Construction contract, price increase (Part 1)

The prices of construction materials and thus the price elements in construction contracts have been a big topic lately, as the prices of some materials have been rising for almost a year. Therefore, it is not surprising that both contractors and clients often wonder how to act in cases where the individual price of a material on the market increases, or who is obliged to bear the risk of a price increase, the client or the contractor, and if to what extent.

The answer is not so simple, as it is usually crucial to establish at least the following circumstances:

- what is the reason for the price increase and whether the contractor could have foreseen the increase,

- what, if anything, the parties agreed to in the contract regarding price increases and to which cases the agreement applies,

- is it possible that a fixed price has been agreed upon,

- whether the contractor is late with the execution.

The basis is stated in the Code of Obligations (Articles 655 - 657 of the Code of Obligations), as well as in the Special Construction Regulations 1977 (in this article I do not define the regulations 2020, the article related to the validity of the latter can be found here ).

In order for the price to change, some basic conditions must be met, which can be summarized as follows:

- Prices increased between the conclusion of the contract and its fulfillment (until the deadline for fulfillment or before the contractor was in default)

- The contractor performed the work within the contractually agreed term,

- The contractor places a request for a price increase,

- The price increase could not be predicted,

- The prices have increased so that the price should be higher by 2 (5) or 10* percent,

- The contractor can only request a difference above 2 (5) or 10 percent.

* Amount of the percentage - 2% in case of timely execution of works, 5% in case when the contractor is late with the execution of works, 10% in case of stipulation on fixed prices.

A price change in a construction contract is a special form of these changed circumstances, with the difference that the contractor has the right to demand payment of the price difference, which is realized by a unilateral declaration of the contractor's will (such as N. Plavšak, Obligaccijski zokonik s commentarje, GV založba, 2004, p. 1012) and for which it is not necessary to conclude a special contract or annex. In addition, the contractor does not have the right to withdraw from the contract for this reason when the price is increased. Only the client has this right. Therefore, it is important that the contractor informs the client as soon as possible about a possible price increase, so that the client has the opportunity to withdraw from the contract in time if he does not have the financial means. By its very nature, withdrawal from the contract is logical and meaningful only until the contract is executed or the contractor has not completed the work. Therefore, if the prices change during the duration of the contract, the conduct of the contractor, regardless of the provisions of Article 655 of the Code of Civil Procedure, that the contractor may request a price increase for the period from the conclusion of the contract until its (obviously timely) fulfillment, in my opinion, would be inconsistent with the principle of conscientiousness and honesty and the prohibition of causing damage as well as the prohibition of abuse of rights in contractual relationships, as the contractor risks damage to the client due to the impossibility of withdrawing from the contract.

Price Fixity Clause

If it is written in the contract that the prices are fixed or are "fixed per unit of measure", the price may be changed in accordance with Article 656 of the OZ, if the prices for the elements on the basis of which the price is determined have changed by more than 10% and, in principle, in share above 10%.