Gartner Research

Negotiating a Price Escalation Clause or Price Cap in a Software Contract

Published: 17 November 2009

ID: G00172036

Analyst(s): Frank DeSalvo

Summary

The escalation clause or price cap in a software contract can dramatically impact a customer's total cost of ownership. Gartner explains the mechanics of this provision and analyzes how to negotiate language that minimizes your exposure to unintended cost increases.

Table Of Contents
  • Overview
  • Basic Structure of a Price Escalation Clause
    • Price Escalation Clause Elements
    • Escalation Factors
  • Understanding the Consumer Price Index
    • Consumer Price Index — Definition
    • Types of CPIs
    • Using the CPI in a Software Contract
  • How to Calculate CPI Change
  • Additional Considerations
    • Predetermined Amount, Percentage or Index
    • List Price
    • Future Contract Term
    • Impact of Compounding
    • Escalation Provisions That Negate Discounts
    • Hybrid Escalation Factors
    • Calculations

©2019 Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. and its affiliates. This publication may not be reproduced or distributed in any form without Gartner’s prior written permission. It consists of the opinions of Gartner’s research organization, which should not be construed as statements of fact. While the information contained in this publication has been obtained from sources believed to be reliable, Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner research may address legal and financial issues, Gartner does not provide legal or investment advice and its research should not be construed or used as such. Your access and use of this publication are governed by Gartner’s Usage Policy. Gartner prides itself on its reputation for independence and objectivity. Its research is produced independently by its research organization without input or influence from any third party. For further information, see Guiding Principles on Independence and Objectivity.

Already have a Gartner Account?

Purchase this Document

To purchase this document, you will need to register or sign in above

Become a client

Learn how to access this content as a Gartner client.