When Can A Supplier Increase Prices Mid-Contract?

A supplier can usually increase prices mid-contract only if the contract allows it, or if the customer agrees to the change. If the contract says the price is fixed, or is silent on price changes, a unilateral increase can be risky.

The more nuanced part is what your contract actually says. A price increase might be allowed only after a set notice period, only once a year, only by reference to a formula, or only when certain costs genuinely rise.

With inflation, shipping delays, exchange rate movements and wage pressures still affecting many New Zealand businesses, price changes are a commercial reality. The trick is to make them clear, fair and workable before the relationship gets strained.

Here is how to think about supplier price increase clauses in a New Zealand supply agreement, and what wording should control the process.

Can A Supplier Increase Prices During A Contract?

It depends on the contract. A supplier can generally increase prices during an ongoing contract if the agreement includes a valid price variation clause, or if the customer agrees to the new price.

If there's no wording that allows a price change, the starting point is simple: the agreed price is the agreed price. A supplier who invoices at a higher rate without a contractual right may find the customer refuses to pay the increase.

For example, say Hana runs a commercial cleaning business in Auckland. She signs a 12-month agreement to clean an office for $2,000 plus GST per month. Three months in, her chemical and staffing costs go up. If her agreement says nothing about price reviews, Hana can't simply start charging $2,300 plus GST and expect the customer to be bound.

That doesn't mean Hana is stuck forever. She may be able to:

• ask the customer to agree to a revised price;
• negotiate a reduced scope of services for the same fee;
• use any termination right in the contract and offer new terms for future services; or
• absorb the cost until the contract ends, then reprice the next term.

The key is that the price change needs a legal basis. In most cases, that basis comes from clear contract wording in the supplier agreement.

What Is A Price Variation Clause In New Zealand?

A price variation clause is a contract term that sets out when, how and by how much prices can change during the contract term. It's the main wording you should look for if you're dealing with a mid-contract supplier price increase.

A basic price variation clause might say the supplier can update its price list on 30 days' notice. A more detailed clause might link increases to the Consumer Price Index, exchange rates, freight charges, supplier input costs or a specific annual review date.

Good price variation wording should answer practical questions like:

• Who can change the price?
• When can the price change?
• How much notice must be given?
• Is there a cap on the increase?
• Does the increase apply to existing orders, future orders, or both?
• Does the customer need to accept the change?
• Can the customer cancel if the increase is too high?

In New Zealand, the Contract and Commercial Law Act 2017 provides the general framework for contract law, but it doesn't give suppliers a general right to raise prices just because costs increase. Your contract does the heavy lifting.

If your customer contracts use a standard form contract, the Fair Trading Act 1986 also matters. Unfair contract terms are prohibited in standard form consumer contracts and standard form small trade contracts. A one-sided price variation clause can attract attention if it lets you change prices whenever you like, without a clear reason, notice or exit right.

What Should A Supplier Price Increase Clause Include?

A good supplier price increase clause should be specific enough to prevent arguments, but flexible enough to deal with real cost movement. Vague wording often causes more trouble than it solves.

If you're drafting or reviewing a supply agreement or getting a contract review, consider including these parts.

Clear Triggers

Spell out what can trigger a price change. This might include:

• an annual price review date;
• changes in wholesale or manufacturing costs;
• changes in freight, fuel or logistics costs;
• exchange rate movements for imported goods;
• changes in government charges, duties, tariffs or levies;
• material increases in labour costs;
• supplier price list updates; or
• changes requested by the customer, such as faster delivery or custom specifications.

The more specific you are, the easier it's to explain the increase. This can help preserve the commercial relationship as well as the legal position.

A Formula Or Cap

A formula is often better than a broad right to increase prices. It gives both sides a benchmark.

Common options include:

• CPI-based increases, often reviewed annually;
• a fixed percentage increase, such as up to 5% per year;
• pass-through of documented third-party cost increases;
• a cost-plus model, where the supplier's cost plus an agreed margin determines the price;
• exchange rate adjustment if currency movements exceed a set percentage; or
• a combination of a fixed annual increase and extraordinary cost pass-through rights.

