Steel, paper, palm oil, fertiliser or plastic resin rises faster than anyone expected, while you have locked your selling price with a customer for the whole year. The questions that follow are: can you ask to adjust the price, how do you give notice, can a PO you have already accepted be changed, and if the customer refuses, can you stop delivering? The answers are often not what you hope, but there are several routes that are legally safe.
This guide is for manufacturers and suppliers who deliver to regular customers. If you rely on a single factory, see a backup plan when you depend on one manufacturer. If one large customer dominates your sales and bargains hard, see concentration risk from depending on one big customer. If the contract you signed came from a large customer, see how an SME should check a large customer's contract before signing.
The core answer
A price agreed in the contract binds both sides even when the seller's costs rise. You can ask for an adjustment with certainty only where the contract provides for it (a price-adjustment formula) or the customer agrees to amend. Anything else is negotiation. If negotiation fails, do not stop delivering on your own. Keep performing under the contract, or terminate under the termination clause you already have.
The legal rules. A validly made contract binds the parties as agreed. Thai law has no general rule that lets a court or a party adjust a price merely because costs changed. Section 5 of the Civil and Commercial Code requires good faith in exercising rights and performing obligations, which helps with interpretation and negotiation but is not a tool for changing a price unilaterally. Section 8 defines force majeure as an event that cannot be prevented even with reasonable care, and section 219 releases a debtor when performance becomes impossible for reasons it is not responsible for. Both are narrow, and a cost that has risen but can still be paid usually does not qualify. Agreeing a new price through offer and acceptance is governed by section 359 paragraph 2, and ending a contract by sections 386 and 387.
Our practical view. Most of this is solved before signing rather than after costs rise. If you sell on a long term, write a neutral, verifiable adjustment formula in from the start. If the contract has none, open the negotiation early, with cost evidence the customer can check, and offer a solution the customer can accept, such as adjusting by half or adjusting temporarily. Do not use a delivery stop as pressure, because you are the one at risk of breaching first.
The running hypothetical in this guide is a small corrugated-box maker in Khon Kaen that supplies packaging boxes to a fruit-processing plant under a 12-month framework contract. The box price is fixed for the whole term. During the year the price of paper rises until the gross margin nearly disappears. We call the box maker the "Box Maker" and the fruit plant the "Customer".
1. Does an agreed price bind even when costs rise?
Yes. The Box Maker's framework contract fixes the price per box for 12 months and has no adjustment clause. The higher paper cost is therefore the Box Maker's risk, because it agreed that price itself and could have protected against the risk by writing a formula, buying material in advance, or locking in the paper price with its own supplier.
Three things business owners often get wrong:
- "Good faith" does not mean the customer must accept an increase. Section 5 requires the parties to act in good faith, but it gives no right to change the price. Negotiating in good faith is sensible, but it does not oblige the customer to agree.
- A court will not adjust the price automatically. Some countries have a general doctrine of hardship or change of circumstances. Thai law has no such doctrine as a general provision for sale contracts.
- A cost you can absorb is not a changed contract. If the Box Maker can still deliver at the old price, even at a loss, it is still bound to deliver under the contract.
The exception is where the contract itself opens the door, for example a price-adjustment formula, a periodic price review, or a clause to negotiate when a reference price moves beyond a threshold. Section 3 explains how to write one.
2. Is a rise in raw material cost force majeure?
Many sellers claim force majeure because material has become more expensive. In general this does not work. The real limits are:
| Situation | Usually force majeure? | Why |
|---|---|---|
| Paper price up by tens of percent but still available to buy | Usually not | Delivery is possible, only dearer. Price volatility is a foreseeable business risk |
| The baht weakens and imported material costs more | Usually not | Can be hedged by forward contracts or an adjustment formula |
| The only material supplier stops production for a serious external reason and no other source exists | May qualify, depends on the facts | You must prove it could not be prevented, that there was no alternative, and that you told the customer at once |
| A government ban on importing or exporting the material makes production impossible | May qualify | Check whether delivery is truly impossible and whether it can be worked around |
| The contract has a force majeure clause listing events | Follow the clause | If it does not list increased cost, it does not cover it |
Higher cost does not qualify because section 8 requires an event that could not be prevented, and section 219 requires that performance has become "impossible". Delivering goods that cost more is still possible. You should therefore not write to the customer that the cost rise is force majeure if cost is the only reason, because that amounts to saying you will not deliver and risks an argument that you breached first.
If there is a genuine serious external event, notify the customer in writing at once, stating the event, its effect and what you are doing to limit it, and talk to a lawyer before relying on the doctrine in a dispute.
