The conflict over the sharing of additional construction costs due to rising raw material prices, such as rebar, is intensifying nationwide between construction clients and contractors.
As disputes between contractors demanding increases in construction costs due to rising prices and clients insisting on maintaining existing construction prices surge, the effectiveness of the "exclusion of price fluctuation clause" has emerged as a key issue. The exclusion of price fluctuation clause is a condition that excludes the possibility of adjusting construction costs due to price fluctuations, determining whether clients are required to increase construction costs for contractors.
The legal community is trending towards recognizing the effectiveness of this clause. However, there are cases in which the effectiveness is not acknowledged in certain rulings. The Supreme Court recognized the effectiveness of the clause in a ruling made in December 2017. Lower court rulings, such as those from the Seoul Central District Court (July 2023 ruling) and the Daegu High Court (November 2022 ruling), also recognized the effectiveness of the exclusion of price fluctuation clause in accordance with the Supreme Court's intent.
On the other hand, a recent ruling has denied the effectiveness of the exclusion of price fluctuation clause. The Busan High Court ruled on Nov. 29, 2023, that "the construction start was delayed for 8 months at the client's request without the contractor's fault, and during that period, raw material prices soared, so recognizing the effectiveness of the exclusion of price fluctuation clause would be significantly unfair to the contractor," deeming the clause invalid. Lawyer Seo Ga-hee of Jehyun Law Firm noted that "based on many precedents, the exclusion of price fluctuation clause is valid when certain conditions are met" and "it is difficult to judge that it always exerts effect in all cases."
The Supreme Court also ruled the exclusion of price fluctuation clause invalid last April regarding a clause signed by a church in Busan. The Korea Commercial Arbitration Board also deemed the clause invalid in a construction cost arbitration case between Korea Midland Power (KOMIPO) and the contractor.
However, the common opinion in the legal community is that it is difficult to generalize rulings that find the exclusion of price fluctuation clause invalid.
Park Jong-tae, a lawyer at Text Law Firm, stated, "Given recent rulings, it is reasonable to believe that the exclusion of price fluctuation clause can only be deemed invalid under special factual circumstances," adding that "disputes between construction companies and clients will be judged differently based on the magnitude of price increases, the contents of the contract, and whether there are reasons that can be deemed significantly unfair to the contractor."
Moon Yong-seon, a lawyer at Seopyeong Law Firm, stated, "According to recent trends in rulings, whether the exclusion of price fluctuation clause is valid should be comprehensively considered based on the length of the construction period, the percentage of the price fluctuation amount relative to the total construction cost, and the status of the parties during the contract signing process." She added that "the validity may be judged differently based on the specific circumstances."