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Contract Indexation: A Guide for Businesses

Statistics New Zealand’s price indexes are commonly used by New Zealand businesses in contract indexation clauses (also known as contract escalation clauses). This guide provides information on the price indexes produced by Statistics NZ and issues relating to their use in such clauses. The guide also outlines some points to consider when preparing an indexation clause and includes an example of the mechanics of a simple indexation formula.

The contract indexation guide was first published in December 1998 and then updated in 2005 to incorporate subsequent changes in the price indexes, including calculation methodologies, weightings, and coverage. This version was updated in 2009.

Introduction

Parties that engage in commercial contracts use a range of price indexes produced by Statistics NZ in their indexation clauses. This document provides general guidelines for such parties relating to the use of each index in their commercial contracts, including information on index quality, revisions, discontinuities, and rebasing. In the process of contract indexation, it is important to understand the merits and limitations of each index based on the specific nature, characteristics, and methodology of the indexes.

The role of Statistics NZ in relation to indexation clauses is limited to explaining the methodologies and limitations of specific series, and to providing the data requested by users in a timely and efficient manner. Statistics NZ aims to provide general advice on the application of indexes in particular situations, but does not provide advice on contractors’ obligations in private commercial contracts or on disputes arising from contract interpretation.

Some points to consider when using a price index for contract indexation are explained in this guide under each index. This information is based on Statistics NZ's experience as a provider of price index data. It is not an exhaustive list of all the possible risks or pitfalls associated with indexation. For more comprehensive information legal advice should be obtained. The guide concludes with an example of cost indexation using a simple representative formula. There are several methods of constructing an indexation clause and Statistics NZ does not recommend any particular method. The example provided is for illustrative purposes only.

All statistics and information produced by Statistics New Zealand carry the following disclaimer:

While care has been used in processing, analysing, and extracting information, Statistics NZ gives no warranty that the information supplied is free from error. Statistics NZ shall not be liable for any loss suffered through the use, directly or indirectly, of any information, product, or service.

Government Statistician

For the full commentary on indexation clauses please refer to Contract Indexation: A Guide for Businesses

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