I have an article in Supply Management magazine this week.
Supply Management is the journal for the Chartered Institute of Purchase and Supply (the trade body for procurement professionals).
The article is about deflation and the effect on long term contracts with indexation clauses. Here is the “speed read” version:-
- RPI has been negative for the last couple of months.
- Many long term IT contracts have clauses under which any ongoing price, e.g. for maintenance, are linked to an inflation index such as RPI, RPIX, CPI. Similarly many outsourcing contracts have indexation clauses.
- Typically these are to protect the supplier against the risk of inflation.
- Often these are “upwards only”, i.e. the price can only go up. But this is not always the case.
- Arguably purchasers could use any “up or down” indexation clauses to reduce the contract price.
- Not all inflationary indexes are negative at the moment. RPIX (RPI excluding mortgage interest) and AEI are still positive. This shows the importance of selecting the right index at the time of contracting. | Brodies IP and Technology blog
On July 22, 2009