Supply Agreement Price Adjustment
The inclusion of an agreement between both parties on all aspects of the escalation of the contract or the CPA is an important aspect of restoring an escalation in a contract concluded between two parties. The fundamental logic behind a CPA is to adjust the base price (the price at the beginning of the reference period) through a market change in order to calculate a new price to ensure a fair result for both parties. The most important factor in escalating contract prices is that the basis for achieving this must be fair and equitable for both parties. The recovery process should be easy to calculate and manage. If companies do not stipulate in the contract that an escalation is based on SEIFSA`s formula and indices, suppliers to a contract can submit price increases as they see fit. Similarly, in the contract, buyers can refuse all claims as they wish. Thus, when concluding a fixed-price contract with an extended contract duration, the supplier should take into account an emergency provision for inflation in the price or offer. The formula method restores escalation by using indices that are non-partisan indicators of cost movement. No evidence is required to substantiate the claim and the source and price of the products are therefore treated as absolutely confidential. The formula method only allows increases compared to the defined indices. Since entities independent of the parties to a CPA agreement provide information used to publish indices, none of the parties can influence or manipulate them.
The indices generally reflect the average increase in costs across the industry and not that of a single supplier. Contract price adjustment clauses aim to determine bid prices on the basis of costs known at the time of tendering and to address the subsequent separation of risks from escalating costs. Each fuel consumption factor indicated for the transportation of asphalt concrete represents the total fuel demand for the item. Where petrol and diesel generator sets are used, appropriate adjustments should be made. A contract that does not contain a clause to adapt to the current price changes that occurred during the performance of the contract is called a fixed-price contract. If the difference between the contract offer date and the completion date is short enough for the contractor`s or supplier`s costs to vary to a negligible extent, a contractor can be expected to reinstate a fixed-price contract. If the general inflation rate increases, it is likely that a contractor`s or supplier`s costs will change over a relatively short period of time, so a supplier, if it commits to a fixed-price contract, has no certainty that it will maintain its profit margin. . . .