Material cost increases and price revision: the effect on the budget

The codice civile (the Italian Civil Code) provides for a statutory revision, but with a high excess. If, as a result of unforeseeable circumstances, increases or decreases have occurred in the cost of materials or labour "exceeding one tenth of the total agreed price", the appaltatore (the contractor) or the client may request a revision of the price. And "the revision may be granted only for the difference that exceeds one tenth" (art. 1664 Civil Code, first paragraph; unofficial translation, as are all quotations in this article).

Three conditions must be read together. The circumstance must have been unforeseeable at the time of the contract: an increase the parties could have expected at signature falls outside the rule. The change is measured against the total agreed price, not the individual item. And only the part exceeding one tenth can be recognised: the first tenth stays with whoever bears it.

The rule works both ways. A fall in costs of more than one tenth also allows the client to request revision. In a period of falling prices, it is a lever the client seldom remembers.

The second paragraph deals with a different risk. If, during execution, difficulties arise from geological, water-related and similar causes, not foreseen by the parties, that make the performance "considerably more onerous", the contractor is entitled to "fair compensation". This is not a revision for price increases, but it has the same effect on the budget: an unplanned amount the client may have to recognise, and one prevented by adequate surveys before the contract.

Art. 1664 is not a mandatory rule, according to the line taken by the Court of Cassation. The headnotes reported by Brocardi indicate that the parties may derogate from it, to the point of excluding revision (Cass. civ. no. 5267/2018), or may set a threshold other than one tenth, remove that threshold or exclude certain items from revision (Cass. no. 4514/1980). Revision remains due even in a lump-sum contract (appalto a corpo), unless unequivocally waived (Cass. no. 1494/2011); and a "fixed-price" (a forfait) clause excluding payment for unforeseen difficulties has been held valid (Cass. no. 4198/2014). These are trends in published decisions, not rules: the wording of the contract remains decisive.

Before signing, the client must know which of the three regimes they are choosing.

Contract clause	Effect on the price increase risk	What it means for the budget
No specific clause	art. 1664 applies: revision beyond one tenth, for the excess only	residual risk to estimate beyond one tenth
Revision clause with indices and threshold	risk shared according to the chosen formula	"revision" line calculable at each progress valuation
Express and unequivocal waiver of revision	risk transferred to the contractor	initial price probably higher, risk of dispute if increases become exceptional

Excluding revision is not free. A contractor that takes on all the price risk tends to build it into the quote; a contractor that underestimates it may find itself in difficulty halfway through the works, at a cost to the client that appears in no clause. The choice should be made on the same basis as any budget choice: which risk is paid for now, which you accept paying later, which can be controlled.

A lump-sum price does not settle the matter. The global price excludes payment for agreed variations (art. 1659 Civil Code, covered in the article on variations in a private contract), but according to the line cited it does not on its own exclude revision for price increases: a clear waiver is needed.

In public works, revision is not a choice. The initial tender documents must contain price revision clauses (Legislative Decree 36/2023, D.Lgs. 36/2023, art. 60(1)). For works, revision is triggered when the change exceeds 3 per cent of the total amount, and recognises 90 per cent of the excess (para. 2); changes are measured with synthetic indices which, for works, are identified under Annex II.2-bis on the basis of the cost indices for work items adopted by the Ministry of Infrastructure and Transport after consulting ISTAT, the national statistics institute (paras. 3, 4 and 4-quater).

The technical mechanism is not the subject of this article. How the change is calculated, on which work items, with which indices and at what points is explained in the article on price revision in construction contracts and, from the bidder's point of view, in the one on price revision in public contracts. For whoever holds the budget, another question matters: which funds pay for it.

Revision is paid for with sums that also serve other purposes. To meet it, the stazione appaltante (the contracting authority) uses, "within the limit of 50 per cent", the contingency sums in the quadro economico, as well as tender savings and savings on works already completed (art. 60(5)). The same contingency sums also cover variations during the works due to unforeseeable circumstances.

Two practical consequences follow. First: the range for contingencies and works carried out directly by the authority, "between 5 and 10 per cent of the amount of the works put out to tender" (Annex I.7, art. 5(2)), should be chosen with price increases in mind too, not only technical contingencies; how to size it is covered in the article on how much to set aside for contingencies. Second: the quadro economico also provides for "allowances in relation to the modifications" linked to art. 60 (art. 5(1)(e), no. 6), a line that makes it possible to separate the funding for price increases from that for variations.

In private work the logic is the same, without obligation. A client who lets art. 1664 operate or signs a revision clause should keep a separate reserve for prices, apart from the one for site contingencies and the one for their own changes. A single reserve ends up consumed by the first item that comes along.

Revision is a line of its own in the final cost forecast. In the dashboard described in the article on tracking the final cost during the works, it is kept in two parts: revision already accrued and revision estimated on the works still to be carried out.

Three rules make it reliable. Date the initial budget, because without a reference month for prices the deviation due to price increases cannot be told apart from that due to quantities or variations. Estimate the remaining revision at its probable amount, under the applicable clause or rule, and not at zero until the contractor asks for it. Compare it at each stato di avanzamento lavori (SAL, the progress valuation) with the available reserve, because that is where you see whether the funding holds.

In private work under art. 1664, the risk is entered net of the one tenth. As long as the documented increase stays below one tenth of the total price, the line counts as zero cost, but must be watched. Beyond that, only the excess goes in, and only if the contract has not derogated from the rule.

The examples are entirely fictional and simplified, and serve only to show the order of magnitude. The first concerns private work and art. 1664: a client awards the construction of an industrial shed to a contractor for a total agreed price of 1,200,000 euros, with no revision clauses. During the works, owing to an unforeseeable circumstance, the cost of materials and labour rises by 150,000 euros, documented.

Item	Calculation	Amount
Total agreed price	contract figure	1,200,000 euros
One tenth of the price	1,200,000 / 10	120,000 euros
Documented increase	example figure	150,000 euros
Maximum revision that can be granted	150,000 - 120,000	30,000 euros

The risk to the budget is 30,000 euros, not 150,000. With an increase of 100,000 euros, below one tenth, no revision would be due. With an express and unequivocal waiver in the contract, not even the 30,000 euros.

The second concerns public work and art. 60. Assume, in simplified form, that on a works amount of 1,000,000 euros the recorded price change is 7 per cent. The part above the 3 per cent threshold is 4 per cent, that is 40,000 euros; 90 per cent of it is recognised, that is 36,000 euros. If the contingencies in the quadro economico amount to 60,000 euros, the share usable for revision is 30,000 euros (50 per cent): the remaining 6,000 euros must be found in tender savings or savings on completed works. The actual calculation follows the technical rules of art. 60 and of the indices, described in the articles referred to above.

Before the contract, the private client chooses the regime. Leave art. 1664 in place, write a revision clause with indices and threshold, or obtain a clear waiver: each of the three choices has a price, and none is neutral. The contracting authority, by contrast, writes the compulsory clause and sizes contingencies and allowances knowing they will also serve for revision.

During the works, the client measures rather than suffers. Require every revision request to be documented, check that the circumstance really was unforeseeable and that the threshold is exceeded on the total price, and update the dashboard line at each SAL. A disputed request stays recorded at its probable amount, like a claim, until it is settled.