Price review and indexation in a public contract

RHS § 123(1)(2) allows the contract to be changed regardless of value if the change was provided for in the procurement documents. The law requires the scope, content and conditions of the change, “for example on price review”, to be described in the procurement documents “clearly, precisely and unequivocally” (unofficial translation). If that requirement is met, a price review is subject to neither the 15% nor the 50% limit.

Without such a clause, a price change is an ordinary change. It must then be justified under the other points of § 123(1): as a small change within the limits of point 1 (for construction works, cumulatively up to 15% of the original value and below the international threshold), or under another point whose conditions are stricter. Every price change therefore reduces the room left for real changes to the works. The limits on changes are covered in the article on the limits on changing a public contract: 15 and 50 per cent.

Tenderers price the risk the contract does not take off them. If the contract does not provide for price review, the tenderer must cover the risk of price rises itself and adds it to its price. The hankija (the contracting authority) then pays for the risk margin even if prices do not rise. A review clause makes the risk visible and shares it between both parties under the same rule.

A trend in case law supports the same conclusion. According to the Supreme Court (Riigikohus) case law review, the court found in judgment 3-2-1-102-14 (12.11.2014) that the price agreement in a public contract cannot be entirely non-binding. It can be inferred that a price that changes during the contract should change under an agreed rule, not through negotiation between the parties. This is a trend in published case law, not a statutory provision.

The test is simple: could a third party, from the clause and published data, calculate the same price change as the parties? If the answer depends on agreement between the parties, on interpretation or on one party's assessment, the clause is not precise enough.

Inadequate wording is easy to recognise. The sentence “the price may be changed if construction prices rise significantly” does not say which index, from which date, what counts as “significant” or by how much the price changes. The sentence “the parties will agree on the price change” is not a review clause but a promise of future negotiation. In both cases the price change falls under the other points of § 123.

A precise clause does not have to be complicated. A good starting point is the eight questions listed in the next section. The form of the formula and how to read the index are not covered here; they are explained in the article on using the index in a budget.

For a clause to meet the requirement of § 123(1)(2), it is worth writing in at least the following. The law does not list these elements; the table is a practical checklist. Each element closes off one area of interpretation.

The cap protects the contracting authority's funding. The law does not require a cap, but without one the contracting authority cannot know how far the contract value may rise. A cap also gives tenderers a clear picture of the risk they still bear.

Symmetry is in the contracting authority's own interest. A one-way clause passes price rises to the contracting authority but gives it no benefit from price falls. Two-way review shares the risk under one rule and keeps the contract price tied to the market in both directions.

The delay rule is the element most often forgotten. If the contractor falls behind schedule, later periods with a higher index should not raise the fee for work that ought to have been finished earlier. The clause can provide that delayed work is priced at the index for the time limit agreed in the contract.

If the contract includes indexation, the limits on changes are calculated from the indexed amount. Under RHS § 123(4), the calculations in points 1, 3 and 4 start from the contract value after indexation.

Fictitious example. The original value of a public works contract is 1,500,000 euros excluding VAT. The contract contains an indexation clause provided for in the procurement documents, under which the value has risen by 3% at a given point in time, to 1,545,000 euros.

Indexation itself does not use up the point 1 limit, because it takes place under point 2. The indexed amount becomes the basis from which the percentages for later changes are calculated. That is the second benefit of a precise clause: price rises do not eat up the room needed for the project's real changes.

Without a clause, the situation is reversed. The same price rise of 45,000 euros, if it had to be agreed without a clause provided for in the procurement documents, would have to fit under the other points of § 123. If it were justified as a small change, it would use 45,000 euros of the 225,000 euro limit, leaving 180,000 euros for changes to the works.

A good clause must also be applied well, or it loses its precision. It is worth agreeing in the contract who calculates the price change, when and in what form it is submitted, and how the contracting authority checks it.

The calculation is submitted together with the related instalment. For each review it shows the index value for the base period and for the accounting period, the indexed amount and the result. The contracting authority or its representative can then check the calculation against the same published data series.

Each review is entered on a separate line in the contract's register of changes. This keeps apart two things the law treats differently: price changes made under point 2 and changes to the works made under other points, whose cumulative amount must stay within the limits.

The review clause also affects procurement planning. Under RHS § 23(2)(1), the eeldatav maksumus (estimated value) covers the whole amount payable, including possible future obligations. If the procurement documents provide for price review, the contracting authority should assess how it affects the estimated value and the funding, and document its conclusion. The method for calculating the estimated value is covered in the procurement guide.

The funding must be able to carry the cap. If the clause provides for a cap, the contracting authority's maximum commitment is known: the original value plus the review cap and the reserve for changes. If there is no cap, the contracting authority must decide for itself what price rise to allow for in its funding.

In a private tellija's (the client's) contract, the risk of price rises is a matter for the contract. Without a clause, a price rise under a binding price or a binding eelarve (estimate) is in principle the contractor's risk; the exception is the change of circumstances provision in § 97 of the Law of Obligations Act (võlaõigusseadus), whose four conditions must all be met at once. This is covered in the article on price rises during the contract: who bears the risk. A public contract adds a public law limit: every price change must fit within the cases of § 123.

The elements of the clause are the same in both contracts. A named index, a base period, a threshold and a cap are good practice in the private sector too. In a public contract they also help meet the precision requirement of point 2, so that the review does not eat into the limits on changes.

Until 31 October 2026 the current rules apply. The amending Act (RT I, 03.07.2026, 3) takes effect on 1 November 2026. For this article, what matters is that the reform does not change the 15% and 50% limits; in § 123(1) the wording of point 3 changes, and in subsection 5 the time limit for the modification notice (from 10 days to 30 days). The transitional provision § 219^3 completes procedures begun before 1 November 2026 under the previous version; it does not expressly govern the modification of signed contracts. Details are in the article in the same branch on the limits on changing a public contract and in the branch overview the public works contract: price, changes and limits.