If you use CPI, say which index you mean and where the figure comes from. In New Zealand, CPI data is published by Stats NZ. If you mean a particular industry index or producer price index, name it clearly.

Notice Requirements

Your clause should say how much notice must be given before a price change starts. Many commercial contracts use 30 days, 60 days or 90 days, depending on how dependent the customer is on the supplier and how quickly the supplier's costs move.

There's no universal New Zealand law requiring a specific notice period for supplier price changes in ordinary commercial contracts. The right notice period depends on the deal, the industry and the bargaining position of the parties.

For recurring services, 30 days may be workable. For critical goods with long lead times, the customer may reasonably expect more notice.

How Notice Must Be Given

Don't leave this to chance. The clause should say whether notice can be given by email, through an online account, by updated price list, or by formal written notice.

If you rely on website updates only, you may struggle to prove the customer actually knew about the change. A direct email to the nominated contact is usually cleaner.

Customer Acceptance Or Exit Rights

Some clauses say the customer accepts the new price if they keep ordering after the notice period. Others require written acceptance before the new price applies.

For higher-risk or standard form contracts, it can be sensible to give the customer a right to terminate before the increase takes effect. That doesn't mean every customer will leave. It simply makes the clause feel fairer and more defensible.

How Much Notice Is Needed For A Contract Price Increase?

You need to give the notice period required by the contract. If the contract doesn't set a period, you'll usually need the customer's agreement before the new price applies.

A good notice clause should include:

• the current price;
• the new price;
• the date the new price starts;
• the reason for the increase, if the contract requires one or if it helps commercially;
• any documents supporting the increase, such as supplier price changes or freight charges;
• what the customer needs to do to accept or reject it; and
• any cancellation or termination deadline.

For example, if your supply agreement says you can increase prices on 60 days' written notice, your notice should give the customer the full 60 days before the new price takes effect. If you send the notice late, the increase may only apply after the full notice period has passed.

Be careful with timing for orders already placed. Your contract should say whether the old price applies to confirmed orders and whether the new price applies only to future orders. Without that wording, you can end up arguing about purchase orders, delivery dates and invoice amounts.

Can Prices Change Under A Fixed Price Contract?

Usually no, not during the fixed price period, unless the contract includes a variation mechanism or both parties agree to change it. A fixed price contract is meant to give certainty.

A fixed price contract might still allow changes in specific situations. For example, it may say:

• the fixed price applies only to the scope listed in the contract;
• additional goods or services are charged separately;
• customer-requested changes trigger a variation fee;
• urgent work attracts a surcharge;
• third-party costs are passed through at cost; or
• prices can be reviewed after a set milestone or renewal date.

If the scope changes, the price may be able to change too. If the scope stays exactly the same, a supplier will usually need a clear contractual right to charge more.

Customers should also watch for wording that looks fixed but is not. For example, a proposal may say the initial price is fixed for three months, while the terms and conditions say prices may change after that period on notice. Both documents need to be read together.

Suppliers should avoid calling something fixed if they plan to adjust it frequently. Under the Fair Trading Act 1986, businesses must not mislead customers about price. That risk is especially relevant if you advertise a fixed monthly fee but keep a broad right to change it at any time.

Can A Supplier Pass On Inflation, Freight Or Cost Increases?

Yes, but only if the contract allows it or the customer agrees. Rising costs alone don't automatically let a supplier rewrite the price.

This is where a cost volatility clause can be very useful. It can sit alongside an annual price review and deal with unusual cost movements.

For example, your clause could allow a price adjustment if:

• freight costs increase by more than a stated percentage;
• the NZD exchange rate moves beyond an agreed range;
• a key raw material price increases by more than a set threshold;
• a new levy, duty or government charge applies; or
• a third-party supplier increases its charges for a component that's necessary to provide the goods or services.

To keep the clause balanced, you might also include:

• a requirement to provide evidence of the cost increase;
• a cap on the amount passed through;
• a rule that only the increased cost, not an extra margin, can be passed through;
• a customer right to cancel if the increase exceeds a threshold; and
• a review process if costs later decrease.

