Setting a price in a European contract
It is common to want to fix a price for goods. It provides you and your customers with certainty and means that you avoid disgruntled business partners who find out that one of their competitors got a better deal.
There are two major issues to watch out for:
1. Competition law
Price fixing is a classic example of anti-competitive behaviour. The bigger your market share, the greater the impact that this price fixing will have on the market - and the more likely this your activities will be scrutinised by competition law authorities in Europe.
2. Price determination or unfair contract terms
Where a price is set by one party without the One of the key changes in the Reformed Code is the obligation to justify a price that has been unilaterally set by one party if it is later contested by the other party. This obligation applies to both standard terms and bespoke agreements. The obligation is born out of a desire to prevent abusive behaviour by one party unilaterally setting the price. In that sense, it covers similar ground to the laws surrounding unfair contract terms.
This change is particularly important for the agreed standard terms which govern all purchase orders (also known as “framework agreements”). In these contracts, the parties do not tend to have equal bargaining positions. The law says that “it may be agreed that the price will be unilaterally set by one of the parties subject to the requirement that the party setting the price must provide the reason for the amount if it is later challenged.” This implies that the power to unilaterally set a price must be agreed at the conclusion of the contract. It is therefore wise to save evidence relating to how the price was calculated, such as market studies and any other contemporaneous justifications for price calculations.
For one-off agreements the price can be set by the party requesting performance of the services as long they can provide a reason for the amount if it is later challenged. This implies that a price may be set during performance of the contract. If the standard terms include particularly unfair prices, the other party can apply to the court to have the contract set aside.
These changes highlight the importance of ensuring contract terms and price are clearly defined at an early stage and referenced in the contract as well as keeping contemporaneous evidence as to how the contract price has been set.