The contract says CPI. Two thirds of your cost base is wages.

Annual indexation feels like inflation protection. When the index and the cost base measure different things, it quietly funds the customer instead.

By Steve 5 min read
Abstract bridge artwork for The contract says CPI. Two thirds of your cost base is wages.

A five-year contract with an annual uplift clause looks like a solved problem. Price rises every January, nobody has to have an awkward conversation, and the margin is protected. Then year four arrives, the work is still being delivered competently, volumes are up, and the gross margin on that account is several points below where it started. Nothing went wrong operationally. The clause did exactly what it said. The problem is not indexation. It is that most indexation clauses link the price to one basket of costs and the delivery…

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