Hello, I am Attorney Bae Gi-hyung from Cheongchul Law Firm.

There is a system that adjusts the contract amount according to price fluctuations when the prices of items or categories that make up the contract amount rise or fall beyond a certain range after a construction contract is signed, thereby increasing or decreasing the contract amount.

The adjustment of the contract amount due to price fluctuations is typically calculated by multiplying the price adjustment rate or index adjustment rate by the consideration for the part that must be performed after the adjustment reference date.

So, is it possible to adjust the contract amount retroactively even when a payment for work completed has already been made for the part performed after the adjustment reference date (in the case of a construction contract, the part that has been constructed)?

[Question]

If a payment for work completed has already been made for the part constructed after the occurrence of the adjustment reason, can the contract amount be adjusted retroactively due to price fluctuations?

[Answer]

The Supreme Court's ruling on September 14, 2006 (2004Da28825) stated that "even if the consideration for the part performed after the adjustment reference date (the amount for which payment has already been made) is paid before the adjustment, the amount is included as part of the price fluctuation applicable amount (the consideration for the part performed after the adjustment reference date) for the purpose of contract amount adjustment, regardless of whether it was paid as a provisional amount or after the contracting parties requested contract amount adjustment. However, if the payment was made without considering the possibility of contract amount adjustment, it will be deducted from the price fluctuation applicable amount and will not be subject to contract amount adjustment."

This is because contract amount adjustment requires not only the occurrence of the adjustment reason but also a 'valid request for contract amount adjustment.'

In this context, the Supreme Court ruling clearly stated that "in the adjustment of contract amounts due to price fluctuations as per Articles 19 and 64 of the Act on Contracts with the State and the Enforcement Rules and Guidelines, even if an adjustment reason occurs due to a significant increase or decrease in the price adjustment rate after a certain period from the contract conclusion, it does not occur automatically and can only be made through a valid request for contract amount adjustment by the other party to the contract."

The legal principle requiring a request for contract amount adjustment applies not only to adjustments due to price fluctuations but also to adjustments due to changes in design or other modifications to the contract.

However, in practice, in public construction projects and government contracts, it is common for the contracting party not to accept the request for contract amount adjustment and to pay the completion fees. This is often because the client must go through a complicated budget increase process when adjusting the contract amount, often attributing responsibility to the relevant personnel.

In this situation, the contractor may find it more reasonable to leave documentation proving that they submitted the contract amount adjustment request and to conclude the work before receiving additional construction fees through litigation, rather than going through a detailed review process. However, it is important to note that the statute of limitations for construction payments must be carefully considered in this case.

Attorney Bae Gi-hyung provides legal counsel throughout the entire process of government contracts and construction projects, including large-scale construction, national defense facility projects, and SOC construction projects, with extensive experience and expertise in resolving related litigation. Should you require assistance related to government construction, private construction, public procurement contracts, state property, local assets, or public property, please feel free to contact us at any time.

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