Adjustments: Overview, definition and example
What are adjustments?
Adjustments refer to changes or recalculations made to specific amounts, obligations, or terms in a contract to reflect new information, circumstances, or conditions. These modifications may apply to prices, timelines, deliverables, or other contractual elements and are often governed by predefined rules or triggers outlined in the agreement.
For example, a price adjustment clause in a contract might allow for changes in costs due to fluctuations in market prices for raw materials.
Why are adjustments important?
Adjustments are important because they provide flexibility and fairness in contracts, ensuring that agreements remain equitable and practical when circumstances change. Clearly defined adjustment provisions help prevent disputes by establishing when and how modifications can occur and what criteria must be met.
Including adjustments in contracts supports the stability of the agreement while accommodating unforeseen events, ensuring that both parties can adapt to changes without jeopardizing the relationship.
Understanding adjustments through an example
A supplier enters into a long-term contract with a retailer to provide goods at a fixed price. The contract includes an adjustment clause that allows the supplier to increase prices annually based on inflation rates. This ensures the supplier can maintain profitability while the retailer can anticipate and plan for price changes.
An example of an adjustments clause
Here’s how an adjustments clause might appear in a contract:
“The Parties agree that the pricing terms outlined in this Agreement shall be subject to adjustment based on changes in the Consumer Price Index (CPI). Price adjustments shall be calculated annually and communicated to the other Party in writing no less than 30 days prior to implementation.”
Conclusion
Adjustments are a crucial element of contracts, providing mechanisms to address changing circumstances and maintain fairness between parties. By clearly defining adjustment triggers and processes, contracts can adapt to new conditions while reducing the risk of disputes. A well-drafted adjustments clause supports the flexibility and longevity of contractual relationships.
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.