Inflation Clauses in Contracts for Work

What is an inflation clause and why it is not trivial

An inflation clause is a contractual provision that allows for the adjustment of the price of a work or service depending on an objective increase in input costs, such as materials, energy, or labor. In the Czech legal environment of 2026, it is absolutely crucial for long-term projects.

Under the Czech Civil Code, if the price is agreed as a fixed amount, the contractor has no right to request a price change even if the costs change.

The exception is completely extraordinary and unpredictable circumstances, but relying on them is legally risky. Therefore, an inflation clause is an essential preventive tool. For long-term construction projects, it is worth setting up the inflation clause and related contractual documentation with regard to construction market practice, which typically falls within the scope of development and construction law.

It protects the supplier from loss, but also protects the client, who has the certainty that the price will not increase arbitrarily, but only on the basis of verifiable data. When negotiating these mechanisms in practice, subsequent agreements (e.g., on change management, extra work, or evidence of cost growth) are often decisive, which is why it makes sense to rely on the rules for contracts and negotiations.

The CZSO Index: How it works and what lies beneath the surface

The Czech Statistical Office (ČSÚ) publishes a number of indices that are the gold standard for inflation clauses due to their public nature. The data is publicly available free of charge and officially authoritative, with a transparent and long-term consistent methodology. Detailed time series are also available.

Main types of indices:

• Producer Price Indices (PPI) track prices in individual sectors, such as construction, metallurgy, or chemistry.

• The Consumer Price Index (CPI) measures inflation in the household consumer basket. It is often unsuitable for B2B contracts for work because it does not reflect company costs.

• Price indices of construction work and structures are directly relevant to the construction sector.

There are also hidden risks when using these indices. ČSÚ regularly revises the weights in the consumer basket and the methodology. If this happens during the term of the contract, it is necessary to have a mechanism for recalculation.

Another problem can be data aggregation. The "Construction Materials Prices" index is an average. If your construction relies on a specific material that has increased in price by 20%, but the average index has only risen by 5%, the clause will not cover your real loss. The delay in data publication must also be taken into account.

ÚRS and other pricing systems

In the Czech construction industry, we often encounter references to ÚRS (the company ÚRS CZ a.s.) or RTS. These are not state authorities, but private companies that create pricing systems. ÚRS does not only publish indices, but specific indicative prices for thousands of items of work and materials, which allows for a more precise valuation of extra work.

The disadvantage is that the data is not fully accessible to the public for free, and a license must be purchased. If you refer to "prices according to ÚRS" in the contract, but the other party does not have access to this data, they may object to the indefiniteness of the provision. The court must then examine whether the reference was sufficiently definite.

A contractor may have a clause in the contract linked to the ČSÚ Price Index of Construction Works, which increases by 3%, and yet argue that according to the ÚRS price list, the price of bricks has increased by 15%. If the contract refers to ČSÚ, only the ČSÚ index is relevant, and arguing with another pricing system is legally irrelevant.

How to properly structure an inflation clause

To make the clause functional and enforceable, it is necessary to follow several sequential steps during its preparation and avoid vague formulations.

Choosing a specific index and its designation

A formulation such as "The price shall be increased by the inflation rate announced by the state" is a mistake, as it is indefinite and unenforceable. If a dispute over a price increase or suspension of payments arises due to an indefinite provision, it is appropriate to resolve the matter under the framework of commercial and litigation disputes. A correct formulation is, for example: "The price of the work shall be adjusted according to the Price Index of Construction Works, code CZ-CPA 41 (Buildings and their construction), published by the Czech Statistical Office."

Specificity is crucial. The impact of changes in zoning plans on the contractual and pricing setup of projects is also addressed in the article Developer and zoning plan changes: A lawyer's perspective on construction law. It is recommended to state the exact classification of product code (CZ-CPA) or the exact name of the ČSÚ table.

Determining the base and comparison periods

You must define what you are comparing. A base index compares the current month to a fixed base (e.g., 2015 average = 100). A year-on-year index compares the same month of the previous year. An example would be specifying that the decisive index is the index for the month of signing the contract. The price adjustment is then made if the index in the month of invoicing exceeds the value of this reference index.

Definition of formula and limits

Disputes often arise here, so the parameters must be clear. The sensitivity threshold determines that the price is adjusted only if the year-on-year index increase exceeds, for example, 3%. The pass-through scope determines whether the entire price or only a part of it is adjusted.

Often, the profit margin is not indexed, but only the cost component. A cap then determines the maximum possible annual increase.

Determining periodicity and automatic application

It is necessary to determine whether the adjustment occurs automatically or based on a written request. Furthermore, it must be specified whether it is carried out monthly, quarterly, or annually. For construction projects in 2026, quarterly indexation is common, balancing administrative burden and market response.

Practical examples: Where the traps lie

Methodology change in the middle of construction

An investor signed a contract in January 2024 referring to a specific ČSÚ index. In 2026, ČSÚ carried out a revision, and the contractor submitted an invoice with an increase calculated according to the new series, which showed higher growth. The investor refused, saying it did not correspond to the original agreement.

Bez doložky o změně metodiky (tzv. fallback clause) vznikl pat a soud musel určit, jaká byla vůle stran. Správná smlouva musí obsahovat pravidlo pro přepočet mezi starou a novou řadou indexu.

Exchange rate risk vs. inflation

The contractor purchases technology in EUR, but the contract is in CZK with an inflation clause tied to the Czech PPI index. The koruna weakened, the purchase became 10% more expensive, but the Czech index rose by only 2%.

An inflation clause does not cover exchange rate risk, so the contractor is out of luck unless they have also secured a currency clause. The Czech PPI index does not reflect immediate exchange rate changes for a specific import. Similarly, an inflation clause does not cover an official ban on performance, the handling of which in a contract is described in the text on the ban on performance by the state.

Clause without a cap

During a period of extreme volatility (energy crisis), the index jumped by 25% and the contract did not contain a cap. The client did not have the financing for such an increase, and the construction stopped.

For the financial security of the project, it is advisable to agree on a so-called Cap, e.g., a maximum annual increase of 10%. Alternativou je právo objednatele odstoupit od smlouvy, pokud zdražení přesáhne určitou mez.

Final summary

An inflation clause appears to be a simple paragraph in a contract, but it is a sophisticated pricing mechanism. In 2026, when markets are still subject to fluctuations, its absence or poor formulation is a gamble.

The most common mistakes include the absence of a specific index specification (code, name, publisher) or a missing base. Asymmetry can also be problematic, where the clause only addresses price increases but not decreases, which could be considered an unfair provision in the case of a consumer.

Lawyers from the Prague-based ARROWS law firm will help you with the preparation, revision, and application of inflation clauses so that they are legally enforceable and economically sensible. If you are dealing with a contract for work and want to be sure of the correct price setting, contact consultation@arws.cz.