This contract section specifies how much you are paid for the work you do. It can set forth list rates, total project costs, price increases, discounts, and rebates. It may also specify audit rights and recordkeeping requirements. Many times, this section lays out universal terms and refers to a SOW for project-specific pricing terms.
- The pricing section of a contract specifies how much you'll be paid for the work you do. It covers things like list rates, discounts, rebates, total project costs, and price increases. The pricing and payment terms section may also specify audit rights and record-keeping requirements. Many times this section lays out universal terms in a master services agreement and refers to a statement of work for project-specific pricing terms. List rates define your primary pricing schedule.
It's the basis on which any discounts or rebates are applied. Discounts are reductions you make to your list rates up front before you do the work. Many times these are predicated on the client spending a certain amount of money with you. Rebates are the amount you'll refund to the client at the end of a time period, usually a year, based upon how much they spent with you during that time frame. Total project costs are usually written as a not to exceed number.
That puts a cap on the amount of fees that can be billed. If that number is going to be exceeded, you and your client need to agree to that increase. Price increases can sometimes be spelled out contractually. At thoughtLEADERS, I had one client where we contractually specified a price increase. In the contract, it said we could raise our rates by up to 5% over the term of the master services agreement, but we weren't allowed to raise our rates within the first 12 months.
The client benefited from this approach because there was a cap on how big the price increase would be. We benefited from the approach because the price increase was already preapproved. The pricing section of your contract is one of the most important provisions you'll agree to, the other being the provisions related to scoping and delivering your work. Spend extra time and attention to getting this pricing section right.
- Major and minor contracts
- Registering as a supplier
- Setting pricing, payment, and other contract terms
- Insurance requirements
- Defining your project
- Negotiating the contract