Price Variation and Contract Negotiations - MLP Law

Price Variation and Contract Negotiations

In the current climate, suppliers may not be able to commit to fixed prices, especially where there are long lead times between customers ordering goods and services and suppliers being able to supply them. They therefore, may insist on including a price variation clause in their contract to enable them to pass on any increases in the cost of supplying the goods and services to customers due to the increased cost of components and raw materials in their supply chain.

Price Variation and Contract Negotiations


Price variation
I had my own personal experience of price variation early in 2021. I accepted a quote for a small external building job on my house, in January, and subsequently couldn’t get the builder to commit to a date for the job to begin. So by April, I went on to get another quote from another supplier which came back double the price of the first one and then later (but not that much later) I got a third quote which was triple the price of the first one. At this point I reluctantly had to accept that I was unlikely to get the January price again and this was down to the rapidly rising cost of raw materials due to economic uncertainty and lack of availability. Many of my friends had experienced similar situations.
 
Contracts
In the current climate, suppliers may not be able to commit to fixed prices, especially where there are long lead times between customers ordering goods and services and suppliers being able to supply them. They therefore, may insist on including a price variation clause in their contract to enable them to pass on any increases in the cost of supplying the goods and services to customers due to the increased cost of components and raw materials in their supply chain.

If you are a supplier, you would ideally like to pass through any third party price increases in your supply chain and for all price increases to be automatic.

If you are a customer, you would ideally like to be able to terminate the contract where a price increase is unacceptable or at least to know what the maximum price increase possible will be by agreeing a cap or agree to link any price increases to an index. You would like to be able to restrict the amount of opportunities the supplier will have to increase the price for instance to agree that price increases can only take place before the contract delivery date or to agree the intervals at which process increases can occur during the contract term. You would also like to agree that if the cost of supplying raw materials decreases you can apply a price variation in the other direction.
 
Our role
As in all contract negotiations, compromise is the name of the game and our job is to help you get your contract agreed in the best possible terms to protect and support the future growth of your business.

If you have any questions or queries in relation to this blog, please do get in touch – by telephone on 0161 926 9969 or alternatively by emailing Stephen, Karen or our Corporate Team on karend@mlplaw.co.uk or corporate@mlplaw.co.uk

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