The material cost adjustment clause is often included in fixed-price contracts in the construction industry. The application of such a clause allows the contractor to pass on to their client any increases in material costs that occur during the course of the project.

When building or renovating a property, disputes often arise due to disagreements over the amounts claimed as additional costs. Although a fixed-price contract aims to establish a fixed price for the execution of a construction project, the contractor may still claim additional costs from the client.

What is a fixed-price contract?

The definition can be found in article 2109 of the Code civil du Québec:

" Where the price is fixed by the contract, the client shall pay the price agreed, and may not claim a reduction of the price on the ground that the work or service required less effort or cost less than had been foreseen.

Similarly, the contractor or the provider of services may not claim an increase of the price for the opposite reason.

Unless otherwise agreed by the parties, the price fixed by the contract remains unchanged notwithstanding any modification of the original terms and conditions of performance. "

There are two types of fixed-price contracts:

1. Absolute: when no clause in the contract allows for changes to the fixed price or modifications to the plans and work specified in the contract.
   
   
2. Relative: when there is a clause in the contract allowing the parties to modify the fixed price in the event of changes to the plans or work.

It is also possible for the parties to agree otherwise and make changes to the agreed contract along the way.

Attention: Even if your written contract clearly bears the title “Fixed-price contract” and the contractor's discussions and representations indicate that it is a fixed price, you should read the contract carefully and pay attention to the price adjustment clauses.

The material cost adjustment clause

Although your contract may contain other types of price adjustment clauses, in this article we will only discuss the material cost adjustment clause. The application of such a clause allows the contractor to pass on to the client any increases in the cost of materials that occur during the course of the project.

However, it is important to note that the contractor must justify this increase; it cannot result from negligence on their part. They must therefore demonstrate that they have checked with their suppliers in advance regarding the cost of materials, their availability, and the period for which the price is guaranteed. In addition, this increase must be unforeseeable.

Tips to remember:

1. Before signing the construction contract, read it thoroughly, make sure you understand it, and don't hesitate to ask for explanations.
   
2. You also have the right to negotiate and have any clauses you disagree with amended or removed.
   
3. If the contractor requests a price increase, do the necessary checks to determine whether it is provided for in the contract and justified, and ask to see the supporting documents.
   
4. Above all, if you have any doubts about the validity of the claim but still have to pay due to urgent deadlines, pressure, or other reasons, make a payment "under protest " (pay under reserve), clearly indicating these terms on the check, Interac transfer, and/or any prior written evidence informing your contractor that you are disputing the amount claimed and reserving the right to contest and claim a refund. Otherwise, your payment will be considered acceptance and it will be very difficult to dispute this amount later.

If you have any questions about a construction contract (or any other type of contract) that you are about to sign or have already signed, please do not hesitate to contact us.