NEC3 PSC Option X1 Price Adjustment for Inflation

A Client has included Option X1 in Professional Services Contract and we are due to negotiate our first anniversary increase in rate. The chosen Index is has published these figures for the last year or so…

2015 Nov 151.8
2015 Dec 166.2
2016 Jan 154.2
2016 Feb 159.9
2016 Mar 177.2
2016 Apr 164.9
2016 May 153.6
2016 Jun 156.1
2016 Jul 159.1
2016 Aug 152.9
2016 Sep 150.5
2016 Oct 150.5
2016 Nov 151.3
2016 Dec 157.0
2017 Jan 154.2

The Anniversary of the award is in mid-January and, presumably, my Base Index is, therefore, 154.2. If this is the case, is my Last published Index 157.0 (i.e. 12 months January to December) or 154.2 (i.e. January to January)?

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You need to look at the exact dates in your contract in order to determine the correct indices to use for price adjustment.

Firstly establish the Contract Date, i.e. what date was your contract signed? Once you have this date you can find out the last value of the index published at that point in time (B). If your contract was signed in Jan 2016 it may or may not be the Jan 2016 index figure of 154.2 that applies if the Jan 2016 figures had not yet been published at the Contract Date. It may be that the Dec 2015 figures were the latest available at the Contract Date.

You then apply this logic to establish the last value of the index published on the first anniversary of the Contract Date (L).

Organisations that publish indices usually record the exact date when they published the figures for a particular month.

Thank you for taking the time to help with my query. My experience is that the indices are not published for several weeks, if not a month or two, after the end of the relevant month. In my case this is not causing an issue as we have reasonable time and flexibility to discuss the indices and proposed changes with the Client. It is safe to assume that the January 2015 index was not available when the Contract was signed and so I’m content that my Base Index (B) would December 2015, i.e. 166.2. Consequently, moving forward a year to the first anniversary in January 2017, am I correct to assume that the Last Published Index (L) to use in my calculations would be December 2016 (157.0) even if I have to wait a week or two for it to actually become available?

The question is what index is / was available on the anniversary of the Contract Date? It sounds like the December figures weren’t available at that point in time, hence your need to wait a week or two? Indices are normally published to a set timetable which is usually the same year on year so I find it unusual that you would not use the same month each year for both B and L i.e. December. If the December index isn’t available on the anniversary then it makes me wonder if it was available on the Contract Date also? The right answer lies in knowing on what date the indices are published.