【HaiChuan Construction Discussion】Summary of Legal Bases for Contractors to Cope with Price Risks Amid Rising Building Material Prices

1. Article 6 of the Civil Code of the People’s Republic of China: When engaging in civil activities, civil subjects shall adhere to the principle of fairness and reasonably determine the rights and obligations of all parties involved. Article 510: After a contract comes into effect, if the parties have not agreed on or have unclearly agreed on matters such as quality, price or remuneration, and place of performance, they may reach an additional agreement to clarify these points; if no such additional agreement can be reached, the matter shall be determined in accordance with the relevant terms of the contract or trade practices. Article 511: Where the parties’ agreements regarding the content of the contract are unclear, and such matters cannot be determined in accordance with the provisions of the preceding article, the following rules shall apply: (1) If the quality requirements are not clear, performance shall be carried out in accordance with mandatory **standards; if there are no mandatory **standards, performance shall be carried out in accordance with recommended **standards; if there are no recommended **standards, performance shall be carried out in accordance with industry standards; if there are neither **standards nor industry standards, performance shall be carried out in accordance with ordinary standards or specific standards that meet the purpose of the contract. (II) If the price or remuneration is not specified, it shall be determined in accordance with the market price at the place of performance at the time the contract is concluded; if **fixed pricing** or **guideline prices** are required by law, such pricing shall be applied as stipulated. (III) If the place of performance is not specified, for the payment of money, performance shall take place at the location of the party receiving the money; for the delivery of real property, performance shall take place at the location of the real property; for other subjects, performance shall take place at the location of the party obligated to perform. (IV) If the deadline for performance is not clear, the debtor may perform at any time, and the creditor may also request performance at any time, provided that the other party is given sufficient time to prepare. (5) If the method of performance is not clear, it shall be performed in a manner that facilitates the achievement of the contract’s purpose. (6) If the burden of performance costs is not clear, it shall be borne by the party obligated to perform; any additional performance costs arising from the creditor’s reasons shall be borne by the creditor. Article 513: Where a **fixed price** or **guideline price** is applicable, in the event of a **price adjustment** within the delivery period stipulated in the contract, the pricing shall be based on the price at the time of delivery. In the event of delayed delivery of the goods, if prices rise, the original price shall apply; if prices fall, the new price shall apply. If the delivery of the subject matter or payment is delayed, in the event of an increase in prices, the new prices shall apply; in the event of a decrease in prices, the original prices shall apply. Article 533: After a contract is established, if there occur significant changes in the underlying conditions of the contract that were unforeseeable by the parties at the time of conclusion of the contract and that do not fall within the scope of commercial risks, such that continued performance of the contract would be clearly unfair to one of the parties, the party affected adversely may negotiate with the other party again; if no agreement can be reached within a reasonable period, the party may request a people’s court or an arbitration institution to modify or terminate the contract. The people’s court or arbitration institution shall, in light of the actual circumstances of the case, modify or terminate the contract in accordance with the principle of fairness. Article 584: If one party fails to perform its contractual obligations or performs them in a manner that does not conform to the agreement, thereby causing losses to the other party, the amount of compensation for such losses shall be equal to the losses resulting from the breach, including the benefits that could have been obtained had the contract been performed as agreed; however, it shall not exceed the losses that the breaching party foresaw or should have foreseen at the time of concluding the contract as a result of such breach. Article 585: The parties may agree that, in the event of a breach of contract by one party, that party shall pay the other party a certain amount of liquidated damages depending on the circumstances of the breach, or they may agree on a method for calculating the amount of compensation for losses resulting from the breach. If the agreed penalty for breach is lower than the loss incurred, the people’s court or arbitration institution may increase it at the request of the parties; if the agreed penalty is excessively higher than the loss incurred, the people’s court or arbitration institution may reduce it appropriately at the request of the parties. If the parties have agreed on a penalty for delayed performance, the party in breach must still fulfill its obligations after paying the penalty.

