Price Adjustment Clauses in Public Procurement – From Drafting to Practical Application

In a recent, insightful and highly practical LinkedIn post, our colleague Dawid Pindor, an associate at #Hoogells, highlighted important issues related to the proper drafting of price adjustment clauses by contracting authorities in public procurement contracts, as well as the disputes arising therefrom before the National Appeals Chamber (KIO).

https://www.linkedin.com/posts/hoogells-oleksiewicz-sp-k_𝐖𝐚𝐥𝐨𝐫𝐲𝐳𝐚𝐜𝐣𝐚-𝐰𝐲𝐧𝐚𝐠𝐫𝐨𝐝𝐳-activity-7440684183615639552-pTtK?utm_source=share&utm_medium=member_desktop&rcm=ACoAABd8-0IBdsZozY703d6Ks_QslEcYKcopZ0w

Irrespective of whether the price adjustment clause itself has been correctly drafted, the manner in which it is applied by contracting authorities at the contract performance stage is also of material importance.

Unfortunately, this is often because contracting authorities seek to place such clauses within those parts of the contract that concern its amendment under Article 455(1)(1) of the Public Procurement Law (i.e. where amendment of the contract without conducting a new public procurement procedure is permissible, provided that such amendment was предусмотрено in the contract notice), or because they excessively “wrap” price adjustment clauses in wording not required by Article 439 of the Public Procurement Law, with the aim of neutralising the directness or automatic nature of the operation of the price adjustment clause.

A price adjustment clause introduced in accordance with Article 439 of the Public Procurement Law is intended to ensure that the contractor may directly claim payment of increased remuneration where the circumstances described in the clause occur (for example, where a specified price change threshold is exceeded or where a given price index applies), and, correspondingly, to ensure that the contracting authority may reduce the remuneration (Article 439(4) of the Public Procurement Law).

Contractual provisions introduced by contracting authorities, such as:

• an unambiguous demonstration of price changes (preferably beyond any doubt);
• all of the above changes to the contract (cross-reference to the clause) require written form under pain of nullity;
• amendment of the contract is permissible in the above cases (cross-reference to the clause);
• upon occurrence of those circumstances (cross-reference to the clause), the contracting authority may agree to amend the contract,

are intended to hinder the automatic operation of price adjustment, or even to reduce the essence of the price adjustment clause to the processing of ordinary contract amendments by way of an annex under Article 455 of the Public Procurement Law, that is, to the “everyday” practice known under the former Public Procurement Law (Article 144).

Had this been the purpose of Article 439 of the Public Procurement Law, i.e. to introduce another basis for a possible (optional) amendment of the contract, then, among other things:

• there would have been no need for the legislator to distinguish, as a separate statutory regulation, the provisions concerning the price adjustment clause (together with its mandatory elements) from the provisions concerning amendments to contracts under Article 454 et seq. of the Public Procurement Law;
• it would have been pointless to define in advance in the contract itself (at the tender stage / upon its conclusion) the method for determining the change in remuneration, since that remuneration—although adjusted in accordance with previously established criteria—would in any event still be subject to the contracting authority’s possible consent.

After all, the parties’ intention to change the remuneration in specified circumstances is expressed at the moment the contract containing the price adjustment clause is concluded—and that intention concerns all potential contractors participating in the procurement procedure. To assume that the parties must make additional declarations of intent in this respect at the contract performance stage distorts (and weakens) the very essence of the price adjustment clause.

The price adjustment clause, as part of the legal framework governing the performance of public procurement contracts, is a positive legal instrument. Nevertheless, its proper application requires a change in the approach or mindset of contracting authorities, namely a departure from the search for some form of approval—at some stage and by someone (e.g. by way of an annex, head office approval or a court decision)—for a change in the amount of remuneration in cases provided for in price adjustment clauses.

In particular, that stage and that “someone” should not be court proceedings and a court issuing a judgment after several years of litigation in a dispute concerning the application of a price adjustment clause containing correct, precise and clear conditions for its application.

The price adjustment clause provided for in Article 439 of the Public Procurement Law is intended to ensure the financial predictability of the contract and to limit risk on both sides of the contractual relationship. Its effectiveness depends on recognising it as an automatic element of settlements between the parties, rather than as an event requiring case-by-case consent or additional procedures. Such an approach supports continuity in the performance of public contracts and reduces the costs of contractual disputes.