What is a Pricing Agreement?
A pricing agreement is a vital tool in the business world, providing a foundation for transactions involving the exchange of goods or services. It serves as a legally binding contract between two or more parties, setting forth the terms under which purchases or sales are to be conducted. By doing so, it helps to avoid misunderstandings, discrepancies, and possible legal disputes in the future. In today’s complex economy, having a pricing agreement is crucial to a business’ success. This is because it gives the customer assurance that the products or services will be provided according to the specified pricing details. Likewise, the agreement helps to maximize profits by ensuring that the agreed upon amount for a product or service is fairly compensated. Additionally , it also might contain provisions for discounts on bulk orders, financing options, and related clauses, thereby giving both parties their contractual rights. Although the particular details of a pricing agreement may vary based upon the specific transaction being referred to, there are some key components that are typically found in most agreements. A pricing agreement will, for example, typically include, at a minimum, the following: The foregoing list is not exhaustive, and may necessarily differ based upon the specific transaction that is taking place between the parties. Still, the components mentioned above will generally be identified in most pricing agreements.
Components of the Pricing Agreement Template
Pricing agreements, whether for the sale of goods and services or service contracts, are complex documents that contain numerous essential provisions that are critical to ensuring that the agreement contemplated by the parties is enforceable. Without each of these provisions, the parties are left vulnerable to disputes with respect to the pricing terms or other aspects of the contractual relationship. Furthermore, although each situation is unique, there are certain key components that "should" be contained within each pricing agreement template, assuming the parties intend to be bound by the terms included within the agreement.
We offer the following best practices for each of the critical components that should be contained within a pricing agreement template: Price: generally, the pricing agreement template should include the applicable unit price for each good and/or service provided for in the agreement. Additionally, depending on the type of business involved, the price could vary based on the quantity purchased or the time in which the order was placed (i.e., permitted advanced ordering). In such cases, the formula for arriving at the correct price may be included within the pricing agreement template. For example, a price that is set forth in a catalog may be modified after the parties agree on the value of the goods and services offered by the seller. Duration: the pricing agreement template should expressly set forth the duration of the pricing in as it relates to the agreement. This will assist in avoiding disputes with respect to the interpretation of the agreement should it be deemed to be a contract to provide goods and services over a set period of time. Furthermore, the duration of an agreement is not necessarily equal to the term of the contract itself. Scope of Products / Services: the scope of products or services to be provided under the pricing agreement template should be set forth in detail. Generally, such scope includes a description of the goods and/or services to be provided, along with any additional terms that would be pertinent to a dispute with respect to the agreement. Again, this section of the pricing agreement template will be highly specific to the parties and the nature of the agreement. However, the scope section of the pricing agreement template is critical to the enforceability of the agreement and therefore should be drafted carefully. Payment Terms: especially in the context of a credit agreement, the pricing agreement template should expressly set forth the payment terms (for example, net 30 or net 60) and the consequences of failing to meet such timelines.
Advantages to Using a Template
The advantages of using a template for pricing agreements are numerous and impactful for any business. By establishing a standardized framework, companies can ensure not only that their pricing structure is in line with their business objectives but that it is being applied consistently across all products and services. This results in clearer communication both to customers and internally to your team.
Time saving is perhaps one of the most significant benefits of using a template. With essential provisions pre-populated into the document, professionals no longer have to research or recreate language from scratch each time they wish to implement new terms and conditions. The result is an immediate boost in productivity, which can translate into increased revenues.
Complying with any relevant laws and regulations can be daunting if a business does not have the appropriate agreements in place. One case in point is the GDPR compliance incident faced by various organizations. The process of creating a pricing template forces a company to consider its legal obligations and how best to implement them. This encourages a more proactive approach to price structuring and associated policies, instead of simply reacting to events as they occur.
