effective date forward.

W

• Wage pass-through — A clause allowing a mandated wage increase to move the customer price, on a stated formula and notice.
• Waiver — The argument that a long period of billing the old price gave up the increase. It depends on the contract.