Managing price increases in volatile markets

Supply chain disruption, geopolitical instability, and sustained cost inflation have made price pressure an unavoidable reality for many businesses. Whether your suppliers are seeking to increase prices, or you need to pass costs on to customers, the starting point is always the same: the contract.

In this article, Commercial partner Lucy Pringle sets out a practical framework for dealing with price increases in existing and future contracts for both goods and services, and highlights common pitfalls to avoid.

Are you bound to a fixed price?

When costs rise sharply, instinct often kicks in before analysis. However, the first question is to establish whether there are is a binding contractual commitment, and whether pricing is fixed under the contract. Consider whether new orders or statements of work must be accepted or can be declined. There is much more flexibility for pricing to be adjusted where orders are ad hoc, rather than long-term supply commitments.

Force majeure: a risky misconception

A frequent misconception is that force majeure allows prices to be increased or reopened where costs have risen due to external events (such as war or blockades).

In reality, force majeure clauses rarely permit re‑pricing. If you can still perform, the fact that performance is now more expensive or less profitable will usually not be enough.

Contractual tools that legitimately allow price increases

Well‑drafted contracts typically deal with price volatility expressly. The most common mechanisms include:

• Periodic price review – These clauses allow prices to be reviewed at set intervals (often annually), usually by reference to an objective metric such as consumer price index or a sector‑specific index. These clauses work well for long‑term contracts but offer limited protection against sudden shocks.
• Exceptional price increase clauses – These are designed to deal with the “unknown unknowns”, such as significant, unforeseen cost increases outside normal commercial risk. They must be drafted carefully to avoid uncertainty or unenforceability, and should require evidence and transparent calculations.
• Hardship clauses – These typically trigger a duty to renegotiate where costs change materially and make performance commercially onerous. If agreement cannot be reached, termination may be available as a last resort.

Without one of these mechanisms, the ability to change pricing mid‑contract is severely limited.

Unilateral surcharges: proceed with caution

Where a business is bound to supply goods or services and does not have a contractual right to increase pricing or terminate the agreement, some attempt to impose unilateral surcharges.

This is legally risky and can expose the business to breach of contract or anticipatory breach claims. A commercial discussion may succeed, but this needs to be approached carefully, and pressure tactics should be avoided.

Pragmatic ways to achieve a commercial outcome

If your legal position gives you no leeway, you may need to be strategic:

• Reframe the conversation on price towards continuity of supply/performance and shared exposure to external shocks.
• Provide evidence of the cost increases, the pain you have already absorbed, and steps you have already taken to mitigate. Avoid unexplained percentages or vague statements like “everything has gone up”.
• If a customer is reliant on you and cannot easily switch, it may be sufficient to make clear that price increases are temporary, so that they conclude the costs of switching supplier are higher than absorbing your short-term spike.
• Segment your customers – protect your best-performing contracts and consider who is most likely to be litigious. If you have to risk being in breach of contract, what is the least-worst outcome?
• If you can’t change pricing, can you change what you do to reduce your costs without triggering a contractual breach? For example, narrow the scope, amend the specifications or tolerances, extend lead times, or reduce service levels. Strictly enforcing credit terms can also help with commercial self-preservation.

If you are entering commercial negotiations, it is crucial to avoid language that admits a breach of contract, and avoid threats to terminate where no rights to do so exist. Correspondence may need to be marked “without prejudice/subject to contract” where appropriate. Record concessions in writing, and follow the variation process stated in the contract.

Responding to supplier price increases

When suppliers seek to raise prices, the same principles apply:

• Check whether the contract allows the increase.
• Do not assume force majeure justifies re‑pricing.
• Require strict compliance with any contractual process.

What businesses should do now

• Audit key customer and supplier contracts to identify where pricing risk sits today.
• Update standard terms and contract templates to include express price‑volatility tools.
• Ensure commercial teams understand what can, and cannot, be done when costs rise.

In volatile markets, margins are protected not by urgency, but by preparation and precision in drafting.

If you have questions or concerns about managing price increases, please contact Lucy Pringle.