II. Judicial interpretations of the Supreme People’s Court: Article 4 of the Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China (I) states that after the implementation of the Contract Law, when a people’s court determines that a contract is invalid, it shall do so on the basis of laws enacted by the National People’s Congress and its Standing Committee, as well as administrative regulations issued by the State Council; local regulations and administrative rules shall not serve as a basis for such determinations. ” 2. Article 26 of the Interpretation (II) of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China, Legal Interpretation [2009] No. 5: After a contract is established, if significant changes occur in objective circumstances that were unforeseeable by the parties at the time of contracting, and which are not caused by force majeure nor fall within the scope of commercial risks, such that continued performance of the contract would be clearly unfair to one of the parties or render it impossible to achieve the purpose of the contract, and if such party requests the people’s court to modify or terminate the contract, the people’s court shall decide whether to do so based on the principle of fairness and taking into account the actual circumstances of the case. Article 29 Where a party claims that the agreed liquidated damages are excessive and requests their appropriate reduction, the people’s court shall, based on the actual losses, take into account comprehensive factors such as the performance of the contract, the degree of fault of the parties, and the expected benefits, and make a ruling in accordance with the principles of fairness and good faith. If the penalty for breach agreed upon by the parties exceeds 30 percent of the losses incurred, it can generally be considered to be \"excessively high compared to the losses suffered\", as stipulated in Paragraph 2 of Article 114 of the Contract Law. The criteria for determining excessive losses can be used to assess whether the rights and obligations between the parties are unreasonably imbalanced. In construction contract legal relationships, it can be determined as follows: if the value of price adjustments exceeds 30% of the total project cost, it can be considered unfair. 3. “Notice of the Supreme People’s Court on Several Issues Concerning the Proper Application of the Interpretation (II) of the Contract Law of the People’s Republic of China in Serving the Overall Interests of the Party and the Country”, Legal Document No. [2009] 165. II. Strict application of Article 26 of the Interpretation (II) of the Contract Law of the People’s Republic of China: In order to adapt to the changes in the economic situation and achieve a balance between legal and social outcomes in judicial proceedings, and in accordance with the principles and spirit stipulated in the General Principles of the Civil Law and the Contract Law, Article 26 provides that if, after a contract is established, significant changes occur in objective circumstances that were unforeseeable by the parties at the time of contracting, and these changes are not caused by force majeure nor fall within the scope of commercial risks; if continuing to perform the contract would be clearly unfair to one of the parties or prevent the achievement of the contract’s objectives, then if such party requests the people’s court to modify or terminate the contract, the court shall decide whether to do so based on the principle of fairness, taking into account the specific circumstances of the case. Regarding the aforementioned explanatory provisions, people's courts at all levels must understand them correctly and apply them with caution. If it is truly necessary to apply it in a specific case due to the particular circumstances of that case, it shall be reviewed by the Higher People’s Court. If necessary, it should be submitted to the Supreme People’s Court for review. 4. Guidelines of the Supreme People’s Court on Several Issues Concerning the Trial of Civil and Commercial Contract Dispute Cases under the Current Circumstances, Legal Document No. [2009] 40: I. Apply the principle of change of circumstances with caution in order to reasonably adjust the interests of both parties. 1. Due to factors such as sharp fluctuations in raw material prices, changes in market demand, and insufficient working capital, numerous disputes arise from product transactions and capital flows among market entities. With regard to requests made by some parties during litigation to apply the principle of change of circumstances in order to modify or terminate contracts, the people’s courts shall conduct a thorough examination based on the principles of fairness and change of circumstances. 2. When applying the principle of change of circumstances, the people’s courts shall fully take into account that the global financial crisis and changes in the domestic macroeconomic situation are not entirely sudden developments that catch all market entities off guard, but rather a gradual process of evolution. In the process of evolution, market entities should have a certain degree of foresight and judgment regarding market risks. The people’s courts shall, in accordance with the law, determine the applicable conditions for the principle of change of circumstances, and rigorously examine the claim of \"unforeseeability\" raised by the parties. Particularly for contracts involving bulk commodities with volatile market characteristics and large price fluctuations over time, such as oil, coke, and non-ferrous metals, as well as financial products involving risk investment such as stocks and futures, the principle of change of circumstances should be applied with even greater caution. 3. The people’s court should properly distinguish between changes in circumstances and commercial risks. Commercial risks are inherent to engaging in business activities, such as changes in supply and demand that have not reached levels of significant fluctuation, as well as price changes. Changes in circumstances are risks inherent to non-market systems that the parties could not foresee at the time of contracting. When determining whether a significant objective change constitutes a change in circumstances, the people’s court shall consider factors such as whether the type of risk is something that cannot be anticipated in accordance with general societal perceptions, whether the degree of risk far exceeds what a reasonable person would expect, whether the risk can be prevented and controlled, and whether the nature of the transaction falls within the typical category of \"high risk, high return\". It shall also take into account the specific conditions of the market in order to identify changes in circumstances and commercial risks on a case-by-case basis. 4. In determining the value orientation for scale adjustment, people’s courts should still adhere to the principle of giving priority to protecting the party that abides by the contract. Applying the principle of change of circumstances does not simply exempt the debtor from their obligations at the expense of the creditor, but rather requires due consideration to achieve a balance of interests and adjust the relationship between the two parties in a fair and reasonable manner. During the litigation process, the people’s court shall actively guide the parties to renegotiate and revise the contract ； If renegotiation fails, seek resolution through mediation. To prevent the principle of change of circumstances from being abused and disrupting the normal order of market transactions, when the people’s court decides to apply this principle in rendering a judgment, it shall strictly follow the relevant review procedures for applying the principle of change of circumstances, as required by the Supreme People’s Court’s “Notice on Properly Applying the Interpretations (II) to the Contract Law of the People’s Republic of China in Serving the Overall Goals of the Party and the Country” (Fa [2009] No. 165). 5. Article 19 of the \"Interpretation of the Supreme People’s Court on Issues Concerning the Application of Law in Cases Involving Disputes over Construction Contract Agreements\" (Legal Interpretation [2020] No. 25): If the parties have agreed on the pricing standard or method for a construction project, the amount due for the project shall be determined in accordance with such agreement. If changes in design result in alterations to the volume of work or the quality standards for a construction project, and the parties fail to reach an agreement regarding the cost for that portion of the work, they may refer to the pricing methods or standards issued by the local construction administration authorities at the time the construction contract was signed in order to determine the cost of the work. A construction project contract is valid; however, if the construction project fails to pass the completion inspection, it shall be handled in accordance with Article 577 of the Civil Code. Article 28 Where the parties agree to settle the project price at a fixed rate, and one party requests an appraisal of the cost of the construction project, the people’s court shall not grant such request. Article 29: If the parties have already reached an agreement regarding the settlement of the construction project cost prior to litigation, and one party applies during the litigation for an appraisal of the project cost, the people’s court shall not grant such an application. 6. Notice from the Supreme People’s Court on Issuing the \"Minutes of the National Conference on the Implementation of the Civil Code in Courts\". 11. The scope of losses specified in Paragraph 2 of Article 585 of the Civil Code shall be determined in accordance with Article 584 of the Civil Code; it includes the benefits that can be obtained as a result of the performance of the contract, but shall not exceed the losses that the party in breach foresaw or should have foreseen at the time of concluding the contract as a result of such breach. If the party requests the people’s court to increase the liquidated damages, the increased amount shall not exceed the losses stipulated in Article 584 of the Civil Code. After an increase in the penalty for breach of contract, if a party requests the other party to compensate for losses, the people’s court shall not grant such request. If a party requests the people’s court to reduce the liquidated damages, the people’s court shall, based on the losses stipulated in Article 584 of the Civil Code, take into account comprehensive factors such as the performance of the contract and the degree of fault of the parties, and make a judgment in accordance with the principles of fairness and good faith. If the agreed penalty for breach exceeds 30% of the losses as determined in Article 584 of the Civil Code, it may generally be considered to be \"excessively high compared to the actual losses\" as stipulated in Paragraph 2 of Article 585 of the Civil Code. The party claiming that the agreed liquidated damages are excessive and requesting their appropriate reduction shall bear the burden of proof; the opposing party, arguing that the agreed liquidated damages are reasonable, shall also provide corresponding evidence.

