Modification: Pricing Changes
Commercial Contract
Table of Contents:
General
Renewal Term Increases
- Fixed Percentage
- Consumer Price Index
Modification: Pricing Changes
General
The section entitled “Automatic/Unilateral Changes” addresses clauses that generally allow for the automatic and/or unilateral change of terms, but which are subject to the stipulation that any such change must apply broadly to all similarly situated partners and not exclusively to the other contracting party. No other issue has more susceptibility to these kinds of clauses than the issue of product pricing:
Exemplar C50A-1
Seller may modify the Prices at any time unless otherwise expressly agreed in an addendum to this Agreement, provided that if such modification results in an increase in Prices, such increase must apply to all users of the Services and not to Customer exclusively.
Relatedly and by contrast, the parties may agree to give the seller, from time to time during the contract period, the right to request a change, particularly to key terms that may fairly require revisiting by the parties after a period of time, such as product pricing. This arrangement may be useful, for instance, if the parties reach an initial impasse during negotiation on pricing and the seller agrees to revisit the issue later during the contract term on the theory that after the contract has been executed and the customer becomes more reliant on the seller’s products, the parties’ respective negotiating power may have shifted in favor of the seller.
The following exemplars prescribe a process by which such a pricing modification request can be made and responded to, with the understanding that they can also be applied to other key non-pricing terms:
Exemplar C50A-2
Supplier reserves the right to request modification of the pricing terms set forth in this Agreement or any SOW by providing ninety (90) days’ notice to Buyer at any time. Such request shall include a summary of the factors that Supplier is relying upon as the justification for the proposed price increase. Within the 90-day period following receipt of Supplier’s written request for a price increase, Buyer and Supplier shall meet to discuss an equitable adjustment to the prices of the Products. If the parties do not agree within such 90-day period on the new prices for the Products and the effective date for such new prices, Supplier shall either withdraw the price increase request or provide written notice of termination of this Agreement, which termination shall be not less than 90 days following the receipt of the termination notice by Buyer. Notwithstanding the foregoing, under no circumstances shall Supplier be obligated to sell or license any product, or service for a price that is commercially unreasonable or otherwise below its costs and expenses for the same.
Exemplar C50A-3
Initial pricing for Services shall be as set forth on Exhibit A. On or after December 31, 2027, VENDOR may request, in writing, a change to the prices of the Services. Such request shall include a summary of the factors that VENDOR is relying upon as the justification for the proposed price increase. Within the 90-day period following receipt of VENDOR’s written request for a price increase, Buyer and VENDOR shall meet to discuss an equitable adjustment to the prices of the Services. If the parties do not agree within such 90-day period on the new prices for the Services and the effective date for such new prices, VENDOR shall either withdraw the price increase request or provide written notice of termination of this Agreement, which termination shall be not less than 90 days following the receipt of the termination notice by Buyer. Any change to the Specifications set forth on Exhibit B may result in a change to the prices for Services.
Renewal Term Increases
Price increases for licenses and services can be expected once the initial subscription or service term expires and is followed by one or more renewal terms. However, the parties can agree to cap such renewal-term price increases, for instance, based on a fixed percentage or the CPI:
Fixed Percentage
Exemplar C50A-4
Subscription fees are fixed for the initial Subscription Term, but each following Renewal Subscription Term is subject to renewal fee increases which on average may not exceed 5% of the fees charged for the prior Subscription Term or Renewal Subscription Term as applicable, which increase will become effective beginning upon the first day of each Renewal Subscription Term. Provider will notify Customer of any increase at least sixty (60) days prior to Customer’s Renewal Subscription Term. Such notice may be in the form of an invoice or any other form of notice commonly used by Provider to communicate with Customer. This Section does not preclude Provider from charging additional subscription fees for significant new functionality or features included in the Service.
Consumer Price Index
Exemplar C50A-5
The License Fee is subject to change once during a calendar year upon three (3) months’ notice to Licensee, and Seller may increase Licensee’s License Fee hereunder from the prior year by the percentage increase in the Consumer Price Index (CPI), applied on a cumulative year-over-year basis starting from either the effective date of this Order Form or the date of Licensee’s last License Fee increase, whichever occurred later. CPI as used herein means "U.S. Consumer Price Index for all Urban Consumers, U.S. City Average - All Items 1982-1984 = 100 Base for a twelve (12) month period prior to such increase as published by the Bureau of Labor Statistics".
Exemplar C50A-6
Award prices shall be subject to change annually based on Supplier’s annual pricing reviews, but in no event shall new annual award prices be more than the Applicable Annual Renewal Price without the written consent of Buyer as mutually agreed by Supplier and Buyer. For purposes of the foregoing, the “Applicable Annual Renewal Price” is equal to (1.03 + CPI) x the award price of the previous year, where CPI means the Consumer Price Index rate established by the United States Department of Labor for All Urban Consumers, US City Average, All Items (change in annual average) for the calendar year preceding the beginning of the renewal term, if a positive number.
Exemplar C50A-7
Customer may renew its subscription for the Service by notifying Provider prior to the end of the Order Term and Provider will generate a new Order Form for a single three-year renewal term (“Renewal Term”) at the below pricing:
Renewal Term Years | Annual Renewal Subscription Fees
1st year of Renewal Term | Base Subscription Fee x (1.03 + CPI))
2nd year of Renewal Term | Previous year subscription fee x (1+ (3% + CPI))
3rd year of Renewal Term | Previous year subscription fee x (1+ (3% + CPI))
“CPI” means the Consumer Price Index rate established by the United States Department of Labor for All Urban Consumers, US City Average, All Items (change in annual average) for the calendar year preceding the beginning of the Renewal term, if a positive number.