19-CPI-U Based Price Adjustment Calculations.pdf
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- Attached to
- ITB - Repair and Maintenance of Existing Subdivision Infrastructure in Various Locations for Harris County
- Solicitation number
- 26/0087
- Issued by
- Harris County, Texas
About this file
This document is a pricing adjustment methodology for Harris County, Texas contracts that establishes the mechanism for adjusting renewal year pricing based on inflationary or deflationary changes. The adjustment is calculated using the Consumer Price Index for All Urban Consumers (CPI-U) for the Houston, Texas area, as published by the U.S. Bureau of Labor Statistics. The methodology requires calculating the average inflationary or deflationary effect across six consecutive twelve-month periods that precede the contract expiration date. Since BLS publishes CPI-U data bimonthly 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, allowing adequate time for renewal decisions to be made in the eighth month of the contract term.
The renewal year pricing is determined by adjusting the current contract year pricing by the calculated average inflationary or deflationary effect derived from the six twelve-month CPI-U measurement periods. The CPI-U measures the average change in prices for a fixed market basket of goods and services and covers approximately eighty percent of the total population, including wage earners, clerical workers, professionals, managerial and technical workers, the self-employed, retirees, and others not in the labor force. The document provides a specific example for contracts expiring in November or December 2008, detailing the six applicable twelve-month periods and their corresponding start and end dates to illustrate the precise calculation methodology contractors should apply when contract renewals occur.
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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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