Press release

Pérez-Llorca analyses the increase in price of raw materials and its impact on contracts

28/07/2021

Pérez-Llorca organised a webinar with the aim of analysing the possible channels for claims in view of the recent price increase of various raw materials used in construction contracts, both from the point of view of public procurement and private law.

Partners Beatriz García, Elena Veleiro and Natalia Olmos, all from the Public Law and Litigation practice, took part in the virtual meeting.

The session was opened by Elena Veleiro, who began by analysing the post-contractual mechanisms to assist contractors, focusing her discussion on the theory of unforeseeable risk. In this context, Veleiro carried out a case law review of the most important rulings on the subject, concluding that this issue is unresolved. However, she maintained that bringing a claim based on unforeseeable risk is a valid and effective measure to deal with these types of situations.

Lastly, the Pérez-Llorca partner explained that, in the event of a possible claim, the following assumptions should be taken into account: there is no unanimous or consistent criterion established by the courts; a case-by-case analysis is required; a joint assessment of the contract is necessary to conclude whether an imbalance has occurred; and, it is essential to prove that the increase in the price of raw materials effectively entails a breach of the economic balance of the contract.

Possible actions to be taken during the execution of public contracts

Next, Natalia Olmos analysed the alternatives available to contractors that can be put into practice during the execution of the contract.

Firstly, the Pérez-Llorca partner addressed the possibility of requesting a modification of the contract. To this end, she explained various rulings of the Council of State, which contrast with the position of the Advisory Board for Public Procurement, which maintains a more flexible position, in which a modification may be possible, provided that the requirements set out in the regulations are met. Lastly, she alluded to another alternative consisting of a request for suspension of the contract and the possibility of terminating the contract, stressing the complexity of this alternative and the need to analyse the issues on a case-by-case basis.

Filing claims in contracts subject to private law

Beatriz García pointed out that although the alteration of contracts has traditionally been recognised by the courts on an exceptional basis, there has been a recent tendency for the courts to show greater sensitivity to the changes caused as a result of the pandemic, so this restrictive application has been clarified through the application of the rebus sic stantibus doctrine.

García indicated that it is difficult to lay out a specific threshold that determines the viability of the claim and that, therefore, it is necessary to analyse whether the contract sets out clauses that allow for the modification of the terms, to explore the possibility of reaching agreements with the other party or, if necessary, to go to court. Likewise, she explained the importance of dealing with this type of claim taking into account a legal and strategic approach, making it necessary to assess the exercise of claims in a cumulative manner, requesting both the modification of the contractual conditions and, if this is not possible, the termination of the contractual relationship.

To conclude the discussion, the Pérez-Llorca partner highlighted the possibility of contemplating interim protection in the claim, requesting the adoption of interim measures aimed at suspending the execution of the contract, including the suspension of the execution of any guarantee against the party that has brought the claim.

If you were unable to attend or would like to watch this webinar again, you can do so by playing the video below:

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