III. Some opinions or responses from local courts 1. Answers provided by the Beijing High People’s Court regarding several difficult issues in the trial of construction contract dispute cases 12. During the performance of a fixed-price contract, if there are significant changes in the prices of key building materials and the parties request an adjustment to the project cost, how should this be handled? If the construction contract stipulates that the project cost shall be settled at a fixed price, and during the actual execution of the contract, significant changes occur in the prices of key building materials such as steel, timber, cement, and concrete, which have a substantial impact on the project cost and exceed the scope of normal market risks, then, if the contract specifies who is responsible for covering the risks associated with changes in these material prices, it shall be handled in accordance with those provisions ； In the absence of an agreement or where the agreement is unclear, if such party requests an adjustment to the project cost, it may be granted as appropriate, beyond the scope and limits of market risks ； The specific amount can be determined by an appraisal agency in accordance with the opinions of the construction administration authorities at the site regarding the handling of price differences for building materials. If the project timeline is delayed or the delivery of building materials is postponed due to the fault of one of the parties, that party shall bear the cost difference related to the building materials for the period in question. 2. Guidelines of the Higher People’s Court of Anhui Province on Issues Concerning the Application of Law in the Trial of Disputes over Construction Project Contracts (II), Article 15: During the performance of a construction project contract, if there are fluctuations in costs related to labor, materials, and machinery, and the contract contains relevant provisions, such provisions shall apply ； If the contract does not specify anything, and the parties cannot reach an agreement through negotiation, the matter shall be handled in accordance with the regulations set by the construction administration authorities or industry standards. If losses are incurred as a result of the increased costs due to delays in the project timeline, the party responsible for such delays shall bear the responsibility ； If both parties are at fault for the delay in the project timeline, they shall each bear their respective responsibilities. 3. Notice from the Higher People’s Court of Guangdong Province on Issuing the “Interim Provisions on the Trial of Cases Involving Disputes over Construction Project Contracts”: 27. Where a construction project contract provides for a fixed price for the total cost of the project or for the prices of materials, and the contract is valid, the payment for the project shall be settled in accordance with such provisions. If a significant increase in the price of building materials due to changes in circumstances significantly disadvantages the contractor, the contractor may request an increase in the payment for the work. However, rising prices of building materials fall within the scope of normal market risks, and the increase in costs should be borne by the contractor. 4. Opinions of the Higher People’s Court of Jiangsu Province on Several Issues Concerning the Trial of Dispute Cases over Construction Project Contracts, Article 9: Where a construction project contract provides for settlement of the project cost at a fixed price, the court shall not support a party’s request to settle the cost based on fixed quotas, unless there are significant changes in the prices of raw materials during the execution of the contract. Where a construction contract stipulates that the project cost shall be settled at a fixed price, and changes in the volume of work or quality standards resulting from design changes lead the parties to request that the increased or decreased amount of work be settled based on the actual costs, the people’s court shall grant such requests, unless the parties have agreed otherwise.

