Adjustment provisions: Overview, definition, and example
What are adjustment provisions?
Adjustment provisions refer to the clauses in a contract that allow for changes or modifications to specific terms under certain conditions. These provisions are designed to provide flexibility to the parties involved in a contract in response to changing circumstances or unforeseen events. Adjustment provisions can cover various aspects of the agreement, including pricing, deadlines, scope of work, or other key terms. They ensure that the agreement remains fair and balanced even if certain circumstances change during the term of the contract.
For example, an adjustment provision may allow for price increases in a long-term supply agreement if the cost of raw materials rises significantly.
Why are adjustment provisions important?
Adjustment provisions are important because they help maintain fairness and flexibility in contracts, ensuring that the terms remain relevant and reasonable despite changes in the external environment or unexpected developments. Without adjustment provisions, contracts may become unworkable or unfair if conditions change, leading to disputes or breaches. These provisions protect both parties by providing a mechanism to revisit and revise certain terms in response to unforeseen events, such as market fluctuations, regulatory changes, or changes in business conditions.
For businesses, adjustment provisions can help avoid financial strain or contractual disputes, while for clients or partners, they provide assurance that the contract can be adjusted to meet their needs and expectations even if circumstances evolve.
Understanding adjustment provisions through an example
Imagine a construction company enters into a contract to build a new office building, agreeing on a fixed price for the project. However, the contract includes an adjustment provision that allows for price changes if the cost of labor or materials increases by more than a specified percentage. If the price of steel rises unexpectedly during the project, the contractor can invoke the adjustment provision to increase the contract price to cover the additional costs. This ensures that both parties are protected from significant financial burdens due to changes in market conditions.
In another example, a software development company signs a contract to provide maintenance services for a client. The contract includes an adjustment provision that allows for changes to the service fees if the scope of services expands beyond the original agreement. If the client requires additional features or support, the service fees may be adjusted accordingly.
An example of an adjustment provisions clause
Here’s how an adjustment provisions clause might appear in a contract:
“In the event that the cost of raw materials increases by more than 10% during the term of this Agreement, the Supplier may request an adjustment to the price of goods, subject to the approval of the Buyer. Any such price adjustment shall be based on the percentage increase in the cost of materials and shall be documented in writing with supporting evidence.”
Conclusion
Adjustment provisions are essential for ensuring that contracts remain flexible and fair in the face of changing circumstances. They provide a mechanism for revisiting and modifying terms such as pricing, timelines, or scope of work when unexpected events or changes occur. By including clear and fair adjustment provisions, businesses can protect themselves from financial strain and ensure that agreements continue to meet the needs of all parties involved, even as conditions evolve.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.