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Even with contracted prices therye are still many uncontrollable variables which affect cost,in my case it has been shipping rates fluctuation,exchange rate fluctuation,shipping to countries in war zones where we have to pay war risk surcharges,new government regulations at destination countries,raw material and fuel increases...etc.
on our main contracts we have split constant cost vs. variable costs.we have left variables as per market price,but contracted on controllable costs .
You can always negotiate new contract increases using variables as your main reasoning,no one can argue facts,just analyse why increase is needed,what is the cause,and possible impact on production cost and delivery costs.
you will always get resistance while initiating increases,try to justify to your self before justifying to others.
There can be an array of factors that lead to contract price increase (provided the tender allows you to increase it), to list a few
a. Escalation - Material, Equipment, Labour, Inland and Overseas Transportation , Fuel or for that matter any other increase of resource cost at the country of manufacturing, however most tenders do not allow for such increases within a stipulated time frame
b. Exchange rate fluctuation - since the contract price is based on an international currency like the dollar and there is no peg with the local and other trading currencies invovled ( for import of material,equipment or plant from international sources), many tenders do not allow for such exchange rate fluctuations and the bidder is required procure the required hedging.
c. Change in local bye laws regarding company establishment, operating fees, import duties and taxes, composition of workforce etc. This is one of the arenas for which price increase is warranted by most tenders as this is an unforeseen risk and it would be unfair to expect any bidder to bear the brunt of the resulting price increase. However should a similar scenario arise at the source of the material most tenders might not cover such changes as it would fall under sellers risk.
d. There can also be an increase in cost due to inclement weather, that is if the deliveries itself would start later than the stipulated date on the original tender ,mobilisations involving mass material movements and plant installations would be difficult and take longer in adverse weather conditions such as high winds, monsoons, snow etc and would therefore result in increased cost.
Varying Government duties and exchange rates.
Because increase in market price specialy steel price up & down
the material specification change
scope of work increase
structural & design criterial different.
Esclation is one way to compare the prices, if there are possiblities of contract delays or contract awarded may be late, there are possibilities of esclation.
Devaluation of money or inflation.
In IBM , we used to do it through "price change announcements" which mention clearly the old price, the new price (reduction or increase), effective date of the change, and in which countries it would appy !!
currency conversion changes if you have factored in contract.unavoaidable cost, such as shipping cost, duties, tarrif, govt fees which are beyond over control.a cluase in contract staing the changes in price.
variable cost, in which u dont have any margins.
you can cite reason that, your profit margin is same as previously.
As I see it, when we work in a product base company, should work with fluctuations of price. Depend on the Customer (If an existing customer project manager should have a insight/ new customer should be identified by pre-sales managers) behavior, growth, potentianl, importance of the prooduct, relationship...etc should be the components of price fluctuation. And yes this doesn't apply for products like microsoft office.
Cheers,
The following factors will contribute in elevated price:
a. Cost of raw materials
b. increased duty and excise imposed by government
c. Change in the specification.
d. Reduced order quantity
