CMS Expert Guide on rising raw material prices in Hungary

No specific legislative or regulatory provisions have been adopted by the Hungarian Government in the field of public procurement law in connection with the increase in price of certain raw materials.

However, due to the price increase and the difficulties in performance that arose after the outbreak of the war in Ukraine, the Hungarian Public Procurement Authority published a recommendation document on 23 March 2022 together with the National Federation of Hungarian Building Contractors (“EVOSZ Recommendation”). This recommendation document summarizes their guidance in relation to the currently ongoing public procurement procedures in the field of construction and in connection with already concluded public contracts.

Moreover, the Hungarian Government introduced a cap price of HUF 480 per litre (approx. EUR 1.3) for gasoline No. 95 and petrol as of 15 November 2021. At first, this measure was only planned to be applied until 15 February 2022, however, it was prolonged until 15 May 2022.

Furthermore, the Hungarian Government put caps on the cost of some specified basic foods in February 2022.

Shortage of raw materials and the increase in prices of supplies may impact the technical conditions of performance of public contracts. They may make it necessary to amend the specifications of public contracts, for example by replacing materials now unavailable or too expensive, by amending quantities or the scope of services to be carried out or by adapting the conditions and deadlines in order to remedy to difficulties resulting from this situation.

The EVOSZ Recommendation dated 23 March 2022 reiterates it is possible in this situation to resort to different cases of amendments to ongoing public contracts provided for by the Hungarian Public Procurement Act, in particular the hypothesis where the need for modification has been brought about by circumstances that a diligent contracting entity could not foresee. This amendment may be resorted to provided that it does not alter the overall nature of the contract and that any increase in value does not exceed 50% of the value of the original contract (without any cap for contracting entities acting in the sector area).

The legal basis for a contract amendment could also be the so-called “de minimis” legal basis (Section 141(2) of the Hungarian Public Procurement Act). The de minimis legal basis means that the contract may be amended without a public procurement procedure if the change in the contract price is below (i) the EU threshold, if the initial contract price reached the EU threshold, and (ii) 10% of the initial contract value in case of service and supply contracts and works and service concessions, and 15% of the initial contract value in case of works contracts. Additionally, the amendment can’t change the general nature of the contract and must be consistent with the nature of the original contract.

Clauses in relation to price may only be amended if this amendment is connected with the scope, specifications or performance conditions of the public contract.

Not applicable in Hungary.

There is no general guidance in this regard, therefore, such sanctions and legal consequences depend on the specific terms and conditions as set out in the public procurement contract in connection with which the delay or failure arose, as well as on all relevant circumstances of the case.

The Hungarian Civil Code applies as a background rule for public contracts, based on which, in certain cases, contractors may be exempt from liability if they are able to prove that the breach was (1) caused by a circumstance beyond its control, and (2) unforeseeable at the time the contract was concluded and (3) which it could not reasonably have been expected to avoid or remedy.

There is no specific guidance in this regard, therefore, the execution of public contracts is governed by the Public Procurement Act and the specific terms and conditions of the public contract in question.

Regarding price adjustments, the contracting authorities have the possibility to achieve such result within the framework of contract amendment if they previously specify the conditions for price adjustment in the documentation of the tender when initiating a public procurement procedure. In this case, all tenderers must have the opportunity to become familiar with the precise terms and content of any subsequent changes to the contract (including the right to options). However, such contract terms shall not provide for modifications that would change the general nature of the contract.

The Hungarian Civil Code is also applicable as a background rule for questions not governed by the Hungarian Public Procurement Act and might be of relevance when taking into account all relevant circumstances of the case, as mentioned above.

Not applicable in Hungary