Inflation Clauses in Contracts for Work

What an Inflation Clause Is and Why It’s Not a Trivial Matter

An inflation clause is a contractual arrangement that allows for the adjustment of the price for a work or service depending on an objective increase in the price of inputs, such as materials, energy, or labour. 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 is not entitled to request a change in price, even if costs change.

The exception is for entirely extraordinary and unforeseeable circumstances, but relying on this is legally risky. Therefore, an inflation clause is an essential preventive tool. For long-term construction projects, it pays to set up an inflation clause and related contractual documentation with regard to the practice of the construction market, which typically falls within the area of development and construction law.

It protects the supplier from losses, but it 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, related arrangements (e.g., regarding change management, additional work, or evidence of cost increases) are often decisive, so 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 (CZSO) publishes a number of indices that are the gold standard for inflation clauses due to their public nature. The data is publicly available for free and is officially authoritative, while the methodology is transparent and consistent over the long term. Detailed time series are also available.

Main types of indices:

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

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

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

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

Another problem can be data aggregation. The "Construction Material Prices" index is an average. If your construction project relies on a specific material that has become 20% more expensive, but the index average has only increased by 5%, the clause will not cover your actual 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 issue indices, but also specific guide prices for thousands of work and material items, which allows for more accurate pricing of additional work.

The disadvantage is that the data is not freely available to the public in its entirety and a licence must be purchased. If you refer to "prices according to ÚRS" in a contract, but the other party does not have access to this data, they may object that the arrangement is indefinite. The court must then examine whether the reference was sufficiently specific.

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

How to Properly Structure an Inflation Clause

For a clause to be functional and enforceable, several successive steps must be followed during its preparation, and vague wording must be avoided.

Choosing a Specific Index and Its Designation

A mistake is to use wording such as "The price will be increased by the inflation announced by the state," which is vague and unenforceable. If a dispute arises over a price increase or suspension of payments due to an indefinite arrangement, it is appropriate to handle the matter in the context of commercial and court disputes. Correct wording would be, for example: "The price of the work shall be adjusted according to the Index of Construction Works Prices, code CZ-CPA 41 (Buildings and their construction), published by the Czech Statistical Office."

Specificity is crucial. The impacts of zoning plan changes on the contractual and pricing setup of projects are also addressed in our new article The Developer and a Change in the Zoning Plan: A Lawyer's View on Construction Law. It is recommended to state the exact production classification code (CZ-CPA) or the exact name of the CZSO table.

Determining the Base and Comparison Periods

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

Defining the Formula and Limits

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

Often, the profit margin is not indexed, only the cost component. The Cap then determines the maximum possible annual increase.

Determining Periodicity and Automatic Application

It is necessary to state whether the adjustment happens automatically or on the basis of a written notice. It also needs to be determined whether it is carried out monthly, quarterly, or annually. For construction projects in 2026, quarterly indexation is common, balancing the administrative burden and market responsiveness.

Examples from Practice: Where the Pitfalls Lie

Change of Methodology Mid-Construction

An investor signed a contract in January 2024 with a reference to a specific CZSO index. In 2026, the CZSO 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, stating that this did not correspond to the original agreement.

Without a clause on the change of methodology (a so-called fallback clause), a stalemate arose, and the court had to determine what the will of the parties was. A proper contract must contain a rule for recalculation between the old and new index series.

Currency Risk vs. Inflation

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

An inflation clause does not cover currency risk, so the contractor is out of luck unless they have also secured a currency clause. The Czech PPI index does not reflect an immediate change in the exchange rate for a specific import.

Clause Without a Cap

During a period of extreme volatility (the 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 construction came to a halt.

For the financial security of the project, it is advisable to agree on a Cap, e.g., a maximum annual increase of 10%. An alternative is the client's right to withdraw from the contract if the price increase exceeds a certain limit.

Final Summary

An inflation clause may seem like 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 wording is a gamble.

Among the most common mistakes are the lack of a specific index specification (code, name, publisher) or a missing baseline. Asymmetry can also be problematic, where the clause only addresses price increases but not decreases, which could be considered an unfair term in a consumer contract.

The lawyers at the ARROWS law firm will help you with the preparation, revision, and application of inflation clauses to ensure 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.