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We've had an option year granted on a subcontract and I'm looking to negotiate for higher escalation rate than 1% due to the actual CPI. 

The BLS is publishing that the current CY21 CPI is 6.8% (Link - Table A). However, the index listed in the FY22 Green Book give a dramatically different answer - only 2%

in the Green Book, Table 5-1 on pg 59 (link), it lists 2021 as 98.04 and 2022 as 100 (as it is the base). Dividing 100/98.04 only yields 2%. I think I'm misunderstanding the table in the Green Book, or how to use it to get an industry accepted escalation rate. 

Any help would be appreciated!

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Vern - I would make the strongest argument by citing the FY22 Green Book instead of the BLS. The fact that there is a disconnect between the two means I am misunderstanding the way the CPI is calculated in the Green Book. Specifically I am looking for help (perhaps arithmetically) in understanding how to get an accurate CPI from the Green Book.

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1 hour ago, DE13151719 said:

Any help would be appreciated!

My mind went here which is a little beyond the CPI matter of sorts.

Does the subcontract provide the CPI increase, if not are just using to help justify your position.  If the former maybe you ought to get clarification as to what CPI standard you are to use from your prime and possibly even get the wording modified in the contract to avoid future confusion.   If the latter I just wonder about using some sort of index as opposed to your actual experience.   Maybe I am not fair minded but I would rather negotiate with a sub ( and have) based on their actual experience as opposed to what indexes day.   By your very example you might use the Green Book but the prime might use a whole different document and view in considering what you propose.

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32 minutes ago, C Culham said:

My mind went here which is a little beyond the CPI matter of sorts.

Does the subcontract provide the CPI increase, if not are just using to help justify your position.  If the former maybe you ought to get clarification as to what CPI standard you are to use from your prime and possibly even get the wording modified in the contract to avoid future confusion.   If the latter I just wonder about using some sort of index as opposed to your actual experience.   Maybe I am not fair minded but I would rather negotiate with a sub ( and have) based on their actual experience as opposed to what indexes day.   By your very example you might use the Green Book but the prime might use a whole different document and view in considering what you propose.

Thanks for the response. The original subK did specify a 1% increase. The contract had three options periods (all exercised). The customer elected an extension based on covid delays. We are outside of the outyears originally negotiated 4 years ago, which is what prompted the prime to reach out to all of the subs specifically asking for new rates. I think 1% is extremely low, and our rate was lowballed to begin with 4 years ago. It sounds like what you are saying is that asking for a rate increase based on increased costs we are currently experiencing as a company (and have over the past 4 years) may be more convincing than citing a labor statistic. Do I have that right?

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The BLS escalation rate is (unsurprisingly) associated with labor (salary & wages), right? Does the Green Book cover the same thing or does it cover something else? What costs are you applying the escalation factors to--labor only, or labor plus something else?

Regardless, it seems to me that whatever escalation factor you get will be the result of whatever you negotiate. As with all negotiations, I would start with the higher value (6.8%) and see what you can obtain. What would your bottom-line break-even price be (regardless of how you get there)? At what point would you decline the option because the price was too low?

My two cents.

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57 minutes ago, here_2_help said:

The BLS escalation rate is (unsurprisingly) associated with labor (salary & wages), right? Does the Green Book cover the same thing or does it cover something else? What costs are you applying the escalation factors to--labor only, or labor plus something else?

Regardless, it seems to me that whatever escalation factor you get will be the result of whatever you negotiate. As with all negotiations, I would start with the higher value (6.8%) and see what you can obtain. What would your bottom-line break-even price be (regardless of how you get there)? At what point would you decline the option because the price was too low?

My two cents.

Thank you Here 2 Help. We can handle the rate at 1% escalation. It's actually only for a handful of people, so in the grand scheme of things not a big deal. However, we anticipate that we will be working with the same prime on a similar effort in the future so it's more of a strategic move keeping future rates in mind. 

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12 hours ago, Vern Edwards said:

The link that the OP has provided is to "NATIONAL DEFENSE BUDGET ESTIMATES FOR FY 2022."

I have no idea what that has to do with an escalation rate for a subcontract for god knows what work.

 

Vern, 

The subtext I'm getting from your comment is that the contracting world (even in DoD contracting) does not normally reference the Green Book. That document contains what the DoD recognizes as accepted inflation rates for future estimating, so to me it seemed like a solid reference for inflation rates for future estimating. 

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23 hours ago, DE13151719 said:

We've had an option year granted on a subcontract and I'm looking to negotiate for higher escalation rate than 1% due to the actual CPI. 

 

2 hours ago, DE13151719 said:

The subtext I'm getting from your comment is that the contracting world (even in DoD contracting) does not normally reference the Green Book. That document contains what the DoD recognizes as accepted inflation rates for future estimating, so to me it seemed like a solid reference for inflation rates for future estimating. 

@DE13151719If I were a contractor and you came to me as a subcontractor seeking a higher "escalation rate" for your subcontract option year, and if you offered me the DOD "Green Book" economy wide rate from Table 5-1, I would laugh you out of the room.

What is your subcontract for? Labor? What kind of labor? In what region? A product? What kind of product? What kind of materials? What is the source of cost escalation?

The "Green Book" economy wide rate is too gross for subcontract pricing. There are many escalation rates for various parts of the economy. Choose an appropriate one. 

As a DOD contracting officer I never had a contractor seek an adjustment based on the DOD "Green Book" economy wide rate. I did a sanity check with a colleague at the Defense Acquisition University and he laughed out loud at your notion.

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