Is Exceptional Unforeseen Increases in Construction Material Costs Claimable?
Since January 2020 which marked the start of the COVID-19 pandemic, the world has witnessed a continuous increase in construction material prices. This has caused substantial losses to Contractors who struggled to coup with the direct and indirect impact on the projects that were in progress during the past 2 years.
This comes down to one question: are such losses claimable, and is there a way the Contractor can claim for compensation for material price fluctuation?. There is no short answer to this, however claiming for financial compensation due to material price escalation is proven to be difficult.
To prove that a Contractor is entitled for compensation, it is necessary to have reference to clauses in the Contract or relevant articles at law. For example, subclause 13.8 of FIDIC 1999 allows for adjustments to be made to the amounts payable to the Contractor using a price modifier equation.
UAE civil transactions law no. 5 of 1985 - Article 249 articulates that "If exceptional circumstances of a public nature which could not have been foreseen occur as a result, of which the performance of the contractual obligation, even if not impossible, becomes oppressive for the obligor so as to threaten him with grave loss, it shall be permissible for the judge, in accordance with the circumstances and after weighing up the interests of each party, to reduce the oppressive obligation to a reasonable level if justice, so
requires, and any agreement to the contrary shall be void."
The contents article 249 seems promising, however, the Contractor needs to prove that the price escalation is an exceptional and unforeseen event that have led to a threat of grave losses. It is important to note here, that there is a need for the Contractor to separate the portion of such losses that are deemed included in his price from the part that has exceeded what would be a unforeseen fluctuation of prices. This will add credibility to the claim and help court reach to a reasonable verdict.