August 4, 2022

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    Everyone is talking about the rate of inflation, which is increasing significantly and at an incredibly fast rate.

    Microsoft Partners should be thinking about how this could affect their business, whether they have protections in place in their contracts and what steps can they take to mitigate their risks.

    A variety of factors are causing this spike – supply issues and cost pressures, which are leading to prices increasing across the board. This is being felt by both businesses and consumers due to the knock-on effect of the costs being passed down the chain.

    The Office for National Statistics (ONS) reported that the Consumer Prices Index rose by a whopping 8.2% in the 12 months leading up to June 2022.

    How can your contracts protect you from inflationary pressures?

    Most Microsoft Partners will be impacted by the increase in costs, for instance due to a third-party supplier increasing their costs, and we recommend reviewing the terms of the relevant contracts that are being affected to establish the rights of either party.

    If your supplier has proposed an increase in charges for their services or goods, you should review your contract with them to see whether they have the right to do this, and if so, whether they have followed the correct procedure.

    If they have followed the correct procedure, you should then review the contract to see if you have the right to increase your fees rather than swallowing the losses.

    Your contract may include a provision that allows you to increase their fees at certain times, or in the case of certain events, throughout the contract.

    If the contract does not include terms that allow you to pass down the cost increases, you may decide that the arrangement is no longer commercially viable, and in those circumstances want to establish whether you have a right to terminate the agreement.

    If you don’t, you’ll need to seek the agreement of the other party to vary the contract. For obvious reasons, it’s unlikely that they‘ll agree to this!

    Things to consider in your new contracts

    If Microsoft Partners are entering into new contracts, it’s now more important than ever to consider including terms that allow you to increase your fees.

    When entering into contracts with suppliers, try to limit when the suppliers can increase their fees and ensure that your contract with your customer is at least as favourable in allowing you to pass down cost increases from your suppliers.

    It’s likely that your customers will then pass those costs on to their end-customers.

    You can also include terms to protect you from an increase in fees from third parties, allowing you to pass down the increased costs that you’re incurring to your customer. If the customer has suitable contractual arrangements in place, they may also then decide to pass down the cost to their end-customer.

    Note: It would also be prudent to include terms that allow you to increase your fees being charged to your customer in line with the percentage increase in the Retail Prices Index.

    If you would like a member of our specialist team to review a contract you have in place to advise on your position, or to prepare a contract for you, please get in touch.

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