What is the importance of using cost caps in the contract? What cost caps should be added to the contract?
When dealing with international trade, a good number of escalation clauses may be built into a contract that may force the Purchaser into a higher cost category than was anticipated. Any number of cost caps can be utilized to prevent excessive escalation of costs incurred by an organization. Such caps should be used whenever price escalation is possible (for example, additional charges for units or services requested over and above a certain level) in order to minimize the Purchaser’s vulnerability to excessive changes in price. For example, a contract may stipulate that an extra $5 be charged for every additional hour worked on a “rush” project over and above eight hours a day. A Purchaser would prevent excessive working hours by stipulating that the contract contain a cost cap that pays such an amount for extra hours up to an extra $50 in a week – preventing the excessive compounded costs of labor that are possible.
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