12-CPI-U Based Price Adjustment Calculations.pdf
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- Solicitation number
- 26/0009
- Issued by
- Harris County, Texas
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This document is a CPI-U Based Price Adjustment Calculations guide applicable to contract renewals for the Harris County Flood Control District in Texas. The document establishes the methodology for determining renewal year pricing by applying Consumer Price Index adjustments to current contract year pricing, specifically using the CPI-U for Houston, Texas as published by the U.S. Bureau of Labor Statistics. The adjustment calculation utilizes the average inflationary or deflationary effect measured across six consecutive twelve-month periods that occur prior to contract expiration. Since BLS data for the Houston area is released every other month beginning in February, the required data for calculating the average adjustment rate only needs to be current five to six months prior to the scheduled contract expiration date, allowing renewal determinations to be made in the eighth month of the contract term.
The CPI-U methodology is designed to measure the average change in prices for a fixed market basket of goods and services covering approximately eighty percent of the total population, including wage earners, clerical workers, professionals, managers, technical workers, the self-employed, retirees, and others not in the labor force. The document provides a detailed example for contracts expiring in November or December 2008, specifying six distinct twelve-month measurement periods and their corresponding date ranges to ensure consistent and objective price adjustment calculations. This standardized approach eliminates subjective pricing determinations and ties contract renewals directly to actual economic inflation or deflation experienced in the Houston area, providing transparency and fairness to both the contracting agency and service providers.
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CPI-U Based Price Adjustment Calculations
CPI-U Based Price Adjustment Calculations
For any year in which a current contract is renewed, the renewal year pricing will be determined by adjusting the current contract year pricing by the average inflationary/deflationary effect, as reported in the Consumer Price Index of All Consumers (CPI-U) for Houston, Texas, between the current contract year as compared to the year preceding the current contract year of the contract. The CPI-U, as published by the U.S. Bureau of Labor Statistics (BLS), is a measure, over time, of the average change in prices in a fixed market basket of goods and services and covers approximately 80 percent of the total populations, including wage earners, clerical workers, as well as groups such as a professional, managerial, and technical workers, the self-employed, retirees and others not in the labor force.
The average inflationary/deflationary effect will be determined by totaling, and dividing by six (6), the inflationary/deflationary effects of six (6) twelve (12) month periods occurring prior to expiration of the current contract. Since the inflationary/deflationary effect for the Houston area is calculated by the BLS every other month beginning in February, and since the intention to renew a contract should be determined in the eighth month of the contract, all required data for calculating the average adjustment rate need be current only five (5) or six (6) months prior to the scheduled expiration of the current contract.
For example, assuming a contract expires in November or December, the end of the most recent twelve (12) month period will be June of the year of the current contract. The end of each of the other five (5) twelve (12) month periods will be the second month before the end of the immediately preceding twelve (12) month period.
Therefore, the six (6) twelve (12) month periods applicable to a contract expiring in November or December, 2008, are:
Period #: 1 2 3 4 5 6
From: 6/07 4/07 2/07 12/06 10/06 8/06 To: 6/08 4/08 2/08 12/07 10/07 8/07
Period #1 is from June of the first year before the contract period to June of the year of the contract period, Period #2 is from April of the first year before the contract period to April of the year of the contract period, Period #3 is from February of the first year before the contract period to February of the year of the contract period, Period #4 is from December of the second year before the contract period to December of the first year before the contract period, Period #5 is from October of the second year before the contract period to October of the first year before the contract period, Period #6 is from August of the second year before the contract period to December of the first year before the contract period.
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