3. How to write a price-adjustment formula in a long-term contract
Long-term supply contracts and framework contracts should carry an adjustment formula from the start, so the price moves with the raw material under agreed rules and you do not renegotiate every time the market moves. The elements to include:
| Element | What to write |
|---|---|
| Index or reference price | The name of the index, who publishes it, how often, and a substitute if publication ends |
| Share tied to the raw material | Which part of the unit price moves with the index, for example the paper component only, not labour or margin |
| Base date | The reference price on the date of agreement, the starting point for comparison |
| Review cycle | For example monthly or quarterly. Neither side should be able to pick the timing |
| Threshold band | Adjust only when the index moves beyond an agreed band, for example more than 5 percent, so small moves do not trigger changes |
| Cap | A limit on the adjustment per cycle or per year. Customers accept it more readily because it is predictable |
| Adjust downward too | If the index falls, the price falls under the same formula. This makes the formula look neutral |
| Open-book evidence | A right for the customer to see raw material purchase orders or invoices to confirm actual cost |
| Advance notice | How notice is given, how many days, and when the new price takes effect |
| If negotiation fails | The steps, for example 30 days of talks, after which either party may terminate on notice |
In Thai public construction work, contracts commonly use a price-adjustment formula known as the "K formula", which draws on construction-material price indices. It is an example that tying price to an index is a real and accepted method. But the conditions of that formula apply to that class of contract and do not carry over automatically to a private supply contract. You must write your own formula into the contract.
Sample price-adjustment clause (example only; adapt to the real business and have a lawyer review it)
Clause __ Price adjustment
1) The box prices in Schedule A are base prices as at ____, of which ___ percent of the price is the paper raw material component.
2) The Seller and the Buyer review prices every quarter by comparing the latest published "kraft paper price index" of ____ (publisher) with the base value.
3) If the index differs from the base value by more than ___ percent up or down, only the raw material component is adjusted in proportion to the change,
but by no more than ___ percent per cycle and no more than ___ percent per year.
4) The party requesting an adjustment gives written notice of at least ___ days with its calculation and supporting documents.
The other party may inspect the relevant raw material purchase orders or invoices within ___ days.
5) The new price applies to purchase orders issued after the date the new price takes effect. Purchase orders the Seller confirmed before that date keep the old price.
6) If a new price cannot be agreed within ___ days, either party may terminate by giving ___ days' notice,
and during that time both parties continue to perform at the old price.
Choose an index that can be checked from a public source or a document both sides can reach, and avoid an index the seller sets itself. If the contract does not name the source, the dispute circles back to which index is right.
4. How should you give advance notice, and what evidence is needed?
A good notice of price adjustment makes negotiation easier and is evidence that you followed the process.
- Put it in writing. An email showing sender, recipient and date, or a letter sent to the address the contract specifies, with proof of sending kept.
- Give notice before the new price takes effect. If the contract has a notice period, count it correctly. If it has none, allow at least enough time for the customer to check and adjust its budget, for example 30 to 60 days depending on the business. That is practice, not a figure set by law.
- Attach the cost data. The index or price that moved, the percentage of the unit price affected, and the calculation of the new price.
- Offer inspection. If the contract has an open-book clause, open the relevant documents. If it does not, you can choose to open only what is necessary, without disclosing margin or other customers' information.
- State the date the new price starts and which purchase orders are not affected.
- Leave room to talk. Propose a meeting date or call. Customers respond faster when they see you have left the door open.
Sample notice of price adjustment (example only; adapt to the real job)
Re: Request to review box prices under Framework Contract No. ____
Dear ____
Because the kraft paper price index of ____ for the month of ____ has moved ___ percent from the base value in the contract,
we give notice of an adjustment to the raw material component under clause __ of the contract, as detailed in the attachment.
The new price applies to purchase orders issued from ____ (not less than ___ days from this letter).
Purchase orders we confirmed before that date keep the old price.
We are glad to open the relevant cost documents for your review and propose a meeting by ____.
In the meantime we will continue to deliver under the contract.
The sentence "In the meantime we will continue to deliver under the contract" matters. It shows you are not in breach and are not threatening to stop delivering, which leaves you in a better position if the dispute reaches court.
5. What is the difference between an accepted PO and a new order?
With a framework contract, separate clearly what the new price applies to.
| Type | Price that applies | Note |
|---|---|---|
| A PO the seller has confirmed | The price in the PO | Already binding. Cannot be changed unilaterally unless a clause allows adjustment |
| A PO received but not yet confirmed by the seller | The seller can accept it or propose a new price | If the seller accepts but changes the price, the law treats that as a rejection plus a new offer (section 359 paragraph 2). The customer is not bound until it agrees |
| Future orders not yet placed | The new price under the formula or as agreed | Check whether the framework contract commits the buyer to a minimum order. If not, the customer may buy elsewhere |
| A blanket PO delivered in instalments | According to the clause and the date of each delivery | Say whether the price of undelivered instalments can be adjusted |
Note that POs and quotations often carry conflicting terms, for example the buyer's terms say the price is fixed throughout and the seller's say it is adjustable. See quotations and purchase orders with conflicting terms for how to work out whose terms apply.
