A price escalation clause is a contractual provision that allows for the adjustment of the contract price in response to changes in market conditions or specific cost factors, such as inflation or increased material costs. This clause is typically implemented to ensure both parties can manage financial risks when costs fluctuate beyond their control.
The provisions under our remaining long-term, firm commitment polysilicon supply agreement provide for fixed pricing, and contain historical inflationary price escalation clauses triggered in connection with increases in labor, energy or silicon metal costs. Recently, our supplier has communicated to us that they believe these price escalation clauses for silicon metal have been triggered and therefore increased pricing would apply to our purchases of polysilicon for 2022 deliveries. We do not believe that these inflationary price escalation clauses apply to our purchases of polysilicon for 2022 deliveries. We are currently engaged in commercial discussions with our supplier exploring a mutually acceptable resolution.
Loss related to settlement of price escalation dispute. This relates to loss arising from the settlement of price escalation dispute with a polysilicon supplier related to our long term, firm commitment polysilicon supply agreement. This is excluded from our Adjusted EBITDA financial measure as it is non-recurring and not reflective of ongoing operating results. As such, management believes that it is appropriate to exclude such charges as the loss does not contribute to a meaningful evaluation of our past operating performance.
5.6 Fixed Price Escalation The Fixed Prices set forth in Attachment 9 and the [*] set forth in Section 5.4 are each expressed in [*] United States Dollars and are subject to escalation in accordance with the IAE escalation formula as set forth in Attachment 4 (“FPA Escalation Formula”). For the Fixed Prices and the [*] beginning [*] and annually thereafter, the escalation as calculated by the FPA Escalation Formula will be capped at [*] (the “Escalation Cap”). Notwithstanding the foregoing, if in any calendar year, the escalation as calculated by the FPA Escalation Formula for that period exceeds the Escalation Cap by more than [*] (the “FPA Hyper Band”), then the FPA Escalation Cap will be increased by [*] of such exceedance. The resultant compounding Fixed Price escalation for that year, which includes the FPA Escalation Cap plus the amount shared above the FPA Hyper Band, will become the new FPA Escalation Cap for [*] period thereafter.
5.7 LLP Escalation All LLP prices are subject to escalation in accordance with IAE’s then-current catalog list pricing for LLPs. For LLP catalog list price escalation incurred with inductions for Shop Visits beginning [*] and annually thereafter, escalation will be capped at a rate of [*] (the “LLP Price Escalation Cap”). Notwithstanding the foregoing, if in a calendar year, the escalation for that period exceeds the LLP Price Escalation Cap by more than [*] (the “LLP Price Hyper Band”), then the LLP Price Escalation Cap will be increased by [*] of such exceedance. The resultant compounding LLP price escalation for that year, which includes the LLP Price Escalation Cap plus the amount shared above the LLP Price Hyper Band, will become the new LLP Price Escalation Cap for [*] thereafter.
The higher cost was also driven by higher inventory reserve, mainly arising from the Performance line module supply to United States utility-scale business and a one-off settlement of $15.2 million with a polysilicon supplier to resolve a contract dispute regarding the applicability of a price escalation clause.
The Company believes that disclosing estimated payments under aircraft and engine purchase commitments based on contractual obligations net of discounts and pre-delivery payments, including estimated amounts for contractual price escalation, will meet the Company’s obligations under Item 5.F of Form 20-F.
The increase of $43.4 million in cost of revenue during the six months ended July 2, 2023 as compared to the six months ended July 3, 2022 was primarily due to higher shipments, partially offset by declining container rates and logistic cost reduction initiatives, lower losses of $18.6 million on the polysilicon procured under long-term fixed supply agreements that ended during fiscal year 2022 and a one-off settlement of $15.2 million with a polysilicon supplier to resolve a contract dispute regarding the applicability of a price escalation clause in the three months ended July 3, 2022.
Price escalation refers to the increase in prices of goods or services over a period. This may occur due to inflation, increased costs of production, changes in demand and supply, or external economic factors. It is a common phenomenon in various industries and can significantly impact contract management, budget planning, and financial forecasting.
You should consider price escalation in scenarios where:
When writing a price escalation clause, consider including the following elements:
Example:
Price adjustments shall occur every six months, based on the changes in the Consumer Price Index (CPI) as published by XYZ Institution. Any price increase shall not exceed 5% per adjustment period.
Price escalation clauses are commonly found in the following types of contracts:
Try our AI contract analysis and extract important clauses and information from existing contracts.
< <
Dive deeper into the world of clauses and learn more about these other clauses that are used in real contracts.
A pricing grid clause outlines a structured framework for determining the cost of goods or services based on specific variables, such as volume, tiers, or market conditions. It provides clarity and flexibility in pricing by aligning costs with predefined criteria, ensuring transparency and adjustability over the contract's duration.
The "Prior Inventions" clause typically outlines any inventions or intellectual property that an employee developed before joining a company, which are excluded from the company’s claim of ownership over inventions created during the term of employment. This clause serves to protect both the employee's rights to their pre-existing inventions and the company's rights over anything developed on their time and resources.
A probation period clause in a contract outlines a specific timeframe during which a new employee’s performance and suitability for a role are evaluated by the employer. During this period, the employee may have fewer employment protections, and the employer may have the flexibility to end the employment with shorter notice if expectations are not met.
Fill out the form and we will get in touch with you to give you a personal, customized demo of fynk.
Greetings!
I'm Markus, co-founder of fynk. After you've submitted the form, I'll swiftly get in touch with you.
Also, right after you submit your details, you can pick a time that works best for you for our meeting.