5. Notice from the Higher People’s Court of Shandong Province on Issuing the Minutes of the Provincial Civil Trial Work Conference (V): Regarding the Issue of Whether the Principle of Change of Circumstances Can Be Applied to Fixed-Price Contracts During Their Execution. In construction project contracts where the payment amount is fixed, if there is a rapid increase in the prices of building materials or labor costs during the execution of the contract, can the parties request that the principle of change of circumstances be applied to adjust the contract price or terminate the contract? If the increase in the cost of building materials or labor costs does not fall within the risk scope stipulated in a fixed-price contract, any request by the parties to apply the principle of change of circumstances to adjust the contract price shall not be supported ； If the increase in the cost of building materials or labor expenses exceeds the risk threshold specified in a fixed-price contract, and such abnormal changes occur that continuing to enforce the fixed-price contract would result in a severe imbalance in the rights and obligations of the parties or render it manifestly unfair, then this constitutes an objective situation that could not have been anticipated by the parties at the time of signing the contract. If the parties request that the principle of change of circumstances be applied to adjust the contract price or to terminate the contract, their requests may be granted in accordance with Article 26 of the Supreme People’s Court’s “Interpretations on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China (II)” and the relevant provisions of the Supreme People’s Court’s “Guiding Opinions on Handling Civil and Commercial Contract Dispute Cases under the Current Circumstances”. 6. Answers by the Sichuan Provincial High People’s Court to Several Difficult Issues in the Trial of Cases Involving Disputes over Construction Project Contracts 24. What should be done if there are significant changes in material prices during the execution of a construction contract in which a fixed total price is agreed upon for the project? During the performance of a construction contract in which it is agreed that the project cost shall be settled on a fixed total price basis, if there are significant changes in the prices of major building materials that exceed the scope of normal market risks, and the contract specifies who is responsible for covering the risks associated with such price changes, then such provisions shall apply ； In the absence of an agreement or where the agreement is unclear, if a party requests an adjustment to the project cost and such an adjustment would be manifestly unfair, it may be granted at the discretion of the relevant authorities, beyond the scope and limits of market risks. The specific amount can be determined by an appraisal agency, taking into account the guidelines set forth by the construction administration authorities in the area where the project is located regarding the handling of price differences for building materials. The party responsible for any delays in the project timeline or in the supply of construction materials, as a result of its own actions, shall bear the risk associated with changes in the prices of those materials. Any request by such party to have the project cost adjusted will not be granted. 7. Guidelines of the Yancheng Intermediate People’s Court on Several Issues Concerning the Trial of Disputes over Construction Project Contracts 18. In cases where disputes arise from a significant increase or decrease in the prices of key building materials, resulting in an imbalance in the rights and obligations of the parties, and when the parties are unable to resolve such disputes through negotiation, it may be necessary to handle them in accordance with Article 26 of the Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of the Contract Law of the People’s Republic of China (II), as well as referring to the relevant regulations issued by the construction administration authorities.

IV. **Normative documents issued by relevant ministries and commissions: 1. The Ministry of Housing and Urban-Rural Development and the National Development and Reform Commission’s “Measures for the Management of General Contracting for Building Projects and Municipal Infrastructure Projects” (Jian Shi Gui [2019] No. 12), Article 15 – The project owner and the general contractor shall strengthen risk management and share risks reasonably. The risks borne by the project owner mainly include: (1) the portion of fluctuations in the prices of major construction materials, equipment, and labor costs that exceed the range stipulated in the contract compared to the prices at the time of bidding; (2) changes in contract prices resulting from changes in laws, regulations, or policies; (3) changes in project costs and timelines caused by unforeseen geological conditions; (4) changes in project costs and timelines due to reasons on the part of the project owner; (5) changes in project costs and timelines caused by force majeure. The specific terms of risk sharing shall be agreed upon by both parties in the contract. Construction units and general contractors for projects are encouraged to use insurance mechanisms to enhance their risk prevention capabilities. 2. Article 3 of the “Measures for the Administration of Pricing in the Assignment and Contracting of Construction Projects” (Order No. 16 of the Ministry of Housing and Urban-Rural Development): The prices for the assignment and contracting of construction projects are determined through market competition, under **macro-control. The pricing of engineering project contracting and subcontracting shall adhere to the principles of fairness, legality, and good faith. Article 13: When determining the contract price, the contracting parties shall take into account the impact of market conditions and changes in the prices of production factors on the contract price. For construction projects using the bill of quantities pricing method, both the employer and the contractor are encouraged to determine the contract price using a unit price approach. For construction projects with a smaller scale, lower technical complexity, and shorter construction periods, the employer and contractor may determine the contract price using a lump-sum approach. For emergency rescue and disaster relief operations, as well as construction projects with particularly complex technical requirements, the contracting parties may determine the contract price using a cost-plus fee approach. Article 14: The contracting parties shall specify in the contract the methods for adjusting the contract price in the following circumstances: (1) Changes in laws, regulations, rules, or relevant policies that affect the contract price; (2) Release of price adjustment information by the engineering cost management authority; (3) Approved changes to the design; (4) Increases in costs resulting from the employer’s modification of the approved construction organization plan; (5) Other factors agreed upon by both parties.

3. Article 8 of the Interim Measures for the Settlement of Construction Project Costs, Document No. Cai Jian 369: When signing a contract, the employer and the contractor may choose one of the following methods for determining the project cost: (1) Fixed total price. For projects with a short contract duration and a low total project cost, a fixed-price contract approach can be adopted. (II) Fixed unit price. The parties agree in the contract on the scope of risks covered by the comprehensive unit price and the method for calculating risk costs; within the agreed scope of risks, the comprehensive unit price shall not be adjusted. The method for adjusting the comprehensive unit price outside the scope of risks shall be specified in the contract. (III) Adjustable price. Adjustable prices include adjustable comprehensive unit prices and cost of measures, etc. The parties shall specify in the contract the methods for adjusting the comprehensive unit prices and the cost of measures. The factors for adjustment include: 1. Changes in laws, administrative regulations, and relevant policies that affect the contract price; 2. Price adjustments made by the engineering cost management authorities; 3. Approved design changes; 4. Increases in costs resulting from the employer’s modification of the approved construction organization plan (except to correct errors); 5. Other factors agreed upon by both parties. Article 11 The settlement of project payments shall be carried out in accordance with the provisions of the contract. Where the contract does not contain such provisions or the provisions are unclear, the employer and the contractor shall resolve the matter through consultation in light of the following regulations and documents: (1) Relevant laws, regulations, and rules and regulations; (2) Relevant provisions such as project cost pricing standards and pricing methods issued by the construction administrative department of the State Council, as well as by provinces, autonomous regions, municipalities directly under the Central Government or relevant departments; (3) The contract for the construction project, supplementary agreements, change orders, on-site visas, and other valid documents approved by both the employer and the contractor; (4) Other materials that can be used as a basis.

