CPI and Inflation Clauses in Broadcom Agreements
Why CPI Clauses Matter
If you’re negotiating a Broadcom software agreement, watch out for the CPI (Consumer Price Index) inflation clause. Broadcom loves index-based increases because they shift inflation risk onto you, the customer.
In practice, a “Broadcom CPI clause” can quietly double your costs over a multi-year term if left unchecked.
For example, a 5% CPI increase each year for three years compounds to roughly 15.7% total – a hefty jump that might slip past budget scrutiny. Read our overview, Key Contract Terms to Negotiate in Broadcom Agreements (Commercial & Legal Clauses).
From the buyer’s perspective, this is a big deal. CFOs and boards demand budget predictability, but an aggressive inflation clause undermines that with unpredictable hikes.
It’s also a fairness issue: if your operations are in a low-inflation region, why should you pay U.S.-level or global inflation rates?
Lastly, risk should be shared – Broadcom shouldn’t offload all macroeconomic volatility onto customers. If you’re giving Broadcom a multi-year commitment (locking in business for them), you deserve price stability in return, not automatic CPI add-ons.
How CPI Clauses Work
Broadcom typically ties annual fee increases to an inflation index through a contract clause.
Here’s what to look for in these inflation clauses in Broadcom agreements:
- CPI-linked renewals: The contract may peg yearly price adjustments to a published CPI figure. Often it’s the U.S. CPI-U (Consumer Price Index for All Urban Consumers) or a global CPI measure, even if your business isn’t U.S.-based.
- “CPI + X” uplift: Broadcom sometimes proposes an extra fixed percentage on top of CPI (e.g,. “CPI + 3%” annually). This guarantees them a bump even when inflation is low – effectively a built-in markup in addition to inflation.
- Compounding increases: If not specified otherwise, each year’s increase applies to the new, higher price from the previous year. That means a 5% CPI increase on top of last year’s 5% increase (and so on), leading to compounding costs. Over multiple years, this magnifies the total percentage increase you pay.
- CPI floors: Be aware of any minimum annual increase clause. For example, a 2% floor means even if inflation is 0% (or negative), Broadcom would still raise its price by 2%. It’s a one-way ratchet: prices go up no matter what (a “heads Broadcom wins, tails you lose” scenario).
- Index selection control: The contract may allow Broadcom to choose the inflation index (and change it if the index is retired or revised). This is risky if they use an index that runs hotter than your local economy. Broadcom could, for instance, stick to a high global CPI measure while your country’s inflation stays modest.
Understanding these elements will help you spot a risky clause. Next step: avoid the common pitfalls that Broadcom’s default terms are counting on.
Mistakes to Avoid (and What to Do Instead)
When reviewing Broadcom’s proposed CPI/inflation clause, don’t fall for these common pitfalls.
Each mistake below is paired with the risk it creates and how you can counter it:
- Accepting a “CPI + uplift” clause. Broadcom may suggest something like “annual increase = CPI + 3%.” Risk: This double-dips in high-inflation years – if CPI is 7%, you get hit with 7% plus 3%. It’s essentially a double punishment when inflation spikes. Better approach: Push back to a pure CPI-based increase, without any extra uplift, and ideally include a cap (e.g., “CPI or 5%, whichever is lower”). If Broadcom insists on an uplift, fight to remove it or at least significantly reduce it.
- Allowing compounding CPI increases. Risk: If each year’s increase stacks on the last, costs snowball. For instance, 5% per year compounded over three years isn’t 15% – it’s about 15.7%. Over longer terms or higher CPI, the compounding effect gets brutal. Better move: Insist on non-compounding language. The clause should say that each year’s percentage increase applies only to the original base price (not on top of prior increases). This way, a 5% CPI bump remains a true 5% each year, not an ever-growing multiplier.
- Letting Broadcom choose a broad or mismatched index. Risk: If you don’t specify the index, Broadcom will likely pick one that favors them (often U.S. or global CPI). That can inflate your costs unfairly – e.g,. Paying U.S.-level inflation while your local inflation is 2%. Broadcom may also reserve the discretion to adjust the index as needed. Better move: Specify a precise, relevant index in the contract. Tie increases to the CPI for your primary operating region or currency. For example, use the EU’s HICP for European operations, or the US CPI-U if that reflects your cost base. This narrows Broadcom’s options and pegs adjustments to an index that makes sense for you. If you’re a global company, consider negotiating regional CPI caps (each region’s fees tied to its own local index).
- Accepting a CPI floor. Risk: A “floor” guarantees Broadcom a minimum increase (say 2–3%) even when inflation is negligible or negative. It turns the clause into “heads I win, tails you lose” – you pay an increase no matter what the economic conditions are. Better move: Ban CPI floors outright. The clause should allow for the full range of inflation outcomes: if the index is flat or down, your increase should be 0% (or even a price decrease, if applicable). Make it truly index-based, not index-based with a safety net for the vendor.
- Agreeing to CPI escalation in a multi-year commitment. Risk: If you’ve committed to a multi-year deal (especially if you prepaid or locked in volumes), Broadcom already has revenue certainty and reduced sales risk. A CPI clause on top of that gives them extra money for nothing, while you take all the inflation risk. You could face yearly upcharges despite your upfront commitment. Better move: Exclude CPI clauses for multi-year deals. Negotiate fixed prices for the term of the commitment – no annual inflation adjustment at all. If Broadcom balks, remind them that a multi-year contract secures them your business; in return, you need price stability. At worst, if they won’t budge on including CPI, consider shortening the contract term so you’re not locked into repetitive hikes, or negotiate other offsets (like a first-year price hold).
