Jim Haining, CPSM, CPSD, C.P.M., A.P.P., MBA Sr. Purchasing Analyst Clark County Nevada Session D, Track 3 November 14, 2014

Reflect prices in fluctuating markets Multi-year contracts So 1 st and 2 nd year of multi-year contracts are not front-loaded or “padded” Removes subjectivity out of supplier’s price increase request Easier contract administration Increase staff’s efficiency, reduces need to solicit/bid annually

Develop language that: Is clear References an index that is appropriate to the commodity or service Limits your company’s exposure States frequency of adjustment Determined by commodity or service Allows for escalation and de-escalation Prices and indexes fluctuate Puts requirement to request adjustment on supplier Provide for missing or discontinued data Defines mechanics of price adjustment

Prices shall not be subject to change during the initial contract year, thereafter, they may be price adjustments. All price adjustment requests, including suitable proof, shall be submitted, at least 30 calendar days in advance of Supplier’s expectation of price increase commencement, to [Company], [Address]. Price increases shall not be retroactive. A price adjustment can only occur if Supplier has been notified in writing of Company’s approval of the new Price(s). Only one written price adjustment request(s) will be accepted from the Supplier each year. The reference months/period and indices to be used to determine price adjustments will be the most recent published index between months prior (using the final index) and 2-4 months prior (using the first-published index) to the anniversary date of the Contract, using the price index specified below. Consumer Price Index: (or Producer Price Index) The Consumer Producer Price Index (CPI) (or PPI) – All Urban Consumers, U.S city average (Series ID = CUUR0000SA0). (Customize accordingly) The price adjustment per annual request will be no greater than the lesser of percent of CPI (or PPI) change for the 12 month period or 3 percent, whichever is less, for an increase or decrease. Suitable Proof: Print-out of price index and calculated increase/decrease (or other) Price Decrease: Company shall receive the benefit of a price decrease to any item during an annual period if the CPI (or PPI) decreases. If, at the point of exercising the price adjustment provision, market indicators and the CPI (or PPI) shows that the prices have decreased, and that the Supplier has not passed the decrease on to Company, Company reserves the right to place the Supplier in default, terminate the contract, and such actions will reflect adversely against the Supplier in determining the responsibility and non-responsibility of the Supplier in future opportunities.

Prices shall not be subject to change during the initial contract year (or period if less than 1 year), thereafter, they may be price adjustments. All price adjustment requests, including suitable proof, shall be submitted, at least 30 calendar days in advance of Supplier’s expectation of price increase commencement, to [Company], [Address]. Price increases shall not be retroactive. A price adjustment can only occur if Supplier has been notified in writing of Company’s approval of the new Price(s). Only one written price adjustment request(s) will be accepted from the Supplier each year. The reference months/period and indices to be used to determine price adjustments will be the most recent published index between months prior (using the final index) and 2-4 months prior (using the first-published index) to the anniversary date of the Contract, using the price index specified below.

Consumer Price Index: (or Producer Price Index) The Consumer Producer Price Index (CPI) (or PPI) – All Urban Consumers, U.S. city average (Series ID = CUUR0000SA0). (Customize accordingly) The price adjustment per annual request will be no greater than the lesser of percent of CPI (or PPI) change for the 12 month period or 3 percent, whichever is less, for an increase or decrease. Suitable Proof: Print-out of price index and calculated increase/decrease (or Letter from Manufacturer/Distributor, or other)

Price Decrease: Company shall receive the benefit of a price decrease to any item during an annual period if the CPI (or PPI) decreases. If, at the point of exercising the price adjustment provision, market indicators and the CPI (or PPI) shows that the prices have decreased, and that the Supplier has not passed the decrease on to Company, Company reserves the right to place the Supplier in default, terminate the contract, and such actions will reflect adversely against the Supplier in determining the responsibility and non-responsibility of the Supplier in future opportunities.

Discontinued Price Index: Should the above-referenced price index be discontinued or otherwise no longer be published by the U.S. Bureau of Labor Statistics, a similar index may be mutually agreed to in writing by both parties.

Drastic Price Decrease: Company shall receive the benefit of a price decrease to any line item at any time during the Price Adjustment Period if the decrease exceeds 15% of the contract price. If, at the point of exercising the price adjustment provision, market media indicators show that the prices have decreased which is confirmed by the specified Price Index, and that the Supplier has not passed the decrease on to Company, Company reserves the right to place the Supplier in default, terminate the contract, and such actions will reflect adversely against the Supplier in determining the responsibility and non- responsibility of the Successful Bidder in future opportunities. Price may be adjusted again at the normal time allowed by the contract.

What other considerations do you take into consideration? What other clauses/language do you use?

If you have more than one commodity or combination of commodity and service. Separate Specific index for each commodity or service Line 1 for product Line 2 for labor Combination (Composite) i.e. Electric Transformer 20% labor 50% steel 30% oil Weight each index increase in the calculation

U.S. Bureau of Labor Statistics (most widely recognized source) Consumer Price Index (CPI) Monthly data on changes in prices paid by Urban Consumers Broken into general and regional categories Producer Price Index (PPI) More specific to particular commodities Measures changes in selling prices received by domestic producers Employment Cost Index (ECI) Measures changes in labor costs Published quarterly Import/Export Prices International Price Program

The CPI for All Urban Consumers (CPI-U) is the index most often reported by the national media. The CPI for Urban Wage Earners and Clerical Workers (CPI-W) is the index most often used for wage escalation agreements.

Industry Data Commodity Data

Consider what you are buying Review the various indices (both CPI and PPI) Consider using a regional or city based index

Click on Subjects Tab

Click Here for CPI

or Here Click Here for CPI Databases

Click Here for Top Picks

Select desired index Select “Retrieve Data”

Base period Base date index = 100 August 2014 = means that the prices in August 2014 are % higher than the Base Date ( )

Index one year ago = Current index = / = % change from previous year (rounds to 1.7%) Or let the website calculate the change

Click Here

Select 12-month Percent Change Select “Retrieve Data” Specify your Year Range

% change from last year Download spreadsheet if you desire 12-month percent change

CPI annual increase is 1.7% Notice the latest data is August 2014 (this was taken on October 13, 2014)

Select One-Screen Search

Search for your Industry

Other……………

Keep supplier from front padding their pricing on multi-year contracts Remove subjectivity out of supplier’s price increase request Reflect prices in fluctuating markets both escalations and de-escalations Administer the contract correctly Verify your Supplier’s request for a price increase Reduce need to compete annually