4. \"Code for Quantitative Pricing of Construction Projects\" (GB50500-2013) 3.4 Pricing Risks 3.4.1 In the contracting of construction projects, it is necessary to specify in the tender documents and contracts the contents and scope of risks related to pricing; terms such as \"unlimited risks\" or \"all risks\" shall not be used to define such contents and scope. 3.4.2 Any impact on the adjustment of the contract price arising from the following factors shall be borne by the employer: 1 **Changes in laws, regulations, rules, and policies** ； 2 Adjustments to labor costs issued by provincial or industry-level regulatory authorities, unless the contractor’s quoted labor costs or unit prices are higher than those specified ； 3 The prices of raw materials and similar items, which are managed through **pricing or** guideline prices, have been adjusted. In the event that the project timeline is delayed due to the contractor’s reasons, the provisions of Articles 9.2.2 and 9.8.3 of these specifications shall apply. 3.4.3 In the event that fluctuations in market prices affect the contract price, it shall be reasonably shared by both the employer and the contractor; the \"List of Major Materials and Construction Equipment Provided by the Contractor\" shall be prepared in accordance with Appendix L.2 or L.3 of these specifications and attached to the contract ； When the contract does not provide otherwise and a dispute arises between the employer and the contractor, the contract price shall be adjusted in accordance with the provisions of Articles 9.8.1 to 9.8.3 of these specifications. 3.4.4 Any increase in construction costs resulting from the contractor’s own reasons, such as the use of mechanical equipment, construction techniques, or organizational management capabilities, shall be borne entirely by the contractor. 3.4.5 When force majeure occurs and affects the contract price, the provisions of Section 9.10 of these specifications shall apply. 9 Adjustment of Contract Price 9.1 General Provisions 9.1.1 In the event of (but not limited to) the following circumstances, the contracting parties shall adjust the contract price in accordance with the provisions of the contract: 1 Changes in laws and regulations ； 2 Project changes ； 3 Project characteristics do not match ； 4 Missing items in the bill of quantities ； 5 Deviation in engineering quantity ； 6 Daily Rate Work ； 7 Price changes ； 8 Provisional estimate ； 9 Force Majeure ； 10 Early completion (acceleration compensation) ； 11 Delay Compensation ； 12 Claims ； 13 On-site Visa ； 14 Provisional amounts ； 15 Other adjustment items agreed upon by the employer and the contractor. 9.1.2 Within 14 days after any increase in the contract price occurs (excluding variations in the volume of work, daily rates, on-site visas, or claims), the contractor shall submit a report on the increase in the contract price to the employer, along with relevant supporting documents ； If the contractor fails to submit a report requesting an increase in the contract price within 14 days, it shall be deemed that the contractor has no such request for a price adjustment. 9.1.3 Within 14 days of any reduction in the contract price occurring (excluding variations in the volume of work or claims), the employer shall submit a report on the reduction in the contract price to the contractor, along with relevant documents ； If the employer fails to submit a report requesting a reduction in the contract price within 14 days, it shall be deemed that the employer has no such request for price adjustment. 9.1.4 The contractor shall verify the report on the increase (decrease) in the contract price together with the relevant documents within 14 days from the date of receipt thereof, and shall notify the employer in writing if it confirms such increase (decrease). When in doubt, consultative opinions should be submitted to the contractor (or employer). If the employer (contractor) fails to confirm or submit any comments for negotiation within 14 days from the date of receipt of the report on the increase (decrease) in the contract price, it shall be deemed that the report submitted by the employer (contractor) regarding the increase (decrease) in the contract price has been accepted by them. If the contractor submits suggestions for consultation, the employer shall verify them within 14 days of receiving such suggestions; if they are approved, the employer shall notify the contractor in writing. If the contractor receives the contractor’s suggestions and fails to confirm them or raise any objections within 14 days, it shall be deemed that the suggestions put forward by the contractor have been accepted by the other party. 9.1.5 If the employer and the contractor fail to reach an agreement regarding adjustments to the contract price, as long as this does not have a material impact on the performance obligations of either party, they shall continue to fulfill their contractual obligations until the issue is resolved in accordance with the dispute resolution methods specified in the contract. 9.1.6 The contract price adjusted upon confirmation by both the employer and the contractor shall be regarded as an additional (reduced) contract price, and shall be paid in conjunction with the project progress payment or settlement payment. 9.8 Price Changes 9.8.1 During the performance of the contract, if fluctuations in the prices of labor, materials, construction equipment, and machinery affect the contract price, the contract price shall be adjusted in accordance with the provisions of the contract and one of the methods outlined in Appendix A of these specifications. 9.8.2 When the contractor purchases materials and construction equipment, the contract shall specify the range or extent of price fluctuations for the major materials and construction equipment ； When no agreement has been made and the unit price of materials or construction equipment changes by more than 5%, the price of the excess amount shall be calculated in accordance with the method specified in Appendix A of these specifications to adjust the cost of the materials and construction equipment. 9.8.3 In the event of a delay in the completion date of the works under the contract, price adjustments for the performance period of the contract shall be determined in accordance with the following provisions: 1 If the delay is caused by reasons other than those attributable to the contractor, the price for the subsequent works shall be based on the higher of the planned completion date and the actual completion date. 2 If the project timeline is delayed due to the contractor’s reasons, the price for the work carried out after the planned completion date shall be based on the lower of the planned completion date and the actual completion date. 9.8.4 Where the employer supplies materials and construction equipment, the provisions of Articles 9.8.1 and 9.8.2 of these specifications do not apply; the employer shall adjust accordingly based on the actual changes, and such amounts shall be included in the cost of the contract works.

