{"id":146829,"date":"2026-10-31T13:02:00","date_gmt":"2026-10-31T10:02:00","guid":{"rendered":"https:\/\/www.salamahlaw.com\/?p=146829"},"modified":"2026-10-30T21:04:19","modified_gmt":"2026-10-30T18:04:19","slug":"price-adjustment-clauses-grounds-for-increases","status":"publish","type":"post","link":"https:\/\/www.salamahlaw.com\/en\/price-adjustment-clauses-grounds-for-increases\/","title":{"rendered":"Price Adjustment Clauses: Grounds for Increases, Calculation Methods, Limits, and Your Company\u2019s Options if It Rejects an Increase"},"content":{"rendered":"

Ironically, the provision decision-makers most often consider settled is the one that sets the price. A figure is agreed, the contract is signed, and the matter appears closed. Months later, the supplier requests an increase, citing higher costs, changes in shipping rates, or a global rise in raw material prices. Every company then faces the same question: Is the supplier entitled to do this? Or does the agreed price remain binding under all circumstances?<\/span><\/p>\n

The answer does not depend on the size of the increase or the supplier\u2019s intentions. It depends on one contractual provision: the clause governing price adjustments. If the contract contains a clear clause, any increase is governed by that clause. If it does not, the increase is subject to the general rules of the Civil Transactions Law, which may not serve either party\u2019s interests.<\/span><\/p>\n

A Fixed Price Is Not an Absolute Rule<\/b><\/h2>\n

Article 94 of the Civil Transactions Law establishes that a contract is binding on its parties and may only be revoked or amended by agreement or pursuant to a statutory provision. This means the agreed price is fixed and cannot be changed unilaterally. However, that position is not absolute. Article 97 of the same Law allows the court to intervene to adjust an onerous obligation if exceptional circumstances of a general nature arise that could not have been foreseen when the contract was made, making performance onerous for the obligor and threatening the obligor with substantial loss.<\/span><\/p>\n

Article 97 does not, however, accommodate every increase. It requires circumstances that are exceptional, general in nature, and unforeseeable at the time of contracting. They must make performance onerous, rather than impossible, and threaten the obligor with substantial loss. If these conditions are met, the court may adjust the obligation, including by increasing the price, after weighing both parties\u2019 interests.<\/span><\/p>\n

The distinction between ordinary and exceptional circumstances is the distinction between risks the supplier bears as part of doing business and events that fall beyond those risks. A 20% rise in raw material prices is an ordinary increase. A 300% rise caused by the closure of a shipping route is an exceptional circumstance. A supplier seeking an increase on the first ground is not entitled to it. A supplier relying on the second may be entitled to an increase if it proves that the circumstances were beyond its control, unforeseeable, and threatened it with substantial loss.<\/span><\/p>\n

The Price Adjustment Clause: A Provision That Must Be Clear<\/b><\/h2>\n

Many commercial contracts contain a clause stating: \u201cThe supplier may adjust prices upon 30 days\u2019 prior notice.\u201d This wording may appear sufficient. In practice, it is not. What does \u201cadjust prices\u201d mean? Does it allow an unrestricted increase, or must the increase be linked to a specified index? Is notice alone sufficient to impose the increase, or does the company have a right to object?<\/span><\/p>\n

A well-drafted price adjustment clause specifies the grounds for an increase, how it will be calculated, its limits, the notice procedure, and the company\u2019s options if it rejects the increase. If the clause is unclear, the supplier may interpret its scope broadly, while the company needs precise terms.<\/span><\/p>\n

One contractual formulation allowing price adjustments before delivery requires the increase to result from higher production or procurement costs beyond the supplier\u2019s reasonable control, including increases in raw material costs, energy costs, or other specified external factors. This wording ties the increase to a defined event rather than allowing an increase in response to any rise in costs.<\/span><\/p>\n

When Is an Increase Justified?<\/b><\/h2>\n

An increase is justified if the conditions of Article 97 are met: the circumstances must be exceptional, general in nature, and unforeseeable, make performance onerous for the obligor, and threaten the obligor with substantial loss. An increase is unjustified if the circumstances are ordinary, foreseeable, preventable by the supplier, or do not create a genuine burden.<\/span><\/p>\n

Suppose a supplier contracts to supply construction materials for a major project, and global steel prices then rise by 20%. The supplier requests a price increase, but the company refuses. In this case, the court may find that a 20% rise falls within ordinary commercial risk and that no exceptional circumstances of a general nature existed. It may therefore reject the supplier\u2019s request.<\/span><\/p>\n

Now suppose global shipping rates rise by 300% because a shipping route closes. The supplier requests a price increase, and the company refuses. In this case, the court may find that the circumstances were exceptional and unforeseeable and made performance onerous for the supplier. It may therefore grant the requested increase after weighing both parties\u2019 interests.<\/span><\/p>\n

The Company\u2019s Options if It Rejects the Increase<\/b><\/h2>\n

If the company rejects the increase, what options are available? There are several, each with legal and financial implications.<\/span><\/p>\n