If this customer's orders are your main cash flow, a price rise that drives the customer to a competitor is also a cost. See profitable but short of cash to plan working capital while the negotiation runs.
6. If negotiation fails, what can you do?
When the customer refuses to adjust, there are three main routes, each with a different level of risk.
Route 1: keep delivering at the old price and negotiate at renewal. This is the safest legally. You are not in breach, and you use the cost evidence you have built up as leverage when the contract ends or is renewed. The downside is carrying the loss in the meantime. Work out whether you can afford it, and consider reducing the risk by buying material ahead or finding a cheaper source.
Route 2: terminate under the termination clause. If the framework contract lets either side terminate on notice (for example 60 to 90 days), you may use that right, following the form and period written in the clause, and deliver at the old price until the notice period ends. A contract is rescinded by a declaration of intention to the other party (section 386), and you must use the clause exactly as worded, because terminating without the right makes you the party in breach.
Route 3: ask for a written amendment. For example agree a temporary price increase, reduced volume, a longer delivery period, or a switch to an adjustment formula going forward. The new agreement should be signed by both sides. Do not rely on silence or the customer continuing to order as acceptance of a new price, because announcing a new price is only an offer.
What you should not do is stop delivering on your own. If you are still obliged to deliver and do not, you are in breach. The customer may set a reasonable time for you to deliver and, if you do not deliver within it, rescind under section 387, claim damages under section 222, such as the price difference from buying elsewhere and harm to its production line, and claim a contractual penalty if the contract provides one (sections 379 to 383). A large customer whose line stops for lack of boxes may suffer far more than the price difference you were trying to recover.
If the customer deducts a penalty or damages from what it owes you for late delivery in the meantime, see when a customer deducts penalties or damages from payment.
7. Other points to check when costs rise
- Minimum price and minimum volume clauses. If the customer is tied to a minimum order and you are tied to a price, a price adjustment may be traded for a larger volume.
- Most-favoured-customer clauses. If there is one, a discount to another customer may affect this one.
- The force majeure clause. Check what it says and how many days you have to give notice.
- Late delivery penalties. If you stop or postpone delivery, penalties may start running at once.
- Taking goods and payment. If the customer takes delivery and pays the new price without objection, that may be evidence it accepted the price, but add a written confirmation as a second layer.
If your framework contract is an MSA tied to a monthly service or supply, see MSA and SLA monthly service contracts for where a price-review clause belongs in the contract.
8. Checklist when raw material costs rise
Before you tell the customer
- Read the framework contract and open POs for any adjustment, force majeure and termination clauses
- Work out the effect on margin per order and per quarter, so you know how long you can hold
- Collect cost evidence, such as your raw material supplier's quotations and invoices
- Separate confirmed POs from new orders
When you give notice and negotiate
- Send the written request in advance, within the notice period the contract sets, and keep proof of sending
- Attach the calculation, not just the new price
- Offer an option the customer can accept, such as a partial or temporary adjustment
- State that you will keep delivering under the contract during the talks
If you reach agreement
- Record a written amendment signed by both sides
- Write a permanent adjustment formula into the contract so you need not renegotiate again
If you cannot agree
- Keep delivering at the old price, or terminate under the clause and its notice period
- Do not stop delivering on your own, and do not claim force majeure merely because costs rose
- Talk to a lawyer before terminating or changing how you deliver
Further reading
- A backup plan when you depend on one manufacturer — reduce the upstream risk that makes costs volatile
- Concentration risk from depending on one big customer — when one customer holds strong bargaining power
- Profitable but short of cash — plan working capital while you negotiate
- How an SME should check a large customer's contract before signing — check the price clause before you sign
- MSA and SLA monthly service contracts — place a price-review clause in a framework contract
- Quotations and purchase orders with conflicting terms — when the two sides' terms do not match
- When a customer deducts penalties or damages from payment — if you stop or delay delivery and money is withheld
A cost increase does not change the contract price by itself, so write the adjustment formula before you sign, negotiate with evidence, and never stop delivering unilaterally.
We help draft and review supply and framework contracts, write price-adjustment formulas and notice clauses, review open purchase orders, and plan the approach when negotiation fails. For an initial consultation, call +66 92 254 2045 or send us the details. See also contracts and business documents and legal retainer.
This guide is published by Suwanvara Law Firm — a Khon Kaen law firm established in 1986. General information only, not legal advice on a specific matter.
