PRICES - 05.12.2019

Brexit price bluffers

Worth a try

Suppliers may be using Brexit as an excuse to make a bit more money. The UK leaving the EU is not likely to provide a contractual entitlement to price rises, but things like exchange rate volatility just might. The pound dropped to a 28-month low against the dollar in July 2019 as the government toughened its stance on leaving the European Union without a deal. This has brought many more SMEs to the brink of passing on the higher prices (so far, only 21% have been passing these additional costs on to customers). If you are faced with such a demand, you need to:

• make sure the size of the rise is justified, for example by asking for a breakdown of the cost rises
• scrutinise your paperwork - if there’s a contract, check the wording carefully for the following: how much the company has to pay and how long the agreement lasts for. Tip. If the agreement clearly states a fixed price for a fixed term which hasn’t yet expired, then stand your ground.
• if the agreement contains a price variation clause, then the price can legitimately be increased during the life of a fixed-term contract. What you need to look for here are: whether the correct procedures have been followed; the triggers for the rise, e.g. an annual escalation; and whether the price can go down too. If you’re ever asked to sign up to a price variation clause, try to stipulate when the increase takes effect and a specific rate. Avoid phrases such as “at the prevailing rate of inflation” because it’s out of your control.

Freedom to hike

Once the contract (fixed or verbal) comes to an end, the supplier is free to increase prices, but often they have to give notice. If so, 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. 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. Tip 1. Any increase in price must be flagged up in advance before a new order is accepted by the supplier. If they fail to do this, particularly if you have a long-standing relationship with them, argue that the price you pay is the existing amount. 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. It should include the quantity and the price. If accepted by them, that’s the price you should pay.