Rising costs and client price increases: how strong contracts protect your business

In times of economic uncertainty, businesses are facing sustained increases in labour, energy, fuel and supplier costs. This creates a difficult challenge: protecting profit margins while maintaining strong client relationships. A well-drafted commercial contract can help your business stay in control, enabling you to respond confidently when costs rise, reduce the risk of disputes and preserve important client relationships.

Under English law, without an express contractual mechanism a party is not entitled unilaterally to vary price. Therefore, drafting the right contract terms from the outset is essential, particularly for long term contracts.

Key contractual protections against rising costs

A number of different levers can be included in your commercial contract to try to protect margin and set expectations with customers:

• pricing mechanisms: a cost-plus model is particularly effective, where agreeable, for long-term contracts or where costs are likely to fluctuate or be unpredictable. Under this model, increases in costs are passed directly to the client

• price adjustment mechanisms: where fixed pricing is commercially necessary, contractual flexibility may be introduced through structured adjustment provisions:

  • Indexation clauses – Link price increases to objective benchmarks such as the Consumer Price Index (CPI) or Retail Price Index (RPI), typically at set intervals (e.g. annually).

  • Automatic vs discretionary increases – Consider whether increases apply automatically or require notification. For example, parties may agree that an index-linked increase applied on each anniversary of an agreement does not require specific notice, whereas increases triggered by other events do.

• minimum volume clauses: these protect revenue stability through minimum purchase obligations and are often combined with volume-based pricing incentives

• change in law/regulatory clauses: including such provisions provides protection where new legislation materially increases operating costs

• termination rights: clauses allowing termination can offer an exit where a contract becomes commercially unviable, acting as a last resort to prevent the parties becoming trapped in an unsustainable agreement

• notice provisions: it is imperative to ensure that price changes are properly communicated to reduce the risk of disputes. Notice provisions should be carefully drafted to protect the parties’ interests.

Clear drafting is essential to protect enforceability and avoid ambiguity. In KSY Juice Blends UK Ltd v Citrosuco GMBH [2025] EWCA Civ 760, the court determined that a binding agreement existed which enabled price variation given that there was a mechanism which could be used to benchmark prices against market price. Without this, the outcome may well have been different.

Businesses should therefore be cautious about relying on generic templates, ambiguous pricing mechanisms, or assumptions that a broad right to increase prices will always be enforceable in practice. Care must also be taken to ensure consistency across the contract, particularly where pricing provisions interact with variation clauses. In the absence of an applicable contractual mechanism, any price increase will require agreement, raising the prospect of renegotiation under conditions of commercial pressure.

Balancing commerciality and enforceability

While legal enforceability is central, this must be balanced with commercial considerations. Overly aggressive or one-sided clauses may strain commercial relationships and undermine long-term value. Effective contracts should demonstrate commercial credibility, provide a fair allocation of risk, and deliver mutual benefit. Understanding your sector and clearly articulating your value proposition can strengthen your position when negotiating or implementing price increases.

Keeping clients onside

Receiving a price increase notification can be challenging for any client, so effective communication and careful management of the process are as important as the contractual right itself.

To maintain trust and minimise disputes:

• communicate early and transparently: where possible, go beyond contractual notice periods and brief key clients in advance via account managers

• provide clear, evidence-based reasoning: support increases with data, such as industry benchmarks, supplier cost increases, or inflation indices

• offer options, not ultimatums: consider mitigation strategies such as volume commitments for price stability, longer-term contracts, or product/service adjustments. However, ensure that doing so does not inadvertently waive your right to enforce the clause

• time increases carefully: where possible, align increases with contract renewals and avoid mid-term changes unless contractually justified

• ensure consistency and documentation: align all communications with contractual provisions and avoid creating unintended waivers or precedents.

Common pitfalls

Several recurrent issues arise in practice:

• reliance on force majeure clauses: these rarely provide a valid basis for price variation, so separate provisions should be included

• reliance on informal communication: pricing changes should be documented in accordance with contractual variation provisions to ensure enforceability

• use of outdated terms: older agreements may not reflect current market volatility or supply chain risks

• provision of insufficient notice: failure to comply with notice provisions can invalidate otherwise valid increases

• inconsistent application: inconsistent enforcement can undermine contractual rights

• one-size-fits-all approaches: different clients and sectors require tailored strategies.

Each of these risks underscores the importance of proactive contract management.

Practical steps for businesses

A contract review is a useful starting point to assess how well your business is protected against rising costs. This should include reviewing exposure to fixed pricing, identifying missing escalation clauses, and assessing the ability to amend or renegotiate pricing where necessary. Stress-testing contracts against different cost scenarios can also help you understand your risk profile.

In parallel, reviewing account management processes and records can help assess the stability of your client base. Maintaining consistent communication and engaging proactively with key or at-risk clients when change is needed can make the difference between preserving strong relationships and losing business.

Conclusion

Rising costs present a sustained challenge for commercial parties, particularly in long term contractual arrangements. The drafting and operation of pricing provisions are therefore of central importance, with clarity and flexibility being key.

Businesses that combine robust contractual protections with proactive, relationship-led client management will be best positioned to protect margins and minimise disputes.

If your contracts do not adequately address pricing, variation, or cost pressures, now is the time to review them. At Hill Dickinson, our Commercial team helps clients ensure their contracts deliver both legal protection and commercial advantage. Please get in touch to discuss how we can support your business.

This article was co-authored by Group Legal and Contracts Manager, Claudette Baker.