Adjustment: Overview, definition, and example
What is an adjustment?
An adjustment refers to a modification, change, or correction made to an existing arrangement, value, amount, or condition to reflect new information, correct an error, or align with agreed-upon terms. In business and legal contexts, adjustments can be made to various elements, such as prices, contracts, or balances, often due to changes in circumstances, calculations, or agreements between parties.
Adjustments can occur in many situations, such as in financial transactions, contract performance, or asset valuations, and are typically outlined in specific clauses of agreements or policies.
Why is an adjustment important?
Adjustments are important because they ensure that contracts, agreements, or financial records reflect accurate and fair terms under current conditions. They allow parties to account for unforeseen changes, errors, or updates that could affect the value, payment, or other aspects of the agreement. By making adjustments, businesses, individuals, and organizations can maintain fairness, transparency, and flexibility in their dealings.
In contracts, adjustments help avoid disputes by offering mechanisms for modifying terms if certain conditions change. For example, adjustments can be made to account for price fluctuations, currency exchange rates, or unforeseen costs.
Understanding adjustment through an example
Imagine a company, Company A, agrees to pay Supplier B a set amount for goods based on an agreed-upon price in a contract. However, due to a rise in material costs, the price of the goods increases. The contract includes an adjustment clause, which allows for a price modification based on market changes. As a result, the price is adjusted to reflect the new market conditions, and both parties agree to the revised terms.
In another example, an employee, Employee C, works under a compensation agreement that includes performance-based bonuses. At the end of the year, a salary adjustment is made to reflect the employee's performance, increasing their pay by a specified percentage. The adjustment helps ensure that compensation aligns with the employee’s contributions and the company’s financial health.
An example of adjustment clause
Here’s how an adjustment clause might appear in a contract:
“The Parties agree that if the market price of the goods increases by more than 10% after the execution of this Agreement, the Buyer and Seller shall mutually agree on a fair adjustment to the total purchase price based on the current market conditions.”
Conclusion
An adjustment is a key concept in business, finance, and legal agreements, allowing for modifications based on changing circumstances, new information, or corrections. By incorporating adjustment clauses into contracts, parties can ensure that agreements remain flexible and fair, helping to manage risk and maintain the accuracy of transactions or arrangements. Whether it’s modifying the price, correcting an error, or reflecting changes in circumstances, adjustments help maintain the integrity and fairness of agreements.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.