CMS Expert Guide on rising raw material prices in Spain

To mitigate the consequences of the rise in the prices of certain raw materials, the Spanish government has adopted a series of regulatory measures.

On 2 March 2022, the government published Royal Decree Act 3/2022 (“RDA”). Amongst other things, this decree provides for the revision of public works procurement prices. These measures enable, among other things, the revision of the prices of public contracts.

The regulation recognises an exceptional price revision when the increase in the cost of raw materials used for awarded work has had a direct and relevant impact on the economy of the contract during the financial year 2021. Such an impact is deemed to exist when the increase in the cost of raw materials exceeds 5% of the certified contract amount. 

The amount of the exceptional revision may not exceed 20% of the contract award price and will be applied in the final certification of the work.

In addition, as a result of the rise in petrol prices, a surcharge mechanism has been implemented for continuing transport  contracts whereby the initially agreed price can be increased or reduced depending on the price of petrol. 

This “price revision” is conditional upon the price of fuel having undergone a variation of 5% or more (unless a lower threshold has been expressly agreed in writing prior to or at the same time as the conclusion of the contract). This revision is automatic.

Regarding public works contracts, the price revision will be applicable to those contracts that were being executed, tendered, awarded, or formalised at the entry into force of this RDA (2 March 2022), or whose award or formalisation announcement is published on the public sector contracting platform within one year of the RDA’s entry into force.

Regarding continuing transport contracts, the revision of prices will apply to existing contracts that show such a variation (5% or more) regardless of their date. 

Under Spanish law, the “imprévision” theory is translated by the contractual clause rebus sic stantibus (as long as things continue).

This clause is used in Spanish law to affirm that a rule will be applicable as long as the circumstances for the situation in which it was dictated continue to exist.

Therefore, under this clause, contracts may be revised whenever new circumstances arise that alter the conditions that existed when the obligations concerned came into force.

Although this situation is similar to that of fortuitous events, they cannot be considered to be similar. The reason is that rebus sic stantibus refers to changes that do not make it impossible to perform the obligation concerned, but what is intended is a modification of the terms of the contract in order to adjust to the resulting conditions.

Finally, it is often used to complement the expression pacta sunt servanda (contracts are to be performed).

However, alleging this clause in such a case is unlikely to be successful as it has traditionally been a clause of very restrictive application, which is why the Administration is usually opposed to its application. This makes it a theory of very exceptional use.

Price revisions in public works contracts are made at the contractor's discretion. Therefore, there is no administrative sanction for its non-application

However, if a discrepancy arises, the enforcement regime provided for in the public procurement rules may be applied.

Regarding the revision of prices in continuous transport contracts, as it is automatically applicable, it is mandatory. Therefore, any agreement to the contrary will be considered null and void. 

In this sense, there is an exception on the 5% threshold whereby if it is expressly agreed in writing that the threshold may be lower, this new threshold may be applied. 

No administrative or financial penalties are foreseen, however, and agreements to the contrary are simply annulled.

The adopted RDA does not make any provisions concerning the execution of contracts in cases of price revisions due to price increases of raw materials.

The measures on exceptional price revisions in public works contracts are applicable to public works contracts, both administrative and private, awarded by any of the entities that form part of the state public sector. 

Such revisions will be recognised irrespective of the legal regime which, for reasons of time or subject matter, applies to the contract. Therefore, it also applies to private public works contracts.