Step 1: Check your contracts first – avoid basing any decisions on your gut feeling
In many cases, your first instinct will be to invoke “force majeure” or “the war”, though from a legal perspective, that’s not a given. It all comes down to the agreement.
In particular, check whether it includes any price revision clauses, force majeure clauses (is war listed?), hardship clauses or unforeseen change of circumstances clauses (see also Step 4) that rule out any price revisions and/or if there are any clauses stating that the risk lies with one of the parties only.
What if no such provisions were included? In that case, your contract will be subject to the law of general application and in most cases, no price revision will be possible. And if provisions of this type were already included? In that case, those provisions will be decisive.
Step 2: Price revision? The expansion legislation will still be relevant
Many companies forget that the expansion legislation of 1976 prohibits price revision clauses as a matter of course – the specific aim of this being to prevent automatic price adjustments that are excessive, except in cases where specific conditions have been fulfilled. The maximum price adjustment permitted in such clauses is 80% of the final price and that increase must be linked to objective parameters representing actual costs (such as the actual costs of raw materials or transportation). We would advise anyone wishing to conclude an addendum today to make sure it is worded in a legally correct way.
Step 3: Force majeure? War is not automatically a get-out clause
Many people think that war automatically constitutes force majeure, but that isn’t correct. If force majeure is to apply, (i) performing the contract must have become impossible, (ii) the situation must have occurred beyond your control and (iii) it must have been both unforeseen and unavoidable. In the majority of cases, price increases do not make performing a contract impossible, but simply more expensive, so in principle, they do not constitute force majeure.
Something else to bear in mind is that many contracts exclude force majeure; other contracts explicitly state war as an exception and others do not exclude war in any way. In the latter case, the question arises as to whether a clause of that type would stand up to scrutiny. In a B2B context, a clause that excludes war from constituting force majeure would in principle be valid, unless it is so imbalanced that it causes the contractual obligations of the other party to be unreasonably onerous or unless it undermines the economic viability of the agreement.
Step 4: Unforeseen changes of circumstances can make the difference
Since the law of undertakings was revised in early 2023, you are, in certain cases, permitted to invoke an unforeseen change of circumstances so that a contract can be renegotiated or amended. That is possible (i) if the circumstances have changed and that change was unforeseen, (ii) if performing the contract is becoming excessively onerous or (iii) if you did not accept the risk under the terms of the contract. The difference between this and force majeure is that performing the contract is still possible, but is unreasonably onerous in economic terms. In certain sectors, the geopolitical tensions that have arisen recently may fulfil those conditions, especially in cases where the prices of raw materials increase exponentially or supply chains suddenly become disrupted.
The important thing is that unforeseen changes of circumstances do not entitle either party to increase prices unilaterally.
You can, however, ask for the contract be renegotiated, suspend performance (subject to conditions) or ask the courts to amend or terminate the contract.
Step 5: Public contracts? Different rules apply
The situation is different in the case of public contracts. The regulations make explicit provision for price revision mechanisms and facilities that apply when circumstances change unexpectedly. Deviating from those rules is not something that can be done at any given time. After all, the aim is to safeguard the continuity of the public service concerned. In the first instance, businesses carrying out work for the government must therefore check the contract documents and the regulations that apply.
Here are two recognisable situations:
Example 1 – a cotton supplier: You are supplying cotton to a jeans manufacturer at a fixed price. Due to tensions in the Middle East, the costs of transport and raw materials suddenly increase by 30%. Check whether your agreement includes a price revision clause. No clause? In that case, find out whether you can invoke an unforeseen change in circumstances and inform your customer immediately and/or ask for the agreement to be renegotiated.
Example 2 – a steel supplier: You have sold a quantity of steel for a construction project. Energy prices have caused production costs to explode. Force majeure? Probably not. An unforeseen change in circumstances is a possibility. The best thing is to do your negotiating before delivery, not after.
So what specific actions are you advised to take at this point?
- Check whether your contracts include price revision, force majeure or unforeseen changes of circumstances clauses.
- Document all price increases (quotations, suppliers, indices).
- Inform your contract partner immediately and request renegotiation.
- Do not deliver or tacitly continue working at a loss-making price.
- For future deliveries, use clear pricing mechanisms or addenda.
The most important lesson
The war in the Middle East is not only causing geopolitical uncertainty, but also contractual risks. Business owners who react promptly and actively manage their contracts will limit the losses they suffer. Those who wait until margins evaporate will be in a weaker position, both legally and commercially. In short, it’s not the war, but your contract that will determine how much room for manoeuvre you have.
We will be happy to assist you in more detail.
