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month on the first business day of the month by the California Department of Transportation (CaITrans) using the median of posted prices in effect as posted by Chevron, Mobil, and Unocal for the Buena Vista, Huntington Beach, Kern River, Long Beach, Midway Sunset, and Wilmington Fields. 5. In the event that the companies discontinue posting their prices for a field, CalTrans will determine an index from the remaining posted prices. CalTrans reserves the right to include in the index determination the posted prices of additional fields. D. ANNUAL ADJUSTMENT This contract shall cover one (1) fiscal year. This contract can be extended by the City for up to four (4) consecutive years at the discretion and approval of the city. The compensation for changes to the base bid items, separate from the asphalt pricing index, for each subsequent fiscal year shall be subject to annual adjustment as set forth below. 1. The San Francisco-Oakland-San Jose Consumer Price Index. All Items, 1982-84=100 for All Urban Consumers (CPI-U) published by the U.S. Department of Labor, Bureau of Labor Statistics (the "Index") shall be used for the purpose of calculating annual compensation increases. The maximum percentage increase for any subsequent year shall be 3% increase over the individual bid item rate for the initial or preceding contract year. 2. The "Beginning Index" shall be the index published for the initial year prior to the commencement of the subsequent "Extension" year. The "Extension Index" shall be the index for May published by June 30th of the current year, prior to the commencement of each subsequent Extension Year. To calculate the annual compensation for each subsequent year, the Extension Index shall be divided by the Beginning Index, and the resulting factor, not to exceed 3%, shall be multiplied by the annual compensation of the expiring period. 3. City shall notify Contractor of each CPI increase by mailing a written statement setting forth the calculation of the compensation. If the format or components of the Index change materially, or if the Index is discontinued, then City shall substitute an index published by the U.S. Department of Labor, Bureau of Labor Statistics or similar agency which is most nearly equivalent to the Index in effect on the commencement date of the Second Extension. 4. City shall notify Contractor of the substituted index and shall use the substituted index in the calculation of the City's compensation unless Contractor objects in writing within fifteen (15) days after its receipt of City's notice. If Contractor objects, then the substitute index shall be determined in accordance with the rules and regulations of the American Arbitration Association. The cost of such arbitration shall be borne as determined by the American Arbitration association. 5. Until the compensation for the next Extension Period is agreed upon or set by arbitration, the compensation payable during the preceding Extension Period shall remain in effect. Once compensation for the next Extension Period is agreed upon or set by arbitration, City shall pay Contractor the difference between the amount of compensation paid at the preceding Period and the amount of compensation due for the subsequent Extension Period. In no case shall the compensation during the Extension Period be less than the compensation in effect immediately prior to the commencement of the Extension Period. 20