Your customer price cap may not match the supplier’s adjustment terms
Compare asymmetric supplier and customer price-adjustment mechanisms, quantifying uncapped costs or timing lag left with the contractor rather than assuming back-to-back recovery.
Corporate Recovery Partners
01 / 06
Two adjustment clauses may leave a gap
You are preparing for future price shocks and both the supplier and customer contracts mention price review. That does not mean increases pass through evenly. Compare the actual mechanisms before quoting. One may apply immediately while the other waits for a review date, or the customer adjustment may be capped. The remaining exposure belongs in the commercial assessment rather than being hidden by the presence of two clauses.
With appropriate advice, identify what each clause covers, when it operates and what limits or conditions it contains. Keep supplier and customer terms separate. Do not assume shared words such as inflation adjustment mean the same index, cost base or timing. If wording is unclear, resolve the question before relying on a projected recovery in the estimate.
Business.gov.au recommends specifying fee calculations and payment arrangements. Apply that principle to the comparison without treating the guide as an interpretation of either contract. Ask the adviser to explain the actual adjustment rights, and give the estimator the confirmed commercial basis. A spreadsheet can measure a known mismatch; it cannot create a right to recover an increase.
Imagine the supplier's relevant input cost rising by an amount the customer mechanism would only partly recognise because of its cap. Another difference may arise if supplier payments increase months before the customer's review. These examples concern residual amount and timing risk. They do not establish that either party can apply a particular increase under your own agreements.
Calculate the unrecovered cost under realistic scenarios, then show when the extra cash would leave and any permitted recovery would arrive. Avoid using the same assumed percentage for both sides without evidence. Ask whether pricing, purchasing commitments or negotiated terms need changing. Do not make an unauthorised material substitution or simply add a surcharge to the customer invoice.
Record the mechanisms reviewed, assumptions used and the portion of a price movement the business may have to carry. Keep the calculation current when terms change. A contract with price-review wording can still leave significant risk. The useful decision is whether the business understands and can carry that specific gap before committing to the work.
