In the current context of the Covid-19 crisis and inflation, the players most affected are seeking to protect themselves by increasing their prices. This practice is not prohibited, provided it is accompanied by a price revision clause in the purchase order or quotation. Here's how it works.
Soaring prices in the euro zone
In December 2021, the inflation rate in the eurozone stood at 5% year-on-year, unprecedented since the creation of the European statistics office Eurostat in 1997.
This increase comes on top of soaring energy prices, up 18. 6% year-on-year, according to Insee data. Specifically, market gas prices have risen sixfold in recent months, and electricity prices fourfold.
Inflation is starting to have an impact on the business of companies already affected by the health crisis. While some are still reducing their margins in order to maintain their market share, others have decided to raise their prices.
Play on the validity period of quotes
The law does not stipulate a minimum validity period for quotations. In the absence of any indication, the estimate must be maintained for a reasonable period, estimated by the courts at three months.
It is therefore perfectly acceptable for companies to draw up quotations valid for two weeks or even a month, in order to be able to modify the initial conditions. However, they need to be careful with the ensuing purchase orders, especially if there is a long delay between acceptance and delivery. Price changes can occur during this period.
Inflation: enforcing the price revision clause
Companies faced with inflation can invoke a price revaluation clause, provided it is clearly drafted and accepted as such by the parties.
Its application must be linked to changes in an index considered to be a benchmark for the business sector. This means that if the index rises, the company concerned can adjust its price upwards. It should be noted, however, that the price adjustment clause can also lead to downward renegotiation on the part of the customer.
What is a contractual contingency clause?
In addition to a price revision clause, quotations and purchase orders can include an unforeseeable event clause. This clause allows you to request financial renegotiation of the contract if its performance becomes "excessively onerous" in relation to the risks accepted when it was signed.
To be valid, a contingency clause must define what constitutes excessively onerous performance, and what risks the parties agree to bear. As long as prices continue to rise, companies are well advised to include it in their contracts, so as to be protected in the most unexpected situations.