In today’s volatile market, it’s essential for businesses to ensure their contracts include a clause that accounts for potential material price increases. This type of clause protects both parties involved in the contract, ensuring that any unexpected price fluctuations do not cause undue financial burden.

A material price increase clause typically outlines that, if the cost of a material or product increases significantly during the life of the contract, the parties will negotiate a fair adjustment to the price. The clause may also include a cap or threshold for the amount of increase that would trigger renegotiation.

To illustrate, let’s consider an example: A construction company enters into a contract to build a new office building for a client. The contract outlines the materials to be used, including concrete, steel, and glass. However, during the construction process, there is a sudden increase in the price of steel due to a trade dispute between two major steel producing countries.

In this situation, the material price increase clause would come into effect. The construction company and client would negotiate a fair adjustment to the price based on the increased cost of steel. Without the clause, the construction company would be forced to bear the additional cost, which could negatively impact profitability and potentially harm their business.

It’s important to note that the material price increase clause should be included in the contract from the outset. Waiting until a price increase occurs may lead to conflict and negatively impact the relationship between the parties. By including the clause up front, both parties are aware of their rights and obligations should a price increase occur.

In summary, including a material price increase clause in contracts protects both parties from financial hardship caused by unexpected cost increases. The clause should be tailored to the specific materials and products included in the contract and should be negotiated and agreed upon prior to the start of work. By including this clause, businesses can safeguard their financial interests and ensure a smooth project delivery.