Price increases and building, how about that again?

Contracts

Price increases can be passed on if an index is agreed upon. The practice is: contracts with a long execution time and/or contracts in the GWW sphere, often have an index provision. But: an index dampens price settlements relative to prices actually paid. The losses of the party that does have to pay the price increases are cushioned. It remains a loss. In addition, we see in practice that existing indexes do not adequately provide for current market developments.

In building contracts, the law (Article 7:753 BW) and the UAV (Section 47) have regulations whereby price increases can be passed on. To summarize: it must involve significant, unforeseen, cost-increasing circumstances. If the cost increase is "foreseen/not significant" it cannot be invoked. Rule of thumb: the "general contractor" is less likely to meet that criterion than a "subcontractor." Also: the current price increases, are they now still "unforeseen"? A contract may deviate from the aforementioned legal and UAV provisions and then "pass-through" is not an issue. But who wants to sign such a contract in these times with all the price increases?

Buy

But what about purchase agreements? Contractors/clients/suppliers in the construction industry also buy and sell. Commonly used terms and conditions (HIBIN terms and conditions) contain "pass-through clauses." These apply when those terms and conditions apply. Practice: often no conditions are applicable that allow "pass-through". The law has extremely limited options for passing on price increases in purchase contracts. That often leaves the party paying the price increase with it. This leads to heated discussions+procedures in the absence of other options.

Nanny

Housing warranty contracts (purchase+contracting of houses and apartments): price increases are usually excluded. The general contractor faced with price increases on a sold project, still sometimes has to deal with subcontractors and suppliers who can pass on price increases.

The second category that can be problematic concerns purchase contracts, where delivery is to be made while suddenly the purchase has become much more expensive. Without an index clause: negotiate (to still agree on an index, for example) and or litigate.

The third difficult category is the "borderline case" category: is there a substantial unforeseen price increase? That must be determined - always on a case-by-case basis. Litigation is always possible. Practice: a party claiming price increases must always prove the substantial price increase and its unforeseeable nature. This often goes wrong because it is quite laborious and because it is often not easy administratively to present the price increase correctly.

The best advice: settle "on the front end. Agree as many prices as possible that take into account price increases. Ask your supplier/clients/customers. Agree index clauses, or rule out price increases. Notable: many government construction contract budgets are often too low. But that's for next time.