Many contracts in the United Kingdom and elsewhere contain amounts that are indexed to the Retail Price Index (RPI). Morgan Lewis partner Bruce Johnston recently published a LawFlash outlining how recent changes to the UK RPI could impact contracts that leverage the index.
More broadly, many clients take for granted that indexes published by third parties (for example, the Consumer Price Index in the United States) generally reflect the economic reality of their transactions. We recommend that before simply referring to a particular index, lawyers take a few extra steps to add value for their clients.
- Look up the index. Does it still exist? Consider adding a mechanism into the agreement that allows a new index to be selected in the event the chosen one is discontinued.
- Has the index been around for a while? If not, consider using something that has.
- Has the index changed recently? If so, alert your client.
- Are there other indexes that may more accurately address the economics of the transaction? For example, is the Producer Price Index potentially more applicable than the Consumer Price Index?