Price increases - are they legal?
Out of the blue, a longstanding and regular supplier has just informed the company that they’re increasing their prices by 20%. Can they get away with this or is it just a try-on which you can safely ignore?
What’s been agreed?
Before firing off a snotty letter telling your supplier to stick it, check your paperwork. Is there a signed contract or other written evidence setting out some basic terms and conditions? If so, check the wording carefully to see what it says about how much the company has to pay and how long the agreement lasts for. If the agreement clearly states a fixed price, for a fixed term which hasn’t yet expired, then stand your ground. Any increase would be a breach of contract and you could legitimately refuse to pay any more.
Tip. The only way that the price can legitimately be increased during the life of a fixed-term contract is if it contains a price variation clause. If you’re ever asked to sign up to one, always try and stipulate when the increase takes effect, i.e. every year on the anniversary of the date of the agreement, and a specific rate, e.g. 4%. Avoid phrases such as “at the prevailing rate of inflation”, because it’s out of your control.
No contract?
What if there’s nothing written down? Just because your company has had a good rapport with the supplier for a number of years it doesn’t mean there’s no contract. A verbal contract is generally just as binding as a written contract. However, it’s likely that each time the company placed an order for goods, this would be regarded as an individual contract, i.e. each time the goods were ordered, paid for and delivered, then that particular contract would be over with. You will not be able to argue that there’s a contract for life and therefore the price remains fixed forever!
Tip 1. Any increase in price must be flagged up in advance before a new order is accepted by the supplier. The price can’t just be changed willy-nilly. If the supplier fails to do this, particularly if you have a long-standing relationship with them, argue that the price you pay is the existing price - there will be an implied term that what’s previously been agreed still applies now.
Tip 2. Always complete a purchase order when buying from a supplier. The purchase order should include the quantity and the price - if accepted by the supplier, that’s the price you should pay.
End of contract
Once the contract (fixed or verbal) comes to an end, the supplier is free to increase prices. But how do you know when the contract’s at an end - what if notice has to be served first?
On notice. If the contract can only be ended by activating the notice clause, see what it says. You might be in a position to frustrate your supplier’s ambitions to increase the price by arguing that the existing contract hasn’t ended because they haven’t given the correct notice, e.g. if it says that the contract can only be terminated by written notice, a telephone call to you won’t suffice. Likewise, if there’s no notice provision, then the contract can only be ended on reasonable notice.
What’s reasonable? This all depends on what’s happened, e.g. if you’re supplied monthly or you pay monthly, argue that if you’re given a week’s notice, it’s unreasonable. This may have the effect of enabling you to do a deal when it comes to the implementation of any price increase.
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