Appendix A Methods for Adjusting Contract Price in Response to Price Changes A.1 Adjustment of price differences using price indices A.1.1 Price adjustment formula. When fluctuations in the prices of labor, materials, engineering equipment, and construction machinery affect the contract price, the difference shall be calculated and the contract price adjusted in accordance with Table 22 in Appendix L.3 of these specifications provided by the tenderer, using the data specified in the price index and weight table included in the bidder’s bid document. The formula is as follows: △P – The price difference that needs to be adjusted ； P0 — The amount for the work completed that the contractor is entitled to under the agreed payment certificate. This amount shall not include price adjustments, deductions and payments related to quality bonds, nor payments and recoveries of advance payments. Changes to the agreed terms and other amounts that are priced at current rates are also not included ； A — Fixed weight (i.e., the weight of the unchanged part) ； B1, B2, B3…, Bn — the weighted values of each adjustable factor (i.e., the weight of the adjustable components), representing the proportion that each adjustable factor accounts for in the total bid price ； Ft1, Ft2, Ft3…, Ftn — the current price indices for each adjustable factor, referring to the price indices of those factors 42 days prior to the last day of the relevant period specified in the payment certificate ； F01, F02, F03…, F0n — the basic price indices for each adjustable factor, referring to the price indices of those factors at the base date. The adjustable factors, fixed values and variable weight values in the above price adjustment formulas, as well as the basic price index and its sources, are specified in the Price Index and Weight Table attached to the bid document. Price indices should first be those provided by the engineering cost management agency; in the absence of such indices, prices provided by the engineering cost management agency can be used as a substitute. A.1.2 Temporarily determine the adjustment difference. If the current price index is not available for calculating the adjustment amount, the previous price index can be used temporarily, with adjustments made later based on the actual price index in subsequent payments. A.1.3 Adjustment of weights. If a change to the agreement results in unreasonable weights in the original contract, adjustments shall be made through consultation between the contractor and the employer. A.1.4 Price adjustment after delay in the contractor’s timeline. If completion is not achieved within the agreed deadline due to the contractor’s reasons, for the work that continues after the originally agreed completion date, when applying the price adjustment formula in clause A.1.1, the lower of the price index corresponding to the originally agreed completion date and the price index corresponding to the actual completion date shall be used as the current price index. A.1.5 If the adjustable factor includes labor, the provisions of Paragraph 2, Article 3.4.2 of these specifications do not apply. A.2 Adjustment of prices due to cost information changes A.2.1 During the construction period, when the contract price is affected by fluctuations in the costs of labor, materials, engineering equipment, and construction machinery, the costs associated with labor and machinery use shall be adjusted in accordance with the labor cost information, unit prices for machinery usage, or coefficients for machinery use fees issued by the construction administration departments at the provincial, autonomous region, or municipal level, or by the industry construction management departments, or by the engineering cost management agencies authorized by them ； For materials that require price adjustments, their unit prices and quantities to be purchased shall be reviewed by the employer. The employer will confirm the adjusted unit prices and quantities of such materials, which will serve as the basis for adjusting the contract price difference. A.2.2 When the unit cost of labor changes and meets the conditions specified in Paragraph 2 of Article 3.4.2 of these specifications, the employer and the contractor shall adjust the contract price in accordance with the labor cost guidelines issued by the provincial or industry construction authorities, or by the engineering cost management agencies authorized by them. A.2.3 Changes in the prices of materials and construction equipment shall be adjusted according to Table-21 in Appendix L.2 of these specifications provided by the employer; the contract price shall be adjusted in accordance with the risk scope agreed upon by the employer and the contractor as follows: 1 If the unit price of materials in the contractor’s bid is lower than the benchmark price, then when the increase in the unit price of materials during construction exceeds the risk threshold specified in the contract, based on the benchmark price, or when the decrease in the unit price exceeds that threshold based on the bid price, the excess amount shall be adjusted accordingly. 2 If the unit price of materials in the contractor’s bid is higher than the benchmark price: when the decline in the unit price of materials during construction exceeds the risk threshold specified in the contract based on the benchmark price, or when the increase in the unit price of materials exceeds that threshold based on the bid price, the excess amount shall be adjusted accordingly. 3 In the contractor’s bid price, the unit price of materials is equal to the benchmark price; if the unit price of materials increases or decreases during the construction period by more than the risk threshold specified in the contract based on the benchmark price, the excess amount will be adjusted accordingly. 4 The contractor shall submit the quantity to be purchased and the new unit price of the materials to the employer for verification prior to purchasing them; once it is confirmed that these materials will be used for the works under this contract, the employer shall approve the quantity and unit price of the materials to be purchased. If the employer fails to respond within 3 working days after receiving the confirmation documents submitted by the contractor, it shall be deemed that such documents have been approved, and this shall serve as the basis for adjusting the contract price. If the contractor purchases materials on his own without first having them checked by the employer, and then submits them to the employer for approval in order to adjust the contract price, no adjustment will be made if the employer disagrees. A.2.4 If the unit price per shift for construction machinery or the cost of using such machinery exceeds the limits set by the provincial or industry construction authorities, or by the engineering cost management agencies authorized by them, the contract price shall be adjusted in accordance with those regulations.

