What type of contract allows adjustments for price changes over time?

Agreements with escalation provisions are designed specifically to accommodate adjustments in price over time, often in response to fluctuations in the costs of materials, labor, or other related expenses. These provisions enable parties to account for changes in economic conditions that may affect the cost of fulfilling the contract, ensuring that both the buyer and seller can maintain a fair and balanced relationship throughout the duration of the agreement.

In such contracts, the escalation clauses typically outline the specific triggers for price adjustments, the methodology for determining the new price, and the timeframe during which these adjustments can occur. This feature is particularly beneficial in long-term contracts where the risks of inflation or market volatility can significantly impact the financial viability for either party involved.

Firm fixed-price agreements do not allow for price adjustments once the price is established, regardless of external changes, while time and material agreements focus more on billing based on actual labor hours and materials used, without an automatic price adjustment mechanism tied to external factors. Open-end agreements provide flexibility in terms of quantities of goods or services but do not inherently include provisions for price changes over time.