Contractors of the administration can now apply for a revision of prices in their contracts due to the increasing cost of materials

The incidence of the pandemic caused by Covid-19 has generated an increase in the price of various raw materials that in many cases is causing the economic-financial equilibrium of public sector contracts to be broken. In view of this situation, the government has approved RDL 3/2022, Title II of which establishes a series of exceptional measures on the revision of the prices of public contracts, allowing for the revision of the prices of construction contracts that have been affected by the increase in the prices of certain raw materials, outside the procedures for modifying the contract established in the public procurement regulations.

The functioning of the price review mechanism for public construction contracts introduced by RDL 3/2022 is detailed below:

Deadline for requesting a review

The revision may only be requested by contractors from the entry into force of the RDL until two months after the later of, (i) the entry into force of the RDL or (ii) the publication of the monthly price indices of the basic cost components for the last trimester of the year 2021, which as of the date of publication of this note has not yet taken place.

Cases subject to review

The possibility of an exceptional price review is envisaged for all public construction contracts, both administrative and private, awarded by any of the state public sector entities that are being executed at the time RDL 3/2022 enters into force, and regardless of the legal regime of application due to time or subject matter, with specific reference to its application in the area of special sector procurement, as well as its possible application in the area of the Autonomous Communities, and Ceuta and Melilla if they so agree.

Requirements for the recognition of price revisions

In order for the exceptional price revision to be possible, it is established as a condition that the increase in the cost of the materials used for the awarded work has had a "direct and relevant" impact on the economics of the contract during the financial year 2021. This direct and relevant increase will be considered to have occurred if the cost of the steel, bituminous, aluminium or copper materials exceeds 5% of the certified amount of the contract in the financial year 2021, the increase being calculated by applying the contract amounts certified for 2021, its price revision formula if it has one and, failing that, by applying the formula that corresponds according to the nature of the works.

In any case, the amount of the revision may not exceed 20% of the contract award price. Its calculation formula will depend on whether the specific administrative clause specifications establish a price revision formula, in accordance with the criteria of article 8 of RDL 3/2022.

Procedure and payment of the amount resulting from the review

The contractor must submit a request for review to the contracting body, accrediting that the requirements for the recognition of the price review have been met; this accreditation will be subject to verification by the contracting body, with a period of seven working days for rectification in the event of a deficiency. Once the application has been received, the contracting body shall issue a provisional proposal, and the contractor may present its allegations within a period of ten days. Once this period has elapsed, the contracting body shall issue a reasoned decision within one month. If no express decision is issued, the application shall be deemed to have been rejected due to negative administrative silence.

Limitations of RDL 3/2022

The price review will only be applicable to construction contracts in execution at the time of entry into force of the RDL and is temporarily limited to the 2021 financial year. Furthermore, only official price increases in steel, bituminous materials, aluminium, and copper will be considered, specifically excluding other raw materials such as energy. These increases must have had a "direct and relevant" impact.

On the other hand, the RDL would apply exclusively to construction contracts, which would exclude supply contracts or mixed construction and supply contracts, which may also have suffered the consequences of the increase in the price of raw materials. The request for modification of the supply contract to increase its price would have to be instrumented through article 205 of the Public Sector Contracts Act, which regulates the modification of contracts not provided for in the specifications, and be based on one of the cases provided for therein, among which is an unforeseeable risk. In this regard, the RDL expressly recognises in its preamble that the situation caused by Covid-19 has had a direct and unforeseeable impact on the performance of certain public contracts due to the extraordinary, exceptional and unexpected rise in the cost of certain raw materials, a circumstance that has altered the economics of the contracts in such an excessive manner as to be included in the risk and chance that the contractor must bear in public contracts. This explicit recognition of Covid-19 as a case of unforeseeable risk could cover the modification of the supply contract to increase its price under article 205.

Finally, it should be noted that prior to the approval of this RDL 3/2022, Galicia and Extremadura approved similar mechanisms for the review of the prices of public construction contracts tendered by the contracting bodies of these Autonomous Communities and by the regional public sector through Law 18/2021, of 27 December, on fiscal and administrative measures, and Law 3/2021, of 30 December, on the General Budget of the Autonomous Community of Extremadura for the year 2022, respectively.

Should you wish to know more about the RDL and the requirements for submitting price review applications for both construction and supply contracts, please do not hesitate to contact one of our experts listed below or your usual contact at Osborne Clarke.