These details matter because a broad clause that says you can increase prices for any reason may be hard to enforce, especially in a standard form contract with a smaller customer.

Force majeure clauses are sometimes mentioned here, but they aren't usually enough. A force majeure clause may excuse delay or non-performance when events are outside a party's control, but it won't automatically allow a price increase unless it clearly says so.

What If The Customer Does Not Accept The New Price?

If the contract requires customer acceptance, the old price usually continues unless the customer agrees to the new price or the contract is ended. If the contract treats continued ordering as acceptance, the answer depends on whether the notice and acceptance wording is clear.

For suppliers, the safest approach is to avoid ambiguity. If a customer keeps ordering after a properly notified increase, your terms should say that future orders are at the new price. If the customer doesn't want that, they should stop ordering before the effective date or use any termination right.

For customers, don't ignore a price increase notice if you disagree with it. Respond before the effective date and make your position clear. If you keep ordering without objection, the supplier may argue you accepted the new price through your conduct.

Useful options include:

• accepting the new price from a future date;
• negotiating a smaller increase or staged increase;
• agreeing to a lower scope or lower volume;
• placing final orders before the increase date, if the contract allows it;
• ending the contract under a termination right; or
• moving to a new agreement with clearer pricing rules.

If the contract is unclear, get advice before taking a hard position. Without clear wording, you may end up with unpaid invoices, supply interruptions or a damaged commercial relationship.

What Laws Affect Supplier Price Increase Clauses?

The main laws to keep in mind are the Fair Trading Act 1986, the Consumer Guarantees Act 1993 and general contract law under the Contract and Commercial Law Act 2017. Which ones matter most depends on whether you're dealing with another business or with consumers.

Fair Trading Act 1986

The Fair Trading Act prohibits misleading and deceptive conduct and false or misleading representations, including about price. If you advertise a set price, fixed fee or special rate, make sure your price change rights aren't hidden or inconsistent with that message.

The Act also covers unfair contract terms in standard form consumer contracts and standard form small trade contracts. A small trade contract is broadly a standard form business contract that forms part of a trading relationship with an actual or expected total value of up to $250,000 including GST in any 12-month period.

A price variation clause may raise concerns if it lets one party change the price without a clear reason, notice, transparency or an exit right. The Commerce Commission can take action in relation to unfair contract terms.

Consumer Guarantees Act 1993

If you sell goods or services to consumers, the Consumer Guarantees Act may also apply. For services, if the price hasn't been agreed, the customer only has to pay a reasonable price.

If you're contracting business-to-business, you can sometimes contract out of the Consumer Guarantees Act where both parties are in trade, the agreement is in writing, and it's fair and reasonable to do so. That wording should be handled carefully through proper clause drafting rather than copied from a template.

General Contract Law

New Zealand contract law generally respects the bargain the parties made. That means your written agreement, purchase order, quote, proposal, online terms and accepted variations may all matter.

If different documents say different things, you can end up with a priority problem. A well-drafted supply agreement should say which document wins if there's an inconsistency.

A practical way to reduce risk is to treat pricing as a system, not just one clause. Your quote, order form, terms and conditions, invoices and renewal emails should all tell the same story. Be clear about whether prices are inclusive or exclusive of GST, whether changes apply to existing orders or future orders, and how renewal pricing works.

Key Takeaways

• A supplier can usually increase prices mid-contract only if the contract allows it or the customer agrees.
• A strong price variation clause should cover triggers, formulas, notice, acceptance and termination rights.
• Fixed price contracts usually stay fixed unless the scope changes or the contract includes a clear adjustment mechanism.
• Inflation, freight and cost volatility should be dealt with expressly rather than assumed.
• The Fair Trading Act 1986 matters, especially for standard form contracts and price representations.
• Clear pricing wording helps you avoid unpaid invoices, customer pushback and messy contract arguments.

If you'd like help with your supply agreement pricing clauses, contract price increase notices, trading terms or customer acceptance wording, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.