How to negotiate the audit clauses, Compliance and Audit Clauses in Broadcom Agreements – How to Limit Audit Risk.
Sample Clause Snippets
To protect yourself, try to include language in the contract that clarifies how inflation is handled.
Here are sample clause wordings (from ideal to acceptable fallback):
- Best Case: “Annual increases shall not exceed 3% or the change in the U.S. CPI-U index, whichever is lower. Any CPI-based adjustment shall not compound and will apply only to the original baseline fee.”
(This ensures a hard cap and uses a lower-of-index vs fixed cap approach, with no compounding.) - Target Compromise: “Annual increase tied to the Euro Area HICP index, capped at 4%, applied once per year on the base price (non-compounding).”
(This ties to a specific local index relevant to the business, with a reasonable cap and no compounding.) - Fallback (Minimum Protection): “Annual increase tied to CPI only (no additional uplift), not to exceed 5% in any year, and no CPI floor.”
(This at least limits Broadcom to pure CPI (no extra %) and imposes a maximum cap and no floor, protecting you in low-inflation scenarios.)
These clauses illustrate the kind of protective language you want. Tailor the index and cap to your situation (e.g., if you operate in a low-inflation country, the cap might be lower).
Quick Checklist for Negotiating CPI Clauses
Use this checklist to make sure you’ve covered your bases on any Broadcom inflation clause:
- “CPI or X%, whichever is lower”: Always cap the increase. For example, CPI or 4%, whichever is lower, prevents extreme hikes.
- Non-compounding: Each year’s adjustment should apply to the original price, not the already-inflated price. (No compound interest effect.)
- Specify the index: Name a clear, appropriate index (ideally your local CPI measure) in the contract. Don’t leave it to Broadcom’s discretion.
- No floors: If inflation is zero or negative, your increase should be zero. No built-in minimum increase for the vendor’s benefit.
- No CPI clause on multi-year deals: If you’re locking in a 2–3 year term (or longer), negotiate fixed pricing for that term. You shouldn’t give Broadcom both a committed contract and yearly inflation hikes on top.
Mini-FAQ
Q: Does Broadcom always use the U.S. CPI for increases?
A: Not always, but it’s common. Broadcom often defaults to a U.S. CPI-U or a global CPI index in its contracts, even for international customers. The key is that they will choose an index that protects their revenue. If your regional inflation is lower, that default U.S. index means you overpay relative to local conditions. You can negotiate this – specify an index that makes sense for you (e.g., a Eurozone index if most of your spending is in Europe, or a local CPI for your country). The goal is to avoid being tied to an inflation rate that’s higher than what you actually experience.
Q: Can I cap CPI increases in a Broadcom agreement?
A: Yes – and you absolutely should try. Many Broadcom customers successfully negotiate a cap on annual increases (e.g., 3%–5% maximum) or use a “whichever is lower” clause to ensure you never pay above a set percentage. A cap provides budget certainty and protects against runaway inflation in years with high CPI. If Broadcom resists a cap, use it as a trade: for example, you might agree to a slightly higher starting price or longer term in exchange for a cap on yearly increases. Another tactic is to negotiate a year-one price hold (no increase in the first renewal) if they won’t cap later years. The important thing is not to leave the increases completely open-ended – get some ceiling in writing.
Q: What if Broadcom insists on a “CPI + X%” uplift or no cap at all?
A: This is where you hold your ground. A “CPI +” clause is essentially Broadcom asking for extra money on top of inflation – it’s not standard in many industries and is certainly negotiable. Push back and make it clear that you consider CPI alone as sufficient compensation for inflation. If they won’t relent on an added uplift, argue for a lower uplift (e.g., +1% instead of +3%) and still include a cap so it doesn’t spiral out of control in high-inflation years. If Broadcom flat-out refuses any cap or insists on an aggressive uplift, consider alternatives: shorten the contract term (so you can renegotiate sooner rather than being locked into unfavorable terms), or ask for concessions elsewhere (such as a larger discount or a service upgrade) to offset the risk. Remember, you can also escalate within Broadcom – sometimes sales reps have limited flexibility, but higher-ups might agree to drop an extreme CPI clause if it risks losing the deal. The bottom line: don’t accept “CPI + X” without a fight; most customers can negotiate it down or out.
The Playbook
Inflation clauses don’t have to be “take it or leave it.”
Come to the table with a clear playbook: lead with a “CPI or fixed cap, whichever is lower” proposal, enforce non-compounding calculations, and reject any one-sided tricks, such as floors or extra uplifts.
If it’s a multi-year deal, make your case for no CPI escalation at all – Broadcom doesn’t need an inflation hedge when you’ve guaranteed them business for several years. By demanding these terms, you keep Broadcom’s price increases within reason and maintain control over your IT budget.
In short, don’t let a CPI clause be an afterthought or boilerplate – negotiate it hard now, so you’re not unpleasantly surprised later. Your vigilance and firm stance here will pay off in predictable costs and a fairer deal over the life of your Broadcom agreement.
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