CMS Expert Guide on rising raw material prices in Portugal

Recognising that public entities and private contractors today face increases in the prices of raw materials, exacerbated by both the shortage of labour and the increase in costs associated with it (contributed to by the Covid-19 pandemic and, more recently, the war in Ukraine), the Government published Decree-Law No. 36/2022 of 20 May, which establishes an exceptional and temporary (until 31.12.2022) price revision regime applicable to public works contracts and, with the necessary adaptations, to contracts for the acquisition of goods and services and other contracts subject to public procurement rules (e.g. private contracts financed or subsidised by more than 50%).

The shortage of raw materials and the increase in prices of supplies may impact the technical conditions for the performance of public contracts. Other than triggering the revision of the prices clause (mandatory in public works contracts), the shortage of materials and the increase in prices, 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 difficulties resulting from this situation.

In general terms, 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.

The Decree-Law No. 36/2022 of 20 May, foresees that an increase in prices of a given material, in manpower costs or in costs of equipment that represents, at least, 3% of the contractual price and has a year-on-year variation rate equal to or greater than 20% grants the private contractor the right to request an extraordinary price revision and establishes the procedure through which the public entity, by agreement or unilaterally, defines the form of the extraordinary price revision.

This situation may be qualified as an abnormal and unforeseeable change of circumstances – circumstances for which neither party can be held responsible and makes the performance of the contract much more onerous for one of the parties than corresponds to the risk normally considered – that may confer to the contractor the right to amend the contract (e.g. to be released from the obligation to perform certain services) or to financial compensation by sharing between the parties, according to criteria of equity, the abnormal increase in costs in the performance of the contract.

The amendment of the contract, in these cases, depends either on an amending agreement made by the parties or on the judicial or arbitral settlement of the matter.

In situations where Decree-Law No. 36/2022 of 20 May is applicable, the private contractor has the right to request an extraordinary price revision.

Provided that contractors properly justify the correlation between the delays or failures to perform public contracts and the shortage of materials and the increase in prices, public authorities/entities are allowed to waive the imposition of sanctions.

In situations where Decree-Law No. 36/2022 of 20 May is applicable, it is admissible to extend the contract execution period without applying sanctions in cases of delay not attributable to the private contractor that are related to a shortage of materials, provided that no additional payments are made by the public authority.

In situations where Decree-Law No. 36/2022 of 20 May is applicable, in addition to the extraordinary price revision, it is admissible to extend the contract execution period without applying sanctions in cases of delay not attributable to the private contractor that are related to a shortage of materials, provided that no additional payments are made by the public authority.

Yes, provided that the award of the contract was subject to public procurement rules.