How to negotiate index-linked sourcing prices
Link only the evidenced cost component to a relevant published index, leaving the rest fixed. Record the baseline price and index observation, review dates, publication lag and revision policy. Apply the same calculation to rises and falls. Agree the calculation sheet with Cambridge China Bridge.
Choose an index that matches the cost
Ask the UK seller which material or bought-in component needs protection against price changes. Record the publisher, exact series title, series identifier, currency, unit and product coverage. Choose a series that tracks that input closely enough for your purchase, rather than accepting a general inflation headline. Keep ordinary bargaining separate; see negotiating with factories.
The Office for National Statistics Import Price Index measures materials and fuels imported by UK manufacturers. It is a published candidate for an agreed UK import-input benchmark, not direct evidence of a Chinese factory's costs. Ask the seller to justify any narrower series against the material grade, sourcing market and currency. If the match is weak, negotiate a fixed price or an evidence-based review instead.
Agree the share that actually moves
Request a cost breakdown supporting the indexed component's share of the baseline selling price. A material's share of factory cost is not automatically its share of your UK landed price. Use the specification, material consumption and purchasing evidence to check the allocation. The publisher's index weights do not establish your product's cost shares. Keep the price boundary clear using understanding your landed price. For advertised trade prices, see our guide to VAT-exclusive website pricing.
Write the calculation in words: revised price equals the fixed baseline amount plus the indexed baseline amount multiplied by the review index value divided by the base index value. Allocate separate components separately where justified. Define whether margin stays fixed or moves within the indexed amount. Exclude any freight or currency adjustment already handled elsewhere to prevent double counting.
Fix the baseline and review timetable
Record the baseline selling price, agreed specification, order quantity, delivery terms and currency alongside the base index reference period and published value. Distinguish the period the index measures from its publication date and from the publisher's own index base. Use index levels on a comparable basis, rather than adding a headline annual inflation rate to each successive order.
Agree the review frequency, observation period or averaging window, publication cut-off, notice deadline and effective date. State whether the result applies to new orders, scheduled releases or accepted orders. Tie the observation period to when the material is bought where practical. Agree how seller-caused delays affect the review so a late shipment cannot quietly select a more favourable index period.
Make decreases work like increases
Require the same formula, review dates and supporting calculation when the index falls. If you negotiate a threshold, cap or floor, write its effect on both directions explicitly, including whether smaller movements accumulate. Ask the seller to run a rising-index case, a falling-index case and an unchanged-index case before you approve the clause.
Calculate each review from the agreed baseline unless you expressly agree a reset method. Explain how any reset changes the fixed and indexed amounts; do not repeatedly uplift a price that already includes the same movement. Keep specification changes and exceptional cost claims outside the routine formula. For a separate increase request, see assessing contract price increases.
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Keep a calculation trail and an exit route
The Office for National Statistics identifies recent producer price data as provisional and subject to revision. Agree whether to freeze the release available at the cut-off or reconcile later revisions. Save the source extract, publication date, baseline, review observation and calculation with each price notice. Both parties should be able to reproduce the result without access to the seller's private spreadsheet.
Specify what happens if publication is delayed, the series is rebased or it is discontinued. Require an agreed comparable replacement and a method preserving continuity; avoid unilateral substitution. Set an interim pricing arrangement and a route for unresolved disagreements. Put the finished schedule into the seller's terms and order documents, using UK seller supply terms for the wider purchasing checklist.
Frequently asked questions
Which index should I use for China-sourced goods?
Choose a published series matching the exposed material, grade, market and currency. A UK import-input index can be an agreed proxy, but ask why it tracks your purchase rather than treating it as proof of Chinese factory costs.
Should an index increase apply to the whole price?
Only if the evidence supports indexing the whole price. Usually, negotiate an evidenced indexed component and a fixed remainder. Check the share against the UK selling price, not just the factory's material bill.
Will my price fall when the index falls?
Write that outcome into the formula. Use the same review dates and calculation for decreases, and spell out any cap, floor or threshold that could restrict them.
Can the seller change prices on accepted orders?
Check the agreed terms and which orders the formula covers. Specify the effective date and treatment of accepted orders before signing; do not leave this to the seller's price notice.