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On July 21, 2022, the resolution of the Board of the National Bank of Ukraine dated July 21, 2022 No. 154 "On Amendments to Resolution No. 18 of the Board of the National Bank of Ukraine dated February 24, 2022" was adopted. According to the changes, the National Bank of Ukraine from 9:00 a.m. on July 21, 2022, adjusted the official exchange rate of the hryvnia to the US dollar by 25% to 36.5686 UAH/USD, and also took several additional measures to balance the foreign exchange market and maintain the stability of the economy in the conditions war

This event led to a rapid increase in prices and the impossibility of executing contracts at the prices at which auctions were won and contracts signed. Therefore, during the last week, both customers and suppliers repeatedly had questions: whether it is possible to make changes to the purchase agreement in connection with the change in the exchange rate of foreign currencies.

In this article, Valentyna Kruhliak, SmartTender's legal advisor, will answer this question and explain under what circumstances such changes can be considered legitimate.

What Is Written in the Law of Ukraine "On Public Procurement"?

According to clause 7, part 5, article 41 of the Law of Ukraine “On Public Procurement” (hereinafter referred to as the Law), it is stipulated that the essential terms of the procurement contract cannot be changed after it is signed until the parties fulfill their obligations in full, except for cases, in particular, changes the consumer price index established by the legislation by state statistical bodies, changes in the foreign exchange rate, changes in exchange quotations or indicators of Platts, ARGUS regulated prices (tariffs) and standards applied in the procurement contract, if the procedure for changing prices is established in the procurement contract.

That is, the legislation establishes the possibility to make changes in the price due to changes in the exchange rate, including its growth.

The Position of the Ministry of Economy of Ukraine Regarding Changes to the Essential Terms of the Procurement Contract

In the Letter of the Ministry of Economy of Ukraine (hereinafter referred to as the Ministry of Economy) No. 3304-04/69987-06 dated November 24, 2020 "Regarding the conclusion, execution, changes and termination of the procurement contract" it is stated that an increase in the amount of the procurement contract after its signing is possible in cases, provided for in clauses 6, 7 of the fifth part of Article 41 of the Law without changing the scope of procurement.

According to the Letter of the Ministry of Economy No. 3302-06/34307-06 dated 27.10.2016 "Regarding the change of the essential terms of the procurement contract", the change of the essential terms of the procurement contract in the cases established by paragraph 7 of the fourth part of Article 36 of the Law can be carried out only in the event if the purchase contract provides for a corresponding procedure for changing the price.

Since changes in the above-mentioned cases can be both upward and downward, the price of the purchase contract may change depending on such changes without changing the purchase volume. At the same time, amendments to the purchase agreement must be justified and documented.

Please note that the Ministry of Economy's Letter No. 3302-06/34307-06 dated 10.27.2016 specifies the provisions of the Law in the version that was in effect at the time this clarification was issued. Now the same norm with identical content is provided for in Clause 7 of Part 5 of Article 41 of the Law, so it is advisable to take this clarification into account.

Therefore, the Ministry of Economy also confirms that changes in the contract price are possible by the provisions of the Law. But at the same time, it emphasizes that the changes provided for in Clause 7 of Part 5 of Article 41 of the Law are possible only if the procedure for such changes is stipulated in the procurement contract.

This order, for example, can be considered the formula by which the new price is calculated in the event of a change in the exchange rate of foreign currencies.

Jurisprudence on the Issue of Changing the Price of a Contract in Connection with a Change in the Exchange Rate of Foreign Currencies

It is worth noting that the same position expressed by the Ministry of Economy is followed in judicial practice.

The decision of the Commercial Court of the City of Kyiv in case No. 910/12613/18 of February 14, 2019:

The court notes that the plaintiff at his discretion signed the purchase contract by the requirements of the tender documentation and did not waive the terms of the contract specified by the customer in the tender documentation, and therefore, when concluding the purchase contract, all its essential terms were accepted and agreed, including regarding the price of the contract, its type and the procedure for making changes to it.

The court notes that the Law establishes a mandatory special norm, according to which the change of the essential terms of the purchase contract can be carried out only in the cases defined by Article 36 of the Law. In particular, by Clause 7, Part 4 of Art. 36 of the Law, the essential terms of the purchase contract cannot be changed after its signing until the parties fulfill their obligations in full, except in cases of changes in the consumer price index established by the state statistics authorities by the law, changes in the foreign currency exchange rate, changes in exchange adjustments or Platts indicators, of regulated prices (tariffs) and regulations, which are applied in the purchase contract, if the price change procedure is established in the purchase contract.

