Gartner Research

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

Published: 17 November 2009

ID: G00172036

Analyst(s): Frank DeSalvo


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

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