General Contract Clauses: Index-Based Price Adjustments
A Standard Clause setting out a mechanism for adjusting the price of goods or services in long-term supply, services, or similar agreements. This Standard Clause is designed to help parties manage the economic risks associated with cost fluctuations by tying price adjustments to an agreed-upon index, such as the Consumer Price Index (CPI) or other indexes. It addresses key considerations for drafting an effective provision, including the frequency of adjustments, the basis for calculation, and options for limiting adjustments with caps or floors to protect against fluctuations. This Standard Clause also provides language for implementing partial adjustments, allowing parties to share the financial risk of cost changes. This Standard Clause has integrated notes with important explanations and drafting and negotiating tips.
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