Why should you review your contracts considering inflation?

Prices are rising at the fastest rate in decades, hitting businesses and individuals hard.

This means that prices agreed with your customers, even relatively recently, could no longer be high enough to cover your increasing costs.

To protect yourself, you should review your contracts to make sure they take account of inflation.

There are various options to protect yourself against inflationary risks. Two of the key options open to you are price escalation clauses and force majeure.

What is a price escalation clause?  

A price escalation clause allows you to pass on rising prices to your customers in certain situations.  

The clause will specify the exact circumstances under which you can shift financial risk to your customers.

With the current situation, including a price escalation clause can prevent you from selling goods or services at a loss.

In the absence of such a clause, a force majeure clause could be the answer.

What is a force majeure clause?  

A force majeure clause is designed to assign risk when something happens that is outside of either party’s control.

Although there has been some scrutiny around force majeure clauses, you may want to include such a provision to protect yourself against unusual risks such as rapid inflation.

In the event of a contract being silent on this issue, the risk of price escalation could fall on to you as the contractor.

If you are unsure about whether you should review a contract in light of the rise in inflation, contact us today.