The Facilities Contract That Escalated Past Its Cap

Step 1 - The cap is the ceiling, not a starting point

4% of $6.2M = $248,000. 7.4% of $6.2M = $458,800. The claim exceeds the contractual cap by $210,800. The cap is not a matter of judgment; the supplier's entitlement above 4% does not exist unless the contract contains a carve-out for statutory wage changes, which must be checked and, on these facts, is not present.

Step 2 - Test the justification anyway, because the counter-argument is stronger

The claim implies the whole cost base rose 7.4%. Decompose it:

• Labor cost base: 0.58 × $6,200,000 = $3,596,000
• Labor actually affected by the ordinance (22%): 0.22 × $3,596,000 = $791,120
• Direct wage increase at 6.1%: $791,120 × 0.061 = $48,258
• With 28% payroll burden: $48,258 × 1.28 = $61,770

$61,770 is 1.0% of contract value. The ordinance has a real but small effect; the supplier has taken a 6.1% increase on 22% of 58% of the contract and presented it as a 7.4% claim on everything. The remaining 6.4 points of the claim are unattributed - no index reference, no evidence on the other 78% of labor, no data on the 42% non-labor spend.

Step 3 - Counter

1. Pay the cap only if CPI-U supports it. Obtain the published CPI-U for the relevant period. If CPI-U is 3.1%, the adjustment is 3.1%, not 4% - the cap limits, it does not guarantee.
2. Reject the ordinance argument as a basis for exceeding the cap, but offer to recognize the $61,770 as a documented pass-through within the cap, in exchange for an equivalent concession (extended term at reduced margin, or a productivity commitment).
3. Ask for the labor roster showing which positions fall below the new floor and at what hours. If the supplier cannot produce it, the $61,770 is also unsupported.
4. Fix the clause at renewal. Replace uncapped language with a named published index, a dead band, a symmetrical give-back when the index falls, and an audit right on any pass-through.

Do not accept 7.4% "to preserve the relationship." Accepting a payment the contract does not require sets the price for every future cycle and is difficult to unwind.

Diagnosis

This is a disputed change, not an invoice problem. The scope says 24/7 uptime; the supplier reads that as an implied obligation to staff weekends. Whether the supplier is right depends on what the scope actually says about staffing levels, response time, and the coverage schedule - but either way, an obligation the buyer has already received the benefit of is one the buyer cannot simply ignore.

Risk of paying without resolution

1. Constructive change. If the buyer pays, or directs the work and pays later, it can be treated as an authorized change. The precedent then applies to every subsequent weekend, and the $340,000 becomes an annuity rather than a one-off.
2. Waiver. Repeated payment for an activity the contract arguably already covered can be read as an admission that the original scope did not include it - which retroactively re-prices the base contract.
3. No change control trail. With no signed change order, there is no basis to audit the $340,000, no agreed rate, and no scope boundary for next year.

Action sequence

1. Do not pay, do not reject in writing as "unauthorized" either. Acknowledge receipt, state that the item is under review as a potential change, and suspend the payment clock per the contract's dispute provisions.
2. Reconstruct the record. Pull the scope, the staffing schedule annex, the RFP Q&A, and any site instructions. If the scope shows a coverage schedule that excludes weekends, the supplier's position collapses. If the scope is silent, the ambiguity is the buyer's drafting failure and a commercial settlement is the pragmatic route.
3. Issue a formal change order for any coverage the buyer wants going forward, at a rate built from the resource schedule, with a defined trigger and a specified response time.
4. Close the drafting gap at renewal. Specify coverage hours, headcount by shift, response times, and a clause stating that no payment outside the contract constitutes acceptance of a change.

The $340,000 is a symptom. The disease is that a contract with a 24/7 performance standard had no schedule defining what staffing that requires.

Options

Option	What happens	Risk
A. Send notice now	Attempts to exit before the deadline	The window has arguably already closed if the deadline is computed from a date already passed; a 12-day filing will likely be contested and may not be effective
B. Do nothing, let it auto-renew	12 more months at +8%	Locks in a supplier whose pricing just proved unreliable, at a higher rate, for a year - and the +8% may itself exceed any cap
C. Negotiate a renewal on terms	Trade the buyer's willingness not to contest the notice for commercial improvements	Requires leverage and speed; supplier may refuse
D. Send notice and simultaneously open a competitive process	Preserves the exit route and creates the leverage for C	Requires that the buyer can actually run a process in 12 months

Recommendation: C, executed as D.

Send written notice immediately, framed as a notification of intent to review the arrangement rather than a hard termination, and in the same letter propose a renewal discussion. This does three things: it puts something on the record before the deadline, it avoids a bare auto-renewal, and it converts the leverage into a negotiation.

Terms to trade for

1. The 7.4% claim is withdrawn and replaced by the CPI-based adjustment within the cap.
2. The +8% auto-renewal rate is set aside; renewal price is flat or CPI-adjusted.
3. A benchmark clause: if the renewal price exceeds market by more than 5%, the buyer may re-open pricing.
4. Termination for convenience on 90 days with a defined exit-assistance obligation.
5. Full documentary support for any pass-through cost, with audit rights.

In parallel

Run a market scan and a benchmark so the negotiation is anchored to data rather than to the incumbent's renewal letter. Twelve months is enough to run a full competitive event if the renewal conversation fails - but only if the scan starts in the next two weeks.

Root cause to fix: a contract with an auto-renewal trap had no calendar owner. The departing contract manager took the renewal date with them. Renewal dates, notice windows, and index review dates belong in a tracked obligation register, not in one person's head.