Alongside compliance, a common theme in the formation of any good agreement is adaptability. For instance, pricing agreements should be able to deal with non-standard situations like one-off projects or temporary discounts related to a particular purchasing arrangement. This is where using a template enables the seamless addition of ‘addendums’ to an agreement, allowing for a far greater degree of flexibility in how it is used.
The benefits of using a pricing agreement template are certainly clear. We provide you with templates created by an experienced corporate lawyer, so you can use them throughout your business, confident in the knowledge that they comply with relevant laws and are easy to adapt to suit a particular need.
Common Mistakes and How to Avoid Them
Common Mistakes to Avoid
It’s all well and good to know what you should do, but it’s equally important to know what you shouldn’t do. Let’s take a look at some of the pitfalls companies typically face when creating or using pricing agreement templates. Just as with using any other kind of business document explorer found in the wild, using a template created by someone who doesn’t really know what they’re doing is a recipe for disaster. Cutting corners to save a little time, or using an old template because it’s there, are errors that companies make because they think such an approach is an acceptable money-saving tactic. They aren’t. The best way to understand why this isn’t a valid strategy is to think of the most expensive resource a business has: its reputation. Litigating with a pricing agreement is virtually guaranteed to damage the reputation of the company. It’s a predictable outcome of a lawsuit, one that occurs no matter which side of the lawsuit ultimately prevails. Defending the suit is costly. Using this as a tool for limiting risk or reducing liability is a red herring. It’s not going to work. A well-crafted pricing agreement will limit a business’s exposure to risk, and if they’re well-written, it will help them prove that the partner is in breach. But if it is poorly written, the business can end up in the position of being unable to enforce the agreement or worse – having its own performance used against it in a court of law. There is one exception to this rule: If you are creating an agreement for use with a distributor or wholesaler you don’t intend to audit, and it comes with a volume price commitment. However, you still need to remember the devil is in the details when creating those agreements, and it’s vital to seek help from attorneys familiar with pricing agreements. You’re probably familiar with the concept that the nature of the relationship between the parties to an agreement does not affect the outcome of a lawsuit relating to the agreement. The same cannot be said for pricing agreements: the quality of the relationship between the parties has a major impact on whether or not a pricing agreement will be effective and how it will function throughout the term of its validity. What’s your relationship with its distributors and wholesalers really like? Are they the best available choice, or could you be doing better? Do they pay their bills on time? Do they communicate clearly and completely with your team? Have they been honest with your representatives? If the answer to any of those questions is negative, you should consider the serious downsides facing the pricing agreement. A contract with a partner doesn’t change who they are. In the end, the agreement is only as strong as the partner signing it. One of the results of this means that pricing agreements are not a replacement for the due diligence you do onboarding a partner. They are evidence of that due diligence – in other words, the result of doing your homework. Make sure pricing agreements are one aspect of the process that has your best efforts behind it.
How to Personalize Your Template
When it comes to customizing a pricing agreement template, companies should start by identifying the parameters they wish to adjust. With a template at hand, it’s often best to change the relevant sections later on in the drafting process rather than delete and add text to the template when creating the first draft. This way, you can automate the changes and retain the integrity of the template.
Determining which areas need adjustment may be as simple as finding the word "X" and replacing it with "Y." Often, however, the process is more complex because of the interrelationship between different clauses and sections. It’s for this reason, among others, that most companies delegate the task of customizing a pricing agreement template to their attorneys.
In drafting, it’s important to remember that the legal terms in any agreement don’t always have a direct equivalent to the language you might use in day-to-day conversation. In this regard, it’s not uncommon for there to be confusion over whether or not to employ legalese in an agreement: essentially, "legal language" refers to terminology used by judges, attorneys, and other professionals in the field, whereas "legalese" implies an overly formal approach that doesn’t always impart clarity.
Furthermore, there are certain instances, such as when determining how long the agreement will be effective, where using the term "duration" might make sense. It might not, though.
