CMS Expert Guide on rising raw material prices in Switzerland

Switzerland has not adopted any specific legislative or regulatory provisions following the increase of raw material prices. 

However, the Federal Coordination Conference of Building and Real Estate Bodies of the Public Build-ing Owners (KBOB) – the coordination body of the federal building authorities for, inter alia, public procurement matters –published two recommendations in June 2021 and February 2022 on passing on extraordinary price changes for construction works and wood construction in particular (https://www.kbob.admin.ch/kbob/de/home/themen-leistung-en/preisaenderungsfragen/empfehlungen_zur_verrechnung_bei_ausserordentlichen_preisaenderungen.html, available in French, German and Italian). In the absence of an agreement by the parties on a price change procedure, KBOB recommends that the extraordinary price changes should be compen-sated retroactively for all affected materials if they exceed or fall below 10% (wood construction) or 5% (other construction work) of the costs as per the date of submission of the offer. 

Furthermore, in June 2022, KBOB published a recommendation for action on “supply bottlenecks, addi-tional costs and economic effects in the construction industry” (https://www.kbob.admin.ch/kbob/de/home/themen-leistungen/der-kbob-weltwirtschaftslage.html, available in French, German and Italian). The recommendation is supported by the Interest Group of Private Professional Building Owners (IPB) and Construction Switzerland (“Bauenschweiz”), the umbrel-la organization of the Swiss construction industry. With regard to future tenders and new contracts, KBOB recommends agreeing on a price change procedure in accordance with the available standards for the industry (terms of the Swiss Society of Engineers and Architects, SIA) and to refrain from setting fixed prices for a specific period. As to existing contracts, the recommendation refers to resolution methods foreseen in the SIA terms which provide for an entitlement to compensation for price chang-es if it is not excluded in the contract.

In Switzerland, one has to differentiate between the scope of application of public procurement law and the one of contract law when it comes to “public contracts”. The Federal Act on Public Procure-ment (PPA) regulates the awarding of public contracts by the contracting authorities whereas the con-clusion of the contract (which requires the existence of an award decision) is a contractual matter and therefore subject to Swiss private law (Code of Obligations, CO). 

From a public procurement law perspective, the content of the contract as agreed between the con-tracting authority and the successful bidder, in general, must correspond with the parameters as they have been defined in the award procedure under Swiss public procurement law. Deviations from the parameters specified in the award procedure are, however, permissible if they remain insignificant. A deviation is considered insignificant for as long as it does not call into question the awarding of the contract to the successful bidder. Price adjustments, due to a procedure agreed upon in the contract or in the form of an amendment to the contract, must thus also be assessed from a public procure-ment law perspective, as such price amendments may constitute a substantial modification of the terms predefined in the procurement procedure. Modifications addressing future price developments such as changes in the price of raw materials should therefore be permissible to the extent that such modifications are not in conflict with the terms predefined in the procurement phase. 

For an assessment of price adjustments from a contract law perspective, see below.   

In general, according to the contractual principle of "pacta sunt servanda", the parties to a contract are obliged to abide by what they have agreed upon. As a result, a price increase may only be claimed based on either a contractually agreed price increase clause (or a clause referring to a corresponding standard clause, in particular of the SIA) or the statutory provision for price amendments in Article 373 para. 2 CO. Art. 373 para. 2 CO provides that, where performance of the work was prevented or seri-ously hindered by extraordinary circumstances that were unforeseeable or excluded according to the conditions assumed by both parties, the court may at its discretion authorize an increase in the price or the termination of the contract.

Similarly, within the framework of the principle of "clausula rebus sic stantibus", a judge may deviate from the contractual principle of pacta sunt servanda and amend a contract within judicial discretion. The legal institution of clausula rebus sic stantibus applies when the circumstances have changed fun-damentally since the time the contract was concluded, the changes cause a serious disturbance to the equivalence between the services to be performed and the price to be paid under the contract, the changes were neither foreseeable nor avoidable, and the changes have not been caused by the parties themselves. 

The situation of increased raw material prices may qualify as an unforeseeable change of circumstanc-es – circumstances for which neither of the parties can be held responsible and which make the per-formance of the contract significantly more onerous for one of the parties. As a result, an (unforeseea-ble) increase in raw material prices may confer on the contractor an entitlement to an increase in compensation. However, the question has not yet been decided by the Federal Supreme Court. 

As mentioned in the answer to question 2, public procurement law in Switzerland regulates the proce-dure for awarding public contracts while the conclusion and execution of the contract is governed by private law. As a result, Swiss public procurement law does not contain any provisions concerning de-lays or a failure to perform a public procurement contract. Furthermore, neither the Swiss government nor any cantonal authority have adopted any legislative or regulatory provisions in that regard in the context of raw material price increases.

 Under Swiss contract law, a delay or failure to perform a (public procurement) contract does not con-stitute a violation of the contract (and will thus not result in a liability under contract law) if (i) the performance of the contractual services is impossible at the time the contract is concluded (initial im-possibility leading to nullity of the contract) or (ii) the performance becomes impossible after the con-clusion of the contract and is made impossible by circumstances not attributable to the relevant party (subsequent impossibility). However, It is unlikely that even a significant price increase will be consid-ered as a form of impossibility, but rather that a court will resort to the principle of clausula rebus sic stantibus (or Article 373 para. 2 OR) in the event of higher costs due to increasing raw material prices (see above). 

See answers to questions above.

N/A as all public contracts are governed by private law.