The exceptional and temporary regime for price revision and award
Decree-Law no. 36/2022, of 20 May, establishes an exceptional and temporary regime within the scope of price increases impacting public contracts
Decree-Law No. 36/2022, of 20 May, was published on 20.05.2022, entering into force on the following day and until 31.12.2022, establishing an exceptional and temporary regime within the scope of price increases impacting on public contracts.
As follows from its preamble, this regime, which provides for the application of “extraordinary and urgent measures and the practice of appropriate and indispensable acts to ensure the conditions for the execution and completion of public works, under penalty of the pursuit of public interest being compromised by not carrying out or completing the planned works, with impacts on the implementation of plans and programmes of financial support established for the recovery of the economy, as well as the sustainability and viability of economic operators“, a regime which, however, also extends to other types of contracts, stems from the need to respond to the specific framework currently being experienced due to the exceptional situation in the supply chains and the migratory circumstances resulting from the COVID-19 pandemic, the global energy crisis and the effects of the war in Ukraine, which have resulted in sharp increases in the prices of raw materials, materials and labour, particularly in the construction sector, which has generated serious impacts on the economy and has led to widespread use of standard formulas for price revision in public contracts which, by their nature, were not considered by the legislator to be “capable of sufficiently reflecting the impacts on the costs of concrete and more specific work included in the scope of these contracts, of unusually intense and rapid variations in the prices of the various factors“.
Scope of application of the diploma
The scope of application of this law is set out in Article 2, according to which it applies “to public contracts, whether executed or to be executed, and to public procurement procedures initiated or to be initiated” (cf. paragraph 1) and, “with the necessary adaptations, to public contracts for the acquisition of goods and, in the case of acquisition of services, to the categories of contracts determined by administrative order of the members of the Government responsible for the area of finance and for the sector of activity. (cf. paragraph 2) and “to contracts which, irrespective of the legal nature of the construction owner, are subject to public procurement rules.” (cf. paragraph 3).
Notwithstanding the special emphasis on public works contracts in the preamble and in Article 1 (“This Decree-Law establishes an exceptional and temporary system for the revision of prices and awards in response to the abrupt and exceptional increase in the costs of raw materials, materials, labour and support equipment, with an impact on public contracts, especially public works contracts.” Article 2(1) provides for its application “to public contracts”, without specifying which ones, and paragraph 2 merely refers that it is also applicable, therein “with the necessary adaptations“, to “public contracts for the purchase of goods” and “purchase of services“. It is believed that the legislator intended to refer in paragraph 1 specifically to public works contracts, although, strictly speaking, it did not do so, leaving the interpretative doubt as to whether it actually intended to refer to all public contracts, except those relating to the acquisition of goods and services, because they are dealt with autonomously (and “with the necessary adaptations”) in paragraph 2.
Still, with regard to public service procurement contracts, it should be noted that Article 2(2) only allows the application of this exceptional regime to this type of contract when the categories of contracts are determined by ministerial order of the members of the Government responsible for the area of finance and for the sector of activity are concerned.
Finally, Article 2(4) exempts from the application of this regime the sectors whose co-contractors have been covered by specific support measures, where the extraordinary price revision is intended to offset the effects of the increase in costs of the same raw materials, materials, labour and support equipment already supported by specific measures.
The main measures
Under this exceptional regime, in public works contracts, the contractor may submit a request for an extraordinary price revision until 31.12.2022 (cf. Article 8) provided that a given material, type of labour or support equipment (i) represents, or will represent during execution, at least 3% of the contract price, and (ii) the year-on-year rate of change of the cost is equal to or greater than 20% (cf. Article 3(1)).
This request must (i) be submitted to the construction owner up to the provisional acceptance of the work and (ii) identify, in a duly reasoned manner, the form of extraordinary price revision from amongst the methods provided for in Article 5 of Decree-Law No. 6/2004, of 6 January, as amended, that best suits the contract work under execution. Subsequently, the procedure provided for in Articles 3(3) and (4) is applied for the purposes of determining between the parties the form of revision to be carried out, where the possibility of tacit acceptance in the event of silence on the part of the developer and the solutions provided for therein in the event of lack of agreement between the parties is emphasised.
It should be emphasised that (i) the form of extraordinary price revision that is determined applies to all materials, types of labour or support equipment existing in the construction work, and (ii) the extraordinary price revision is applied to the entire period of execution of the contract, (iii) the correction of the price revisions already determined according to the form of price revision established in the contract is made in the month following the determination of the form of price revision, and that (iv) the extraordinary price revision in question rules out the application of the ordinary revision provided for in the specific clauses of the contract under Decree-Law No. 6/2004, of 6 January, in its current wording (cf. Article 3(5) to (8)).
Besides the extraordinary regime of price revision foreseen in article 3, the diploma also foresees the possibility for the owner of the work to accept the extension of the execution deadline, for the time strictly necessary, without any penalty and without any additional payment to the contractor, when there is a delay in the fulfilment of the work plan, due to the contractor’s inability to obtain the materials necessary for the execution of the work, for reasons that are demonstrably not attributable to him. It should be noted that such acceptance by the construction owner will be tacit if nothing is said within 20 days of receipt of the request submitted by the contractor (cf. article 4). In such cases of extension of the execution period, the contractor must submit to the developer for approval a new adjusted payment plan, which serves as the basis for the calculation of the price revision of the work to be performed.
Bearing in mind the measures described above, and the provision that their application to contracts for the acquisition of services and goods will be made “with the necessary adaptations”, it is expected that there will be an increased difficulty in assessing the limits of admissibility of such adaptations in the specific case.
In addition to the above-mentioned measures to be carried out during the contract execution phase, Article 5 of the Decree-Law provides for a measure to be applied at an earlier, pre-contractual stage. It provides that, during the period of validity of this Decree-Law, contracting entities may have recourse to the provisions of Article 70(6) of the Public Contracts Code, that is, to award a tender with a price higher than the basic price of the procedure, in cases where this possibility is not provided for in the procedure programme, in derogation of the latter condition which is expressly imposed as a necessary requirement by Article 70(6) of the Public Contracts Code.
Finally, the law provides that, as for central government entities, price revisions made under the respective regime are supported by funds included in the budget programme of the respective sectoral area, within the initial allocation approved by the 2022 State Budget, without prejudice to any reinforcements to be made under the general terms applicable.
Article written by Sérgio Alves Pereira, Public Law team