Thus, the court concludes that changing the essential terms of the purchase contract in the cases established by paragraph 7 of the fourth part of Article 36 of the Law can be carried out only if the purchase contract provides for a corresponding procedure for changing the price.

And by Section 3 of the signed Agreement, the contract price is final and cannot be increased.

That is, when considering this case, the court emphasizes the change by Clause 7 Part 5 of Art. 41 of the Law is possible only when the procedure for making such a change is stipulated by the contract.

Resolution of the Supreme Court as part of the panel of judges of the Cassation Economic Court in case No. 912/45/19 of September 30, 2021:

The court notes that a systematic analysis of the provisions of the fifth part of Article 40 of the Law of Ukraine "On Public Procurement" provides grounds for the conclusion that the legislator provides grounds, the presence of which is an exception to the general rule, according to which the terms of the procurement contract must not differ from the content of the tender offer or the price offer (including the price per product unit) of the winner of the procurement procedure.

One of these grounds is determined by the legislator to be changes in the inflation index established by the law by the state statistics authorities, changes in the foreign currency exchange rate or Platts indicators in the case of establishing in the purchase contract the procedure for changing the price depending on the change in such exchange rate or such indicators, changes in stock exchange quotations, regulated prices ( tariffs) and regulations that are applied in the purchase contract.

Amendments to the purchase contract in the cases provided for by the Law and the terms of such a contract must be made by concluding an additional agreement, as well as be substantiated and documented in the manner established in the contract.

Each of these cases is applied depending on the occurrence of the reasons that led to the introduction of relevant changes to the purchase contract. In connection with the fact that changes in the foreseen cases can occur both in the direction of increase and in the direction of decrease, the price of the purchase contract can change depending on such changes without changing the volume of the purchase.

In this situation, the order of changes was established by the contract, as noted in the court decision. Namely, as can be seen from the content of the contract, the parties expressly provided for the possibility of changing the price of the product depending on the change in the current exchange rate of the euro established by the National Bank of Ukraine: clause 3.4 of the Contract contains information on the part of determining the procedure for changing the price (the exchange rate of the euro on the date of submission of the tender offer and euro exchange rate on the date of invoicing).

That is, in this case, the court established the legality of making changes since the purchase agreement provided for such an order.

An Example of a Formula for Changing the Value of a Contract Due to a Change in the Foreign Currency Exchange Rate

As an example, in the purchase contract, the following procedure for changing the value of the purchase contract due to changes in the foreign currency exchange rate can be prescribed:

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The procedure for changing (recalculating) the price of the Goods depending on the change in the foreign currency purchase rate is carried out according to the following formula:

S(new)=(K1/K0)*S1

where S(new) – the changed product price;

S1 – the price in hryvnias for the product, determined by the parties on the date of the electronic auction offer or conclusion of the last additional price change agreement, if such was concluded;

K1 – the official exchange rate of the hryvnia to a foreign currency on the date of submission of the Supplier's written request to change the price of the product;

K0 – the official exchange rate of the hryvnia to the foreign currency on the date of submission of the price offer or conclusion of the last additional price change agreement, if such was concluded.

At the same time, the parties determined that for making calculations under the contract, the Parties apply the official exchange rate of the hryvnia to foreign currency, which is displayed on the Internet resource https://bank.gov.ua/en/markets/exchangerates. (National Bank of Ukraine). When concluding an additional agreement on changing the price of the Goods, the Supplier provides the Buyer with supporting documents containing information about the price and justification (calculation of the cost) for the application of the clauses of the Agreement, which provide for the recalculation of the price of the Goods.

I emphasize that this is only a sample, which you do not need to limit yourself to – it is advisable to develop such a formula according to your needs, improve it, supplement it and change it. Such a procedure must be provided directly in the purchase contract.

Conclusions

Given the above, it can be summarized that the legislation provides for the possibility of making changes to the purchase contract due to changes in the exchange rate of foreign currencies, but it is worth noting that such a procedure must be prescribed in the contract itself.

We recommend that customers do not forget to include such a procedure in purchase contracts so that later there is no need to terminate such contracts due to the impossibility of fulfilling them on the part of suppliers.

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Also, you can always contact our support service at the number: 0 800 75 10 10.

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