Over the term of an outsourced contract, the service provider could incur changes in the delivery cost, most often as a result of wage inflation within various delivery locations. The Cost of Living Adjustment (or COLA clause), sometimes referred to as the “inflation adjustment,” provides service providers with the ability to adjust charges to reflect a fair increase in delivery costs. As a buyer organization, however, it is important to know that COLA has a cascading effect on an annual basis and could be a hidden choke point within a contract. The choice of an equitable index, sensitivity, and formula are critical to ensuring that service provider charges remain aligned with the market.
