Price difference (escalation), ...refers to the adjustment of the contract price to account for changes in the costs of materials and labor that occur after the contract is signed. For such a claim to be valid, it generally depends on the existence of a provision in the contract that permits it.
Construction contracts span a long period, from signing to completion. It is common for input costs to fluctuate during this time. The problem arises not so much from the fluctuation itself, but rather from the fact that the contract leaves it unclear who bears this risk.
Two Basic Contract Models
Fixed (lump-sum) fee
The total price is determined at the outset and, as a rule, does not change. This provides predictability for the building owner; the risk of cost increases falls on the contractor. In return, the contractor may set the initial price higher, as they will include a contingency in their bid to cover this risk.
Price difference: contract price
The contract allows for the price to be adjusted according to a defined mechanism. The initial price is relatively lower, but the total cost cannot be known exactly from the outset. In this model, the only way to manage uncertainty is to ensure that the mechanism is clearly and objectively defined.
How Should a Price Difference Clause Be Written?
When a provision remains vague, it does not resolve the dispute; rather, it exacerbates it. The contract must include the following elements:
- What it covers: All manufactured products, or only certain groups of materials?
- Benchmark: The update must be based on data from an official index or institution; it must be linked to an independent and verifiable source, not to a statement by one of the parties.
- Calculation method: Which formula and which time period will be used to calculate the difference
- Threshold condition: Whether it will be implemented if the level of change exceeds a certain threshold
- Time of application: During which billing periods and with what type of notice can it be requested?
- Upper limit: Whether the total increase will be capped or not
- Delay status: Whether a price adjustment may be claimed during a delay caused by the contractor
The last point is particularly important. Unless otherwise specified, any increase in costs during the additional time resulting from the delay is subject to dispute.
What Happens If There Is No Provision in the Contract?
If a fixed-price contract does not contain a price adjustment clause, the contractor generally cannot request an increase in the price. However, the Turkish Code of Obligations contains an exceptional provision (adjustment) that may be applied if extraordinary circumstances unforeseeable at the time the contract was entered into make performance excessively difficult. The applicability of this provision to a specific case is interpreted very narrowly, and the final determination rests with the court.
For this reason, acting on the assumption that “the law will protect us anyway” is a risky approach for both parties. This is not a legal opinion; you should seek a lawyer’s assessment regarding your specific contract.
Measures That Protect Both Sides
- Early procurement: Purchasing and storing items with high price volatility (rebar, joinery, ceramics) at the start of the project; defining the responsibility for storage in the contract
- Pen-based classification: Showing materials and labor separately narrows the discussion down to a specific item
- Technical specifications instead of brand/model: Defining the characteristics of the selected product makes it possible to substitute it with an equivalent product
- Short-term contract: In long-term projects, entering into separate contracts for rough construction and finishing work reduces the period of uncertainty
- Requirement for written notice: The condition that a claim for a price difference must be submitted in writing within a specified period
Frequently Asked Questions
Can a contractor request a pay increase verbally?
The building owner may be requested to do so, but is under no obligation to accept it if there is no basis for it in the contract. If the parties agree, the change must be recorded in a written addendum; a verbal agreement may create problems with proof in the future.
Is "additional manufacturing" the same as "price difference"?
No. Additional work refers to new work performed outside the scope of the contract and incurs a separate charge. A price adjustment, on the other hand, is an update to the price of the work within the existing scope. Confusing the two is the most common cause of disputes over progress payments.
Which model is safer?
There is no single correct approach. In short-term projects with a clearly defined scope, a fixed price provides predictability. In long-term projects, however, a price adjustment clause tied to an objective benchmark and capped at a maximum limit can enhance the contract’s sustainability by enabling the parties to share the risk.
The Imerek Construction Approach
In our contracts, we jointly determine the pricing model based on the project duration and scope, and we formalize the selected model in writing so that it is measurable. For other contract sections, Our article on the contract of undertaking You can review it.