For all of these reasons , it’s generally advisable to work with an attorney to customize your pricing agreement template. When you stay within the confines of the law, avoiding legalese isn’t necessarily advisable – unless you’re trying to decrease your liability, in which case the disclaimer at the bottom of this article applies. Including legalese in relevant places ensures that you won’t spend months in court trying to determine what you meant by the words you used.
Finally, when modifying a pricing agreement template, it’s crucial to consider how much control you wish to maintain over the agreement. If you intend to terminate the agreement on or before a predetermined date, then making an explicit statement on the matter is your best option. The same goes for stipulations related to currency and payment amounts. Unless having recourse in the event that your counterparty doesn’t fulfill their obligations is a primary concern, you’d be wise to include provisions for guarantees, warranties, and indemnification.
Relatedly, beware of cross-references when customizing key details in your pricing agreement template. The same can be said for aspects relevant to but not technically part of the agreement, such as communications, fees, modes of payment, and so on.
As an alternative to customizing a pricing agreement template, you might consider modifying a blank agreement. This may prove the better option for your company if you don’t require the complete overhaul implicit in a template or if you have no prior agreements on which to base the terms of an existing template.
Tools for Agreement Templates
The advent of technology has made agreement templates even more convenient to utilize in both the digital and physical spaces. A wide variety of software and digital tools are available for creating, storing, and printing pricing agreement templates, among others. Cloud storage has made it easy to store agreement templates with all other essential files related to your work.
There are several digital tools currently available for agreement templates. One of the most notable features is article creation, which quickly generates an entire agreement template in seconds. By selecting relevant fields and keywords needed in the agreement template, you can save a lot of time in what would otherwise be a long and tiresome process. Once created, the document is processed and downloaded quickly so that you can print out the agreement template almost immediately on your home printer.
Cloud storage like Google Drive or Dropbox allows for agreement templates to be stored in one place along with other pertinent documents. This makes it easy for users to access these documents from various devices at any time. Agreement templates can be edited and shared in real time, allowing various parties to contribute in a quick and effective manner.
When agreement template offers pure convenience, the full PDF experience offers an integrated solution to the creation, storage, and editing of documents. You are able to create your document in a Microsoft Word format, save, and upload it. With a few clicks, your document will be converted from Microsoft Word to a PDF format, ready to be downloaded and printed as needed. Approval can also be expedited with an excellent commenting system that gives reviewers space to leave feedback on the agreement template.
As useful as agreement templates are, they are extremely easy to adapt for nefarious reasons. For this reason, effective software and digital tools capable of creating agreement templates need the highest level of security. Important personal information that is stored electronically is vulnerable to the exploitation of hackers. To this end, there are several digital tools and software products with high levels of protection and a wide variety of levels of protection. The software can be password protected, require multi-level security with user roles, and participate in two-factor authentications.
Legal Compliance and Considerations
When drafting or using pricing agreement templates, and for any contract provided to a consumer, you may want to consider the legal concept of unconscionability. The court in Pacific State Bank v. Greene held that unconscionability focuses on both the base terms and the way they are presented, and stated:
The principle is simply that no man in the ordinary affairs of life should be compelled to make an improvident bargain. It prevents not only oppression but unfair surprise, and is based on the generally recognized expectation that parties deal fairly and reasonably with each other and a consequent refusal to excuse those who do not.
While the court did not find the pricing terms at issue in that case unconscionable, the court generally discussed unconscionability as part of the legal standard for waiving a signed customer contract as an arbitration agreement . Unconscionability is an important tool for consumers because it can render some contract provisions that might otherwise be enforceable – such as mandatory arbitration provisions, class action waivers, and jury trial waivers – unenforceable.
In fact, several courts across the country, including California, Florida, New Jersey, New York, and Texas, have found that terms contained in documents attached to agreements are outside of the scope of the pre-agreement unconscionability analysis.
All consumers should pay attention to pricing terms, in addition to all other terms of their contracts. Businesses should continue to draft and disclose their pricing terms clearly, and hold them up to the arbitral or judicial standard of unconscionability where necessary.