This contract tip is about the nuances to drafting pricing provisions, but one of the most important is being clear on the price of each item purchased and sold under the contract.
Every good, service, and license that a vendor sells to a customer should have a price.
Some vendors bundle everything they sell to a customer into a single price without breaking down how that price was calculated. I sometimes see companies do this when affiliates transfer the title of goods to another affiliate.
Here are some of the problems that happen when the parties do not identify the price of each item -
1. Taxes, customs duties, and transfer pricing. If you bundle goods, services, and licenses together, you create a mess for the finance and accounting teams. They need the cost of each item to calculate the amounts of taxes or duties due accurately. If an affiliate transfers goods across borders, the accounting and tax teams need an accurate price to calculate the transfer pricing.
2. Disputes - The bundled price may not be an issue if the vendor delivers everything included in the bundled price. But sometimes, things happen. Let's say the vendor partially performs. It delivers all the services, but none of the goods and technology. What is the measure of damages for the undelivered items? Calculating damages is much easier when there is a price in the contract for each item. Without that breakdown, the parties will have a much harder time figuring out the damages.
Are there other reasons to make sure the pricing is listed by unit?