5. The Ministry of Transport’s “Administrative Measures for the General Contracting of Highway Engineering Design and Construction” came into effect on August 1, 2015. Article 13 stipulates that the project owner and the general contractor shall agree in the tender documents or contract on a reasonable allocation of the risks associated with the general contracting. Risk sharing can be determined with reference to the following factors: The risks borne by the project owner generally include: (1) Requests by the project owner for adjustments to the project timeline, major or significant design changes, as well as adjustments to construction standards or the scale of the project ； 　　 (II) Changes in taxes and fees resulting from **policy adjustments such as tax measures ； 　　 (III) The portion by which the prices of major construction materials such as steel, cement, asphalt, and fuel fluctuate beyond the range stipulated in the contract, compared to the base prices at the time of bidding ； 　　 (IV) For major geological changes such as landslides, mudslides, sudden surges of soil, water inrush, karst caves, goafs, and toxic gases that are detected during the construction drawing survey and design phase and are difficult to predict at the preliminary design stage, it can be agreed that the costs associated with losses and remediation measures shall be borne by the project owner, or a sharing ratio between the project owner and the general contractor can be established. In the event of significant geological changes during project implementation, in addition to compensation from insurance companies, the losses and costs associated with addressing such issues may be agreed to be borne by the general contractor, or a division ratio between the project owner and the general contractor may be established. For the aforementioned problems arising from improper construction organization and measures by the general contractor, the associated losses and remediation costs shall be borne by the general contractor ； 　

　 (5) Increases in project costs caused by other force majeure events. 　 Apart from the risks assumed by the project owner, other risks can be agreed to be borne by the general contractor. V. Provisions of the \"Construction Project Contract (Model Text)\\" 1. General Contract Clauses of the \"Construction Project Contract (Model Text)\\" (GF-2017-0201) 11. Price Adjustment 11.1 Adjustment due to fluctuations in market prices Unless otherwise stipulated in the special contract clauses, if fluctuations in market prices exceed the range agreed upon by the parties to the contract, the contract price shall be adjusted. The parties to the contract may stipulate in the special contract terms that one of the following methods shall be used to adjust the contract price: Method 1: Adjusting the price using price indices. (1) Price adjustment formula: When fluctuations in the prices of labor, materials, equipment, etc. affect the contract price, the difference is calculated using the figures specified in the special contract terms, and the contract price is adjusted accordingly. In the formula: ΔP – the price difference that needs to be adjusted ； ——The amount due to the contractor for the work completed, as specified in the agreed payment certificate. This amount shall not include price adjustments, deductions and payments related to quality bonds, nor payments and recoveries of advance payments. Changes to the agreed terms and other amounts that are priced at current rates are also not included ； A — Fixed weight (i.e., the weight of the unchanged part) ； ——The variable weight of each adjustable factor (i.e., the weight of the adjustable portion) represents the proportion that each such factor accounts for in the contracted price ； ——The current price indices for each adjustable factor refer to the price indices of those factors as of 42 days prior to the last day of the relevant period specified in the payment certificate ； ——The basic price index for each adjustable factor refers to the price index of that factor at the base date. The adjustable factors, fixed values and variable weight values in the above price adjustment formulas, as well as the basic price index and its sources, are specified in the Price Index and Weight Table attached to the bid document; for contracts not concluded through bidding, such details are agreed upon by the parties to the contract in the special contractual terms. Price indices should first be those issued by the engineering cost management agency; in the absence of such indices, prices published by the engineering cost management agency can be used as a substitute. (2) Provisional determination of the adjustment difference: In the absence of current price indices for calculating the adjustment difference, the parties to the contract agree to use the previous price index on a provisional basis. The actual price index is adjusted, and the parties to the contract make corresponding adjustments. (3) Adjustment of weights: If changes result in the weights stipulated in the contract becoming unreasonable, the provisions of clause 4.4 [Agreement or Determination] shall apply. (4) Price adjustment in case of schedule delay due to the contractor’s reasons: If completion is not achieved on time due to the contractor’s faults, for the work that continues after the contractually specified completion date, when applying the price adjustment formula, the lower of the two price indices corresponding to the planned completion date and the actual completion date shall be used as the current price index. Method 2: Adjusting prices using cost information. During the performance of the contract, if fluctuations in the prices of labor, materials, construction equipment, and machinery affect the contract price, the costs associated with labor and machinery use shall be adjusted in accordance with the coefficients for such costs published by the construction administration departments of the provinces, autonomous regions, or municipalities directly under the Central Government, the industry construction management departments, or the engineering cost management agencies authorized by them ； For materials that require price adjustments, their unit prices and purchase quantities shall be approved by the employer; the employer’s confirmation of the adjusted unit prices and quantities for such materials will serve as the basis for adjusting the contract price. (1) If the unit cost of labor changes and such change complies with the regulations on labor cost adjustments issued by the provincial or industry construction authorities, the parties to the contract shall adjust the contract price in accordance with documents regarding labor costs issued by those authorities or by the engineering cost management agencies authorized by them, unless the contractor’s quoted labor cost or unit cost is higher than the specified price. (2) Price adjustments due to changes in the costs of materials and construction equipment shall be made in accordance with the benchmark prices provided by the employer, in line with the following risk