It is very common in contracts to see some lovely elaborate wording around a process that says the parties will get together each year and review the contract price and then they may agree to increase the price.
Unfortunately, this gives the supplier absolutely no contractual right to increase the price whatsoever. There is a contractual obligation on the end client to discuss with the supplier (depending on what the contract says and how it says it), but the end client would not be in breach of the contract for not agreeing to a price increase.
The whole point of a contract is that an “agreement” is reached. So, it is important to expressly say in the contract at the time it is written, that the supplier can increase the price in the future, as opposed to saying the parties will agree to a revised price (the amount to be agreed) in the future. The wording is critical. For example, setting out formulas for increases in the future are fine, but wording saying you will agree on the formula after the contract is signed is not.
This has resonance for me as I had to fight very hard to get this from a very large insurance company with whom my supplier client was entering into a 5-year outsourcing contract. In a particularly difficult meeting, a Senior Director from said insurance company teamed with the insurer’s in-house lawyer and gave an incredibly long and detailed explanation of a very verbose clause (promising discussions, processes for price reviews, submissions by my client, with lots of lovely commercial promises around the table). Ultimately, however, it was not worth the paper it was written on. The bottom line was that unless we changed the contract, the supplier DID NOT have the contractual right to increase the price over the initial 5-year term.
I felt so strongly about this, that I had to call a breakout and actually really stand up to my clients to push this through. I do not do that often, but luckily for me, the client could see my commitment to this point! We eventually entered a discussion where the insurer suddenly became a lot more interested in the price, because they were now negotiating contractual parameters rather than promising the non-contractual earth!
The icing on the cake for me was some years later when the client thanked me for pushing the point through and said the contract had been a real success for them.
If you have any questions, then please don’t hesitate to contact me: tracey@law-point.co.uk or call 01202 729444.
