IT Outsourcing Cost-of-Living Adjustment (COLA) Provisions Audit Checklist

Download Free IT Outsourcing Cost-of-Living Adjustment (COLA) Provisions Checklist

1. What is a COLA provision? (A provision that calls for an adjustment to the fees to reflect inflation)

2. At what point during the term of the Agreement will COLA apply?
- Is any inflation built into the fees?
- To what extent should the vendor be managing inflation?

3. To what fees does COLA apply? (Typically labor portions only; even for fees that are labor based, there is typically some portion attributable to overhead/ administration)
4. To what extent should a COLA increase be offset by a pricing decrease (e.g., productivity gains)?
5. Will there be any risk-sharing mechanisms (e.g., if COLA exceeds 4 percent, then the parties will share amounts over 4 percent on a 50/50 basis)?
6. Different indices for the Unites States and other countries

7. Choosing an index
- Consumer Price Index
- Employment Cost Index
- General indices vs. specific goods/services
- No IT services index
- U.S. vs. Regional/City indices

8. Sample Indices
- Percentage increases vs. percentage point increases
- Mechanisms for changes to the indices

9. New developments