scope provisions: ① If the unit price of materials specified in the priced bill of quantities or budget is lower than the benchmark price, then unless otherwise stipulated in the special contract terms, any increase in the unit price of materials during the execution of the contract that exceeds 5% based on the benchmark price, or any decrease in such unit price that exceeds 5% based on the price specified in the priced bill of quantities or budget, shall be adjusted accordingly. ②Where the unit price of materials specified in the priced bill of quantities or budget is higher than the benchmark price, unless otherwise stipulated in the special contract terms, during the performance of the contract, if the decline in the unit price of materials exceeds 5% based on the benchmark price, then the increase in the unit price of materials shall also be adjusted accordingly, with the excess amount being adjusted based on the unit price of materials specified in the priced bill of quantities or budget. ③Where the unit price of materials specified in the priced bill of quantities or budget is equal to the benchmark price, unless otherwise agreed in the special contract terms, during the performance of the contract, if the fluctuation in the unit price of materials exceeds ±5% based on the benchmark price, the excess amount shall be adjusted accordingly. ④The contractor shall submit the quantity to be purchased and the new unit price of the materials to the employer for verification prior to making the purchase. Once the employer approves their use in the project, they shall confirm the quantity and unit price of the materials to be purchased. If the employer fails to respond within 5 days after receiving the confirmation documents submitted by the contractor, it shall be deemed as acceptance, which will serve as the basis for adjusting the contract price. If the contractor purchases materials on his own without prior verification by the employer, the employer has the right to refuse to adjust the contract price. If the employer agrees, the contract price may be adjusted. The aforementioned benchmark prices refer to the costs of materials and construction equipment specified by the employer in the tender documents or special contract terms; these prices should, in principle, be determined based on the price information published by the provincial or industry-level construction authorities, or by the engineering cost management agencies authorized by them. (3) If the unit price per shift for construction machinery or the cost of using such machinery changes by more than the range specified by the provincial or industry construction authorities, or by the engineering cost management agencies authorized by them, the contract price shall be adjusted in accordance with the relevant regulations. Method 3: Other methods specified in the special contract terms. 2. \"General Contract for Engineering Construction Projects (Model Text)\\" (GF-2020-0216) 13.8 Adjustments due to fluctuations in market prices 13.8.1 If the prices of major construction materials, equipment, and labor fluctuate by more than the threshold specified in the contract compared to the prices at the time of bidding, both parties shall make adjustments in accordance with the price adjustment methods stipulated in the contract. 13.8.2 If the employer and the contractor agree in the special contract conditions to use the \"Price Index Weight Table\", the provisions of this clause shall apply. 13.8.2.1 The two parties may include certain major construction materials, engineering equipment, labor costs, and other expenses that they consider should be adjusted according to market prices in Appendix 6, and calculate the difference using the following formula to adjust the contract price: (1) Price adjustment formula Where: △P --- The price difference that needs to be adjusted ； PO---The amount due to the contractor in the payment certificate for the work completed. This amount shall not include price adjustments, the reservation and payment of quality retention funds, nor the payment and recovery of advance payments. Changes and other amounts stipulated in Article 13 that are priced at the current rates are also excluded ； A --- Fixed weight (i.e., the weight of the unchanged portion) ； B1 ； B2 ； B3 ； ……Bn—The variable weights of each adjustable factor (i.e., the weights of the adjustable components) represent the proportion that each such factor accounts for in the total bid amount submitted in the bid document, with A+B1+B2+B3+……+Bn=1 ； Ft1 ； Ft2 ； Ft3 ； ……Ftn---The current price index for each adjustable factor, referring to the price index of those factors 42 days prior to the last day of the period relevant to the payment certificate ； F01 ； F02 ； F03 ； ……F0n---The basic price index for each adjustable factor, referring to the price index of those factors at the base date. The adjustable factors, fixed values and variable weight values in the above price adjustment formulas, as well as the basic price index and its sources, are specified in the Price Index and Weight Table attached to the bid document. Price indices should first be those provided by the relevant authorities as stated in the appendix to the tender document; in the absence of such indices, prices provided by the relevant authorities may be used as a substitute. (2) Provisional determination of the adjustment amount: If the current price index is not available for calculating the adjustment amount, the previous price index can be used temporarily, with adjustments made later based on the actual price index in subsequent payments. (3) Adjustment of weights: If changes as stipulated in Clause 13.1 result in the weights specified in the original contract becoming unreasonable, the engineer shall make adjustments after consulting with the contractor and the employer. (4) Price adjustment in case of delay due to the contractor’s reasons: If the project is not completed within the agreed deadline due to the contractor’s faults, then for the work carried out after the originally agreed completion date, when applying the price adjustment formula specified in item (1) of this paragraph, the lower of the price index corresponding to the originally agreed completion date and the price index corresponding to the actual completion date shall be used as the price index for that period. (5) Price adjustment due to delays in the project timeline caused by the employer: If completion is not achieved within the agreed deadline due to reasons on the part of the employer, then for the work that continues after the originally agreed completion date, when applying the price adjustment formula specified in item (1) of this paragraph, the higher of the price indices corresponding to the originally agreed completion date and the actual completion date shall be used as the price index for that period. 13.8.2.2 Costs not listed in the Price Index Weight Table are not adjusted due to market changes. 13.8.3 If the parties agree to adjust the contract price by other means, the provisions of the special contract conditions shall prevail.