The media have already reported extensively on price increases in various sectors. Especially in the construction sector, the prices of raw materials are currently skyrocketing, forcing many contractors to pass these prices on to their end customers. For new projects, this is of course not a problem, but what about ongoing projects where the contract was already concluded before the price increases took place?
First of all, it is important to make a distinction between contracts concluded by a company with consumers (‘B2C’) and contracts concluded between companies (‘B2B’), as the legal framework for both is different.
Agreements with consumers (‘B2C’)
Contracts are legally binding for the parties – that is the principle. This means that once a price has been agreed between the parties, it cannot be deviated from without further ado. In order to be able to deviate from the initially agreed price after conclusion of the contract, a contractual basis is required.
Many companies include so-called ‘price revision clauses’ as standard in their contracts or general terms and conditions. Such clauses allow a company to pass on price increases in raw materials, for example. However, legal restrictions apply to such clauses in the light of consumer protection.
For example, Article VI.83, 3° of the Economic Law Code (hereinafter: “ELC”) stipulates that companies may not, under any circumstances, unilaterally increase the price on the basis of elements that are purely dependent on its will in fixed-term contracts.
Specifically, a price revision clause in a contract with a consumer must contain objective parameters that allow the new price to be determined, or make it determinable in the future. In addition, the price increase should only be reflected in the part of the price representing the increased costs.
A mere reference to the fact that ‘prices may be adjusted in line with the rates then in force’ is therefore not sufficient. Moreover, the price revision clause must be drafted in a clear and comprehensible manner.
However, an automatic linking of the price to an index is out of the question.
One option is to include a formula in the contract stipulating that, if the price of raw materials rises by a percentage x, the portion of the price represented by those raw materials may also be increased by a percentage x. Note that Article 57, §2 of the Economic Recovery Act of 30 March 1976 provides that such a clause will only be applicable up to a maximum of 80% of the total price.
A second option is to work with daily prices for materials and raw materials in so far as these prices are available. However, this requires total transparency on the part of the contractor vis-à-vis the consumer, as it implies that the margins (if any) that the contractor has on the prices of materials must be disclosed. Furthermore, the increase in the daily price cannot in any way result in a higher profit margin for the contractor or a higher cost for the hours of work to be performed.
The key to the legally valid drafting and application of such a clause is thus transparency: the consumer must at all times be able to see for himself on what basis the price may (possibly) be increased. If it is not clear to the consumer on what basis the price may be increased, the clause will be considered null and void.
Agreements between companies (‘B2B’)
Rules for contracts between businesses were also included in the ELC, although these rules are more flexible than for contracts with a consumer.
Article VI.91/5 ELC stipulates that, in the absence of proof to the contrary, a clause that gives a company the right to unilaterally change the price without a valid reason is to be considered unlawful.
There is also a general obligation to draft clear and comprehensible terms in contracts between undertakings.
In concrete terms, this means that price revision clauses in agreements between undertakings are considered valid insofar as they are based on a valid reason (e.g. increase in raw material prices). It is recommended to specify these valid reasons in the agreement (although not exhaustively).
Even if the price revision clause does not state a valid reason, the company can still prove to the contrary that the price increase in question is based on real additional costs.
Again, however, an automatic linking to an index is prohibited.