Price adjustment in case of increased steel prices: possibilities despite price-fixing clause

A recent ruling by the Amsterdam Court of Appeal regarding price adjustments due to increased steel prices shows that a price-fixing clause does not automatically prohibit a contractor from increasing the price.

What was the situation?

The construction contract stated: ‘The assignment has a fixed price until the end of the work. Construction will start in May 2021’ and Article 7 of the applicable Metaalunie conditions states: ‘The contractor may pass on to the client any increase in cost-determining factors that occurs after the conclusion of the contract. The client is obliged to pay the price increase at the first request of the contractor.’ The problem for the contractor was that the construction contract takes precedence over what is stipulated in the general terms and conditions, as the Court of Appeal also ruled.

The contractor is then confronted with a (very sharply) increased steel price that they want to pass on to the client. The client does not accept this increase and holds the contractor to the price-fixing clause. The contractor initiates proceedings and their claim to increase the price of the work is rejected in the first instance.

No explicit exclusion of invocation of Section 7:753 of the Dutch Civil Code

However, the Court of Appeal ruled that the contractually agreed price-fixing clause does not automatically exclude the applicability of Section 7:753 of the Dutch Civil Code. This section provides a legal option for price adjustment in the event of unforeseen cost-increasing circumstances that are not attributable to the contractor and that did not need to be taken into account (and therefore cannot be attributed to the contractor) when the price was determined (submission of the quotation, conclusion of the construction contract). Exclusion of Section 7:753 of the Dutch Civil Code should have been explicitly agreed in this specific case, which did not happen. The contractor could therefore rely on the applicability of this section.

Application of cost-increasing circumstances

The price increase was much greater than the price fluctuations in previous years. At the time the construction contract was concluded (September/October 2020), there were no concrete signs that such exceptionally large price increases were imminent. Of course, steel prices always fluctuate somewhat, but the increase from the end of 2020 was exceptional and could not have been foreseen by the contractor when determining the price. It would be unreasonable to require a contractor to take into account every possible exceptional price increase when submitting a quotation, as this would lead to unrealistically high prices.

Provide a timely notice; otherwise, you will not be entitled to any increase

Since there was an exceptional increase in steel prices that the contractor did not have to consider when concluding the contract, and because the contractor issued a timely warning on 19 May 2021, price increases from that date onward may be passed on, while previous increases are the contractor’s responsibility. The fact that the contractor must bear the price increases before 19 May 2021 is a logical consequence of Section 7:753 (3) of the Dutch Civil Code. This paragraph stipulates that the contractor can only invoke an increase if they notify the client as soon as possible. This notification gives the client the opportunity to explore alternatives for the execution.