Construction contracts in times of crisis –
The right way to deal with skyrocketing material costs

Contracts entered into in times of uncertainty entail significant risks for both parties. The impacts of both the COVID-19 pandemic and the war in Ukraine have recently become tangible in construction contracts.

Due to the specifics of the influences on the contract as well as the underlying contractual terms, a blanket approach will not do justice to them. Nevertheless, these problems continue to pose significant risks for both existing and new contracts owing to the persistently high energy and material costs and the high inflation rate. For existing contracts, the relevant impact may, under certain circumstances, constitute a case of frustration of contract. For new contracts entered into after February 24, 2022 (the day on which the war began), there is probably no basis for this presumption, however.

Thus, the legal justification of any contract amendment needs to be followed by defining a calculation method in construction management that separately states the additional costs compared to the original contract. Several options exist for implementing this feature, two of which will be dealt with in more detail during the presentation: first, the factorization of the material portions based on the index values for construction prices specified in the Fachserie 17 Reihe 2 (Series 17, Part 2) published by the Federal Statistical Office; second, resorting to the original costing and considering actual costs incurred plus pass-through ratios. Either of these calculation methods can serve as transparent proof of costs while also providing a different strategic scope.