Contract increases
Your landscaping, management, and janitorial contracts do not renew at last year's price by default.
Do not budget a contract line by taking last year's number and adding a guess. Pull the actual contract and read its renewal date and any escalation clause, a provision that ties the price to an index like the Consumer Price Index. Budget the figure the contract specifies, not a percentage bump you invented, and flag any contract with no stated increase so someone confirms the renewal price before the vote.
The contract, not the memory, sets the number
A board building next year's budget often starts from this year's actual spend on the landscaping contract, the management contract, the janitorial contract, and adjusts each by a round number. That habit skips the one document that actually controls the price: the contract itself.
Vendor contracts sometimes include a CPI-indexed escalation clause, a term that raises the price automatically by a published inflation measure at renewal, and sometimes they do not. Some auto-renew at a flat rate. Some expire outright and require a new negotiation. None of that shows up in last year's check register, only in the contract text.
Why the "add a percent" habit is risky
Building each year's contract line from the prior year's number, adjusted by an increment, is a known budgeting pattern called incremental budgeting, and it is fast precisely because it never re-examines the underlying assumption.
"the budget is prepared by taking the current period's budget or actual performance as a base, with incremental amounts then being added for the new budget period."
Source: Comparing budgeting techniques (Incremental v ZBB), Association of Chartered Certified Accountants (ACCA)
That is exactly the failure mode with vendor contracts. The increment gets added whether or not the real contract changed, renewed at a different rate, or expired and needs rebidding. A single line item built this way for three years running can drift far from what the association is actually obligated to pay.
What to check before the vote
For every vendor contract that touches the operating budget, someone on the board or the manager should be able to answer three questions: when does this contract renew, does it contain an escalation clause and what does that clause actually say, and has the vendor sent written notice of a new price. If the answer to any of these is "I don't know," the budget line is a guess wearing a number.
Treat a contract with no stated increase as an open item to confirm with the vendor directly, not as a line you can safely leave flat. A board that budgets from the contract, rather than from last year's total, catches renewal timing and escalation language before the shortfall shows up mid-year.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
Your landscaping contract renews in March and last year's budget notes say nothing about an escalation clause. What should the board do before setting next year's landscaping line?
A board builds every contract line by taking last year's number and adding three percent, without checking any actual contracts. This approach is best described as
A vendor contract includes a CPI-indexed escalation clause. Which of these is the safest way to budget the new price for next year's line item?
Sources
- Comparing budgeting techniques (Incremental v ZBB), Association of Chartered Certified Accountants (ACCA)
Budgeting
Once every contract line is checked against the actual agreement, learn how to carry those numbers forward across more than one year in Multi-year forecasts.
Escalation clauses, renewal dates, and price protections vary contract by contract and vendor by vendor. Read each agreement rather than assuming a standard clause or a standard increase applies.