This clause allows the price to increase after the contract is signed, usually tied to inflation, material costs, or exchange rates. For example, a construction contract might say "price increases by 2% for every 1% rise in steel prices." This matters because without it, a supplier might lose money if costs surge unexpectedly, but with it, a buyer might face nasty surprises. UK and US courts generally allow price escalation if both parties agreed to it clearly, but they won't invent one if the contract is silent. The risk is high because small percentage changes can add up to large sums over long contracts.
If you're buying, cap the total escalation—for example, "price can rise maximum 5% per year, capped at 15% over the contract term." Tie escalation to a published index (like the Consumer Price Index) rather than the seller's claimed costs, which are easier to verify and harder to manipulate. If you're selling, try to include a "floor" so you're protected if costs fall too—for example, "price adjusts up or down by 1% for every 1% change in the Producer Price Index." ---
Frequently Asked Questions
What does this clause mean in simple terms?
This clause allows the price to increase after the contract is signed, usually tied to inflation, material costs, or exchange rates.
Why should I care about this clause?
For example, a construction contract might say "price increases by 2% for every 1% rise in steel prices." This matters because without it, a supplier might lose money if costs surge unexpectedly, but with it, a buyer might face nasty surprises.
What are my options?
UK and US courts generally allow price escalation if both parties agreed to it clearly, but they won't invent one if the contract is silent.
How does this affect small businesses?
The risk is high because small percentage changes can add up to large sums over long contracts.