What are the common formula shapes?
| Shape | Price per ton | Public example |
|---|---|---|
| Flat | A fixed number, for example $40 | Common for small generators and unit-priced items |
| Index ± spread | Index + S (S is often negative) | Steuben County, NY bids: "PPW OCC (11) Buffalo High" plus $10, or minus $5 (decoded) |
| % of index | P% × index | Kitsap County, WA: a cardboard rebate based on a regional index for the current month, with a negotiable split (decoded) |
| % of index − deduction | P% × index − D | Boulder County, CO: 50%, 60% or 75% of "OBM SW High" minus $43.22 (decoded) |
| Share of max(floor, actual) | R% × the greater of floor F and the actual sale price | New York OGS Award 22760 revenue sharing (decoded) |
How do the shapes behave when the market moves?
Take an index of $100 per ton and three offers: index minus $45, 60% of index minus $20, and a flat $35. At $100 the first pays $55, the second $40 and the flat $35. If the index falls to $60, they pay $15, $16 and $35. If it rises to $180, they pay $135, $88 and $35.
- A spread passes every dollar of market movement through to you. You carry the risk and get the upside.
- A percentage passes only part of each move through, so the buyer keeps a growing share as prices rise.
- A percentage minus a deduction falls fastest in a weak market: at low index values the deduction can take the price to zero or below.
- A flat price moves only when the contract is renegotiated.
The offer comparer builds this table for your own offers across any range of index values and marks where one offer overtakes another.
Is the formula the whole price?
No. The formula gives a gross price per ton. Freight, equipment rent, moisture deductions, rejected weight and the ton definition all come off or change the base before you are paid. The load value calculator lays every step out as a settlement statement.
Sample wording
3.1 Price. For each calendar month, Buyer shall pay Seller per net ton of Material shipped the greater of (a) [60]% of the Index Price less $[20.00], and (b) the Floor Price.
3.2 Index Price. "Index Price" means the [high side] of the [publication, grade, region] price range first published for that month (see section 4).
What to negotiate
- Ask for the formula to be stated as arithmetic, with one worked example in the contract.
- If the buyer offers a percentage, test it at a high index value: the percentage costs you most when prices are strong.
- If the buyer offers a deduction, test it at a low index value, and pair it with a floor.
- Keep the formula and the deductions in one place, so freight or handling charges cannot be added twice.
Red flags in a draft
A price "based on market conditions" or "as posted by Buyer".A formula with no floor that can produce a negative price, so you pay to have material taken.Two deductions for the same cost: a spread that already covers freight, plus a freight charge per load.
Questions
- How is a cardboard rebate calculated?
- Usually an index value for your region and month, adjusted by a spread or a percentage (sometimes both), less freight, equipment and quality deductions, multiplied by your net tons.
- Can a rebate go negative?
- Yes. A percentage-minus-deduction formula can go below zero when the index is low, unless the contract has a floor.