Price increases and shortages of building materials - what can contractors and builders do?
The rising prices of various building materials create challenges for clients and contractors who want to complete their projects on time and want to be able to count on the prices on which the agreed contract prices are calculated. In this article, we take a closer look at whether the agreed contract sum can be adjusted, how the contract sum can be adjusted and whether material shortages can constitute force majeure.
Can the contract price be adjusted?
Whether the contract sum can be adjusted due to material price increases depends on what the parties have agreed.
For the vast majority of contracts, a set of general conditions (so-called AB terms) such as AB 92, AB 18 or AB Forbruger will have been agreed. In this case, it depends on which set of standard terms has been agreed whether the contract sum can be adjusted due to material price increases.
If AB 92 has been agreed, the starting point is that the contract sum can only be adjusted as a result of changes in material prices if it follows from the construction contract. This follows from AB 92, section 22(6). Similarly, the contract sum is generally not adjusted if AB Forbruger has been agreed.
If, on the other hand, AB 18 has been agreed, the starting point is that the contract sum is adjusted. This follows from AB 18, section 35, paragraphs 2-7.
The standard terms are - as the term also expresses - only standards, and therefore deviations from the above-mentioned provisions on the adjustment of the contract sum may be agreed, just as it may happen that no set of standard terms has been agreed at all.
If a set of standard terms has not been agreed, the possibility of adjusting the contract sum due to rising material prices depends on whether a fixed price offer has been made or whether work is to be done on account, where payment is made for the hours used.
If a fixed price has been agreed without a set of standard terms and conditions, the contract sum will generally not be adjustable, while the opposite is true if work is done on account, where payment is made for the hours and materials used.
Overall, it depends on the agreement concluded whether additional payment can be claimed as a result of rising material prices.
How is the contract sum adjusted if access is available?
If you are in a situation where the contract agreement allows for an adjustment of the contract sum as a result of rising material prices, it again depends on the agreement how the adjustment is to be made.
If AB 92 or AB Forbruger has been agreed and an addition has been made stating that the contract sum can be adjusted as a result of rising material prices, the price must be adjusted on the basis of the documented increase in material prices on the day of purchase/production of the materials.
Conversely, if AB 18 has been agreed without any changes to § 35, a price increase exceeding 10% of the price of the material in question from the date of the offer plus 0.5 percentage points for each full month that has elapsed between the date of the offer and the time of purchase of the material may be demanded.
This means that the contractor bears the risk for a material increase of 10% in the first 30 days after the offer is given and for a material increase of 10.5% in days 31-60 after the offer is given, etc. until any agreed general index adjustment that takes into account the price increases comes into effect.
With AB 18, indexation and price increases are, as something new, placed in two different provisions. Index adjustment is found in AB 18 in section 34 and an agreed deviation from this does not affect section 35, which covers price increases on materials.
This means that the contractor can claim the price increases from the client if there is only an agreed deviation to the indexation clause, but not to the price increase clause. Conversely, the price increases cannot be claimed if the provision has been deviated from between the parties, but indexation can be claimed in that situation if no special terms have been agreed for that provision.
Materials cannot be obtained - Force majeure
If you find yourself in a situation where materials are not only rising in price, but are actually not available at all, the question arises whether this can be characterized as a force majeure situation.
Force majeure is the situation where the contractor becomes entitled to more time as a result of circumstances that occur through no fault of the contractor and over which the contractor has no control, such as war, unusual natural events, fire, strike, lockout or vandalism.
It's important to note that force majeure only entitles you to more time, but not to additional payment, but it may avert possible delay penalties, such as daily fines.
Force majeure must be an external and completely extraordinary circumstance that prevents the contractor from performing the work because the possibility of performing the work must be considered to be excluded due to the force majeure event in question.
It should be noted that impossibility of performance is not present if it has simply become more expensive or time-consuming to fulfill the contract, but is still possible. This would be the case if the missing materials can be purchased elsewhere, but at a higher price.
If, on the other hand, the situation arises that the materials cannot be obtained from any supplier at all, then it is likely to be force majeure. This will especially be the case for ongoing construction projects where the lack of materials could not have been foreseen. For upcoming construction projects, on the other hand, there will be no force majeure, as the material shortage is known and must be included in the construction contract.
As the material shortage becomes a known factor, its force majeure nature will disappear and the lack of materials will no longer entitle the contractor to more time.
So it is possible that the lack of materials could be force majeure, but this requires an assessment of the specific situation.
Ask CLEMENS
At CLEMENS Law Firm, we regularly advise on issues related to price increases and shortages of building materials, and we follow developments closely.
If you have questions about price increases and shortages of building materials, or if you need help with what applies to your specific construction contract, our specialists are ready to help. You can contact us on 87 32 12 50 for more information without obligation.
