As a business owner, it`s important to understand the material price increase clause in a contract. This clause is typically included in contracts for the sale of goods, construction projects, and other services where the cost of materials can fluctuate over time.
Simply put, the material price increase clause allows the seller to increase the price of the goods or services being sold if the cost of materials increases beyond a certain threshold. This threshold is usually based on an index, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI), which measures the average price of goods and services in the economy.
The purpose of this clause is to protect the seller from sudden increases in the cost of materials, which could make it difficult to fulfill the contract at the agreed-upon price. For example, if a construction contractor signs a contract to build a house for $200,000 and the price of lumber suddenly increases by 50%, the contractor may not be able to complete the project without incurring significant losses.
By including a material price increase clause in the contract, the seller can pass on the increased cost of materials to the buyer, ensuring that they are able to complete the project without incurring significant losses.
It`s important to note that the material price increase clause should be specific and clearly defined in the contract. The threshold for the price increase should be clearly stated, and the index used to determine the price increase should be clearly specified. Additionally, the clause should outline the process for notifying the buyer of the price increase and give the buyer the option to terminate the contract if they do not agree to the new price.
In conclusion, the material price increase clause is an important provision in contracts for the sale of goods and services. By including this clause, sellers can protect themselves from sudden increases in the cost of materials and ensure that they are able to fulfill their contractual obligations without incurring significant losses. As a business owner, it`s important to understand this clause and ensure that it is clearly defined in any contracts you sign.
