Price increases due to the war in Ukraine – revision of private and public contracts
As a result of the war in Ukraine, many companies are facing very high price increases, which they cannot simply pass on to their clients under contracts under execution.
In this case, it is important to inform the client as soon as possible in order to find a solution for the unforeseen price increases.
This issue is relevant to both public (public procurement) and private contracts.
Private contracts
In this regard, the B2B-Act (Loi modifiant le Code de droit économique en ce qui concerne les abus de dépendance économique, les clauses abusives et les pratiques du marché déloyales entre entreprises) stipulates that terms that allow the company to unilaterally change the price of the contract without good reason are presumed to be abusive.
Furthermore, as far as private agreements are concerned, Article 57 of the Economic Recovery Act (Loi relative aux mesures de redressement économique) is relevant.
First, this article stipulates that the revision is only allowed up to an amount of maximum 80% of the final price. Consequently, the fixed factor in the price revision formula must be at least 20%.
Secondly, this article provides that contracts may contain price revision clauses only if they refer to parameters that represent actual costs. If the price revision clause provided for in the contract does not reflect the current price increase, it seems possible to request a revision of the provided (unadjusted) price revision clause on the basis of the aforementioned article.
If the contract does not provide for a price revision clause, but the inclusion of such a clause is nevertheless desirable to ensure the economic equilibrium of the contract, it seems to us that it could be requested, on the basis of good faith and the hardship theory (théorie de l’imprévision), to renegotiate the contract, including the inclusion of a price revision clause. In this respect, reference is made to the future article 5.74 of the new civil Code concerning hardship (codifying recent case law of the Court of Cassation).
Public contracts
Article 38/7 of the EXECUTION DECREE (Arreté Royal établissant les règles générales d’exécution des marchés publics) makes it compulsory to include a price revision clause for contracts for works and services listed in Annex 1 of this DECREE, except for contracts with an estimated value of less than EUR 120,000 and with an initial execution period of less than 120 working days or 180 calendar days. For the latter contracts, this is not an obligation, but only an possibility.
For supply of goods and services contracts that are not included in Annex 1 of the EXECUTION DECREE, the inclusion of a price revision clause is not an obligation either, but it is a possibility.
Pursuant to Article 10 of the Public Procurement Act (Loi relative aux marchés publics), the aforementioned Article 57 of the Economic Recovery Act does not apply to public contracts. For public contracts, therefore, there is no need to provide for a fixed factor of 20% and a price revision formula covering 100% of the price can be provided.
If a price revision clause is already provided for in the contract and if it adequately covers current price increases, it goes without saying that the existing price revision clause can be applied.
If the price revision clause provided for does not sufficiently absorb the current price increases, it seems to us that could be asked to renegotiate the price revision clause on the basis of Article 38/11 of the EXECUTION DECREE. The fact that the contracting authority has included an inappropriate price revision formula in the specifications constitutes negligence. Furthermore, Article 38/7 EXECUTION DECREE stipulates that the price revision must reflect the actual price evolution. Eventually, Article 38/9 EXECUTION DECREE could also be invoked to request the renegotiation of an inappropriate price revision formula. The damage suffered would then be the difference between the price calculated according to the defective formula and that calculated according to a “correct” formula.
Even if no price revision formula was provided, it seems to us that Article 38/9 EXECUTION DECREE could be invoked to include a price revision formula in the contract.
As regards the latter article, in order to request a revision of the contract, the contractor may invoke unforeseeability to request a revision of the contract only if he can prove that the revision has become necessary because of circumstances which could not reasonably have been foreseen at the time of submission of his tender, which could not be avoided and the consequences of which could not be remedied despite all efforts to do so.
In the context of current high price increases due to the war situation in Ukraine, these conditions must therefore be specifically met and a right to a review of the contract cannot be automatically decided. It will therefore be necessary to prove, on a case-by-case basis, that these conditions have been met. Although the unforeseeable nature of the war and the resulting price increases seems a priori defensible, it will also be necessary to examine the extent to which the consequences of this war in a specific sector for a specific contract could have been avoided and, in addition, whether everything necessary has been done to remedy the consequences.
The revisions may consist of an extension of the deadline, a compensation due to a very significant disadvantage or the cancellation of the contract.
In order to claim damages, the damage must reach one of the thresholds provided for in Article 38/9 EXECUTION DECREE.
Both in the context of Article 38/11 and Article 38/9 EXECUTION DECREE, the conditions for lodging complaints contained in Articles 38/14 to 38/16 EXECUTION DECREE must be respected.
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