The Procurement Glossary » Index-Linked Pricing

Index-Linked Pricing

Spend & Analytics

Definition

A contract pricing mechanism where the price moves automatically with a published index rather than by renegotiation.

Explanation

Index linking shares commodity risk fairly: prices rise and fall transparently with the market, avoiding contentious renegotiations and one-sided increases. It suits volatile, commodity-driven categories.

Example

Fuel surcharges on the haulage contract are index-linked, so both parties accept the monthly adjustment.

Related terms

• Price Index — A published measure tracking price changes for a commodity or category over time.
• Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
• Cost Breakdown — An itemised disclosure of the components that make up a supplier's price, such as materials, labour, freight, overhead and margin.
• Open-Book Costing — A pricing arrangement in which the supplier discloses its actual costs and agreed margin, so the buyer can see how the price is built up.

Frequently Asked Questions

What is Index-Linked Pricing?

A contract pricing mechanism where the price moves automatically with a published index rather than by renegotiation. Index linking shares commodity risk fairly: prices rise and fall transparently with the market, avoiding contentious renegotiations and one-sided increases. It suits volatile, commodity-driven categories.

Can you give an example of Index-Linked Pricing?

Fuel surcharges on the haulage contract are index-linked, so both parties accept the monthly adjustment.

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