Monday, 28. November 2022

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Logistics Contracts: How can an Adjustment (Increase) of the Remuneration for the Logistics Service Provider be enforced?

Scenario

Logistics contracts are usually long-term contracts that are concluded for a period of several years. The interests of the buyer often go in the direction that the remuneration is fixed for the entire term of the contract or at least for the first few years (planning security). The seller, i.e. the logistics service provider (LSP), on the other hand, often wants to be able to adjust the remuneration during the term of the contract, i.e. to increase it.

For the LSP, the problem is often as follows: When concluding the contract, he bases his calculation on certain parameters, in particular certain order volumes (quantities), structural data, personnel costs, possibly rental payments for the property, diesel (fuel) prices, etc. These calculation bases are often not fixed for the entire contract period, but changeable. Sometimes the actual conditions (e.g. quantities, capacity utilization) do not correspond to the assumptions and expectations from the start.

In view of this situation, it can be of existential importance for the logistics service provider to adjust the remuneration during the term of the contract, as otherwise it may be caught in a contract that does not turn out to be cost-covering.

It should not go unmentioned that logistics contracts are often awarded in the context of tendering procedures, which naturally put considerable pressure on the service provider offering the most competitive prices possible in order to win the competition.

What options now exist for the logistics service provider to adjust the remuneration during the term of the contract, i.e. to increase it?

1. Material Adverse Changes (Section 313 BGB)

If the contract does not provide for an adjustment of the remuneration, there is actually only recourse to the regulation in § 313 BGB. This states: If the circumstances that have become the basis of the contract have changed significantly after the conclusion of the contract and the parties would not have concluded the contract or would have concluded the contract with a different content if they had foreseen this change, an adjustment of the remuneration can be demanded, insofar as from one party – taking into account all the circumstances of the individual case, in particular the contractual or legal risk distribution –  adherence to the unchanged contract cannot be expected.

As a rule, the factual requirements of this standard will usually not be met. The reason for this is that the price calculation is basically in the risk area of the offering service provider.

In order to at least create arguments for an adjustment of the remuneration on the basis of § 313 BGB, one should at least insist that the calculation parameters are expressly mentioned in the contract and thus made the basis of the remuneration.

In any case, it is better to insist during the contract negotiations that a regulation on remuneration adjustment be included in the contract.

2. Contractual regulations for adjusting the remuneration

a) Name the calculation bases

It is important to expressly name the parameters on which the price calculation is based in the contract. This is especially true for the expected quantities and structural data. These should not only be named as an annual average, but in significantly shorter periods of time. Different degrees of utilization (e.g. due to seasonal fluctuations) have a significant influence on the cost of service provision.

b) Tolls, diesel prices

With some costs it is relatively easy to convey that these have to be passed on to the client. Experience shows that this applies to toll costs and diesel prices. Here you will often be able to enforce a regulation according to which increases in these costs can be passed on 1 to 1 to the client (keyword diesel floater).

c) Cost of Labor

Logistic services are labor-intensive. The wage costs therefore have a considerable influence on the total costs and thus on the remuneration. In Germany, personnel costs are relatively stable. If, on the other hand, the service is provided in a logistics center in another European country, the situation can look completely different. Here unpredictably high increases in wage costs are conceivable and therefore represent a considerable risk for the logistics service provider. It is therefore urgently advisable to include a clause in the logistics contract according to which increases in wages entitle the logistics service provider to adjust the remuneration accordingly.

d) Automatic price adjustment or negotiation clause?

It is most beneficial for the logistics service provider if he has the right to unilaterally adjust the remuneration accordingly in the event of cost increases, for example in the same percentage ratio as the cost increase or in accordance with Section 315 BGB at his reasonable discretion.

In contrast, a negotiation clause according to which cost increases only entitle the logistics service provider to enter into negotiations about an adjustment of the remuneration. Because this naturally raises the question of what should apply if the parties fail to reach an agreement.

One possible approach is to have the appropriate adjustment of the remuneration made in this case by an arbitrator or expert.

If this cannot be enforced against the client either, the only option left is the agreement of a special right of termination, which allows the logistics service provider to terminate the contract at short notice if there is no agreement on the adjustment of the remuneration. Such a special right of termination is often inadequate, for example, if the project only pays off for the service provider if the contract is carried out over a certain minimum term. This will especially be the case if the logistics service provider had high investment costs. With such a structure, care must be taken to find a regulation according to which the client shares in the costs in the event of a legitimate exercise of the special right of termination by the service provider.

3. Conclusion

As mentioned in the introduction, logistics contracts are long-term contracts in which the correct design of the price adjustment clause is of decisive importance for the success or failure of the deal. Bad contracts can destroy a company here. This is especially true if the original calculation in the tendering process was made too “naive”.

Dr. Wolfgang Gottwald
Attorney at Law

(Original Version in German. English translation largely provided by Google Translator. Errors possible)

DR. GOTTWALD
Rechtsanwalt
Attorney at Law

Leopoldstraße 51
80802 München

Tel.: 089/383 293-10
Fax: 089/383 293-13

w.gottwald@kanzlei-dr-gottwald.de