Negotiation:<\/b> The company can negotiate a smaller increase or another contractual adjustment in exchange for the increase, such as extending the contract term, increasing quantities, or revising payment terms. This option preserves the relationship but requires flexibility from both parties.<\/span><\/p>\n

Finding an alternative supplier:<\/b> If the supplier insists on the increase, the company can seek another supplier offering the same service at a lower price. This option is effective where switching costs are low and alternative suppliers are available.<\/span><\/p>\n

Terminating the contract:<\/b> If the contract contains a termination clause, the company may terminate it, but it must first check the applicable conditions and consequences.<\/span><\/p>\n

Taking legal action:<\/b> If the supplier insists on the increase and the company considers it unjustified, the company can seek a court determination on whether the increase is justified.<\/span><\/p>\n

How Can You Protect Your Company Against Unexpected Increases?<\/b><\/h2>\n

Protection begins with drafting the price adjustment clause. It should specify the grounds for an increase, how it will be calculated, its limits, the notice procedure, and the company\u2019s options.<\/span><\/p>\n

Second, monitor the market. Do not wait until the supplier requests an increase. Track raw material prices, exchange rates, shipping rates, and tax policies. If you identify rising costs, prepare to negotiate.<\/span><\/p>\n

Third, build relationships with alternative suppliers. Do not depend on one supplier for everything. Establish relationships with alternatives, even if you do not use them regularly.<\/span><\/p>\n

Fourth, review contracts periodically. Examine your contracts with key suppliers. Do they contain a price adjustment clause? Is it clear? Is it fair?<\/span><\/p>\n

Conclusion<\/b><\/h2>\n

A supplier does not have an unrestricted right to raise prices during the contract term. Any increase is governed by the contract\u2019s price adjustment clause and the general rules of the Civil Transactions Law. Article 97 does not give the supplier a right to raise prices unilaterally. It provides a route for negotiation and, if negotiations fail, court intervention. A company whose contracts lack a clear price adjustment clause leaves the outcome to the court\u2019s assessment.<\/span><\/p>\n

Every decision-maker should therefore ask: Does my supply contract protect my company against unexpected increases? Or will I only find out when the supplier demands an increase I cannot afford to refuse?<\/span><\/p>\n

Frequently Asked Questions<\/b><\/h2>\n

Can a supplier raise prices during the contract term?<\/b><\/h3>\n

Not automatically. Any increase is governed by the contract\u2019s price adjustment clause. If there is no such clause, the general rules of the Civil Transactions Law may apply. These require exceptional circumstances of a general nature that were unforeseeable and made performance onerous for the obligor.<\/span><\/p>\n

Can the court adjust the price if the contract has no price adjustment clause?<\/b><\/h3>\n

Yes, but only under limited conditions. Article 97 of the Civil Transactions Law requires circumstances that are exceptional, general in nature, and unforeseeable, make performance onerous for the obligor, and threaten the obligor with substantial loss. If these conditions are met, the court may adjust the obligation after weighing both parties\u2019 interests.<\/span><\/p>\n

What should a price adjustment clause contain?<\/b><\/h3>\n

It should specify the grounds for an increase, how it will be calculated, its limits, the notice procedure, and the company\u2019s options if it rejects the increase. If the clause is unclear, the supplier may interpret its scope broadly, while the company needs precise terms.<\/span><\/p>\n

Can the supplier terminate the contract if the company rejects the increase?<\/b><\/h3>\n

If the contract contains a clause allowing the supplier to terminate when an increase is rejected, it may be able to do so. If there is no such clause, termination is governed by the general rules of the Civil Transactions Law.<\/span><\/p>\n

What is the difference between an ordinary price increase and exceptional circumstances?<\/b><\/h3>\n

An ordinary increase forms part of the commercial risk borne by the supplier. Exceptional circumstances fall beyond ordinary commercial risk, make performance onerous for the obligor, and threaten the obligor with substantial loss.<\/span><\/p>\n

How can a company protect itself against unexpected increases?<\/b><\/h3>\n

By including a clear price adjustment clause in the contract, monitoring the market, building relationships with alternative suppliers, and reviewing contracts periodically.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Ironically, the provision decision-makers most often consider settled is the one that sets the price. A figure is agreed, the contract is signed, and the matter appears closed. Months later, the supplier requests an increase, citing higher costs, changes in shipping rates, or a global rise in raw material prices. Every company then faces the…<\/p>\n","protected":false},"author":34,"featured_media":146830,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[100],"tags":[],"class_list":["post-146829","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-contracts-agreements"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/146829","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/users\/34"}],"replies":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/comments?post=146829"}],"version-history":[{"count":2,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/146829\/revisions"}],"predecessor-version":[{"id":146833,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/posts\/146829\/revisions\/146833"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/media\/146830"}],"wp:attachment":[{"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/media?parent=146829"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/categories?post=146829"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.salamahlaw.com\/en\/wp-json\/wp\/v2\/tags?post=146829"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}