Top 10 questions when assessing a contract pricing agreement

If you are about to renew a contract or even better in your way for running a strategic sourcing methodology, you’ll have to assess the strenghtes and weaknesses of your current contract not only from a specification perspective but as well from a pricing perspective. Below are my top 10 pricing-related questions to be answered as they should be of great support help when designing an optimised best-in-class pricing-scheme for your contract renewal:

  1. What is the pricing basis (Describe the whole principle: per unit, bundled, volum-linked, fixed, with allocations; SLA-linked; including penalties in case of failure or late delivery)?
  2. What other pricing alternatives do you know (from competitors) and that could be of interest to apply? under which conditions?
  3. For how many years was the current pricing valid?
  4. What has been the price history and what is the trend?
  5. How is the current price optimised with volume?
  6. What are price/cost drivers? Are financial instruments of any influence?
  7. Is the price an absolute or relative price? If a relative price, what is the formula (example: gasoline price is function of crude oil price, cable price is a function of copper price)
  8. Does the price/formula vary by locations? How? Why?
  9. What transportation cost is included in the price? ( None: F.O.B. price; C.I.F. (cost including freight, does not include any tariffs/duties or inland freight to the final destination); Total landed: delivered directly to the buyer’s location)
  10. Are there any other assumptions/constraints implicit in the price?

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