Manufacturers are being put under intense cost pressure at the moment on all fronts, with energy, materials and haulage prices all at exceptional levels. Many are now having to try to pass those increased costs on to customers. If you want to vary customer pricing or apply a surcharge, how do you do it?
Three steps to take now
- Check whether you actually have binding contracts in place with customers.
- Check the contract terms with each relevant customer to see whether you have the right to vary the pricing after the contract has been formed. Even if you do have a right to vary the pricing, check the wording carefully to ensure it covers the precise circumstances at play and follow any required procedural requirements to the letter to avoid challenge. Take legal advice if unsure. For example, force majeure clauses will very rarely allow you to increase pricing and trying to rely on this could result in an expensive breach of contract claim.
- If you don't have a right to vary your pricing, then tread very carefully and seek legal advice before proceeding to help you secure the best outcome whilst minimising your exposure. Beware the risks of: (i) being in repudiatory breach of contract; (ii) any price variation you agree subsequently being set aside as economic duress; and (iii) potential reputational damage.
In additional to your legal position, the approach you take and tone of communications are critical to secure a price variation whilst preserving customer relationships through this difficult period. We are advising various manufacturers on this topic right now and can share best practice in terms of what others in the industry are doing – get in touch if you need help.
Future proofing – what you need to do next
If you don't have a hardship clause in your standard terms of sale, adding one should be a top priority to protect you in these volatile times.