Frequently asked questions and answers about the price escalation clause
Are price escalator clauses prohibited?
Price escalator clauses can have a negative impact on inflation. For this reason, the use of these price adjustments is regulated by law. However, they are not expressly prohibited. The legislator has defined some exceptions.
Are index-based contractual price adjustments better?
Price increases based on an index offer the advantage that there can be no dispute about the value of the increase. This is because index values are published regularly by independent bodies. Disadvantage: There is a time lag between the index calculation and the current situation. This means that prices may already have risen significantly. The index then does not yet reflect this.
What to do if a price escalation clause is not possible?
The subsequent increase of material prices is difficult by law when dealing with private clientele. In such a case, you should seek open discussion with the clients.
Although there is an official ban on price clauses1 in Germany, the legislator has provided for some exceptions2. In principle, therefore, it is possible to adjust the prices of building materials or components. There are some factors that determine whether the price increase is easy or difficult:
- Type of clientele: Here there are differences between corporate customers, private contracts and projects with the public sector.
- Status of the current Job: Is the offer phase still available or is the Job already in the implementation phase?
- Agreements made
To address the problem of rising material prices, you can include a "price escalation clause" in the contract. Such a clause gives you the option to increase prices if yours increase.
Here are a few tips, but they are no substitute for legal advice. In case of doubt, it is best to contact your local chamber directly.
Notes:
- According to various court rulings, simply including a price escalation clause in the GTC is not sufficient. Especially not in COLLABORATION with private customers.
- A price escalation clause must be transparent. A corresponding formulation must make it clear which components and products are affected, from when the price increase will occur and how high it will be.
Price increase can be defined in two different ways:
- Index price escalation clause: The price increase is based on the material price index. To do this, you must define which materials this should apply to. One disadvantage: Although index values are calculated at regular intervals, they always consider the past. This means that they may not adequately reflect the current situation.
- Percentage price escalation clause: This appears more flexible and also more timely in terms of price development. With such a clause, you agree with the clientele that they will bear the additional costs for a certain material if the price exceeds an agreed percentage.
There are two other effective ways to hedge your bids against price increases.
- Temporary offers
- Offers subject to change
Time limit offers and secure material prices
To avoid being stuck with increased material costs, it is best to combine the deadline in the offer with the purchasing conditions. Have the supplier promise you the conditions in writing by a certain date. This date also serves as the deadline in your offer.
So if the supplier sticks to the guaranteed prices for four weeks, the offer must also not be valid for longer than these four weeks. However, this only works if the supplier has not included a price adjustment clause himself. You should check this in any case.
Send offers without obligation
The protection provided by a "non-binding offer" goes even further. This only applies if exactly this wording is also found in the offer. In practice, this postpones the actual conclusion of the contract. If the conditions stated in the quotation match, confirm the Job. If the material prices increase, do not confirm the Job. There are no legal disadvantages as a result, since the offer is subject to change.
Price increases for existing contracts
Things get much more complicated with price increases for materials in all existing contracts and offers, unless they were subject to change or limited in time.
No chance of price increases with fixed prices
Legally, price increases have no realistic chance in the case of long-term contracts with fixed prices. For example, in the context of a contract with a property developer. If a fixed price has been quoted and the contract awarded, the project must also be completed at the quoted price. The clients have a right to this.
In this case, the only chance is to talk to the client to discuss the price. It may be possible to reach an agreement here.
In principle, it makes sense in all attempts to enter into a dialog with customers if prices are to be increased retrospectively.
Termination and new prices in the event that the basis for the business ceases to exist
As just mentioned, there is no automatic right of termination for trade businesses if material costs increase. Nevertheless, there may be a possible legal way out.
If the factual situation has changed seriously compared with the time when the contract was concluded, Section 313 of the German Civil Code (BGB ) provides for the possibility of termination due to the "cessation of the basis of the contract". However, this is not an actual price adjustment, but rather the end of the contract. Legally, this is difficult to enforce. The company must demonstrate that the obligations between the craft company and the customer have become grossly disproportionate. In case of doubt, this can only be achieved with exorbitant increases in material prices and legal assistance. The threat of termination is therefore more of a last resort in an attempt to reach an agreement with the customer.
Special right of termination according to VOB
If the VOB/B is included in the contract award, a lifeline could be found in § 6 VOB/B. This defines a special right of termination if there is an interruption or delay in performance of at least three months.
It is not necessary for the work to have already begun. If, for example, a contract has been concluded with a developer and the VOB/B is included, tradesmen and women can terminate the contract if, for example, the start of work is delayed by the specified time. They are then no longer bound by the low material prices.
For all Jobs and quotations in the future, you can hedge well against rising material costs with the options mentioned in this article. However, it is much more difficult to adjust prices retrospectively.
In some cases, strong legal weapons are necessary to assert oneself. Especially since, in case of doubt, going to court also incurs additional costs. Particularly in the case of contracts with private customers that are based on the German Civil Code, the chances of success are rather poor anyway.
Therefore, you are best advised to simply talk openly with your clientele about the problem! You may be able to solve the problem of increased material prices through dialog.
Projects at a glance with the Meisterwerk app
Open and timely communication with the clientele is always important. With the Meisterwerk app, you have all relevant information about your operation at a glance: Work scheduling, project hours, appointments and important deadlines.
Just one example of the many useful functions of the Meisterwerk app, which helps Tradesmen and women digitise their operations.
The information in this article does not constitute legal advice. Despite careful research, we cannot guarantee completeness, accuracy and timeliness, especially for legal information. If you need legal help, please contact a lawyer.
