Pacta Sunt Servanda and Hardship: When a Fixed Price Can Be Reopened

Pacta sunt servanda means agreements must be kept. A party is bound by the contract it signed, even when performance costs far more than it priced. For a fixed-price contractor, that is the starting answer to inflation and supply shocks.

The price moves only through the contract's own adjustment clauses or, rarely, a hardship or frustration rule in the governing law. Each of those doors is narrower than most claims assume.

What Does Pacta Sunt Servanda Mean?

Pacta sunt servanda is Latin for 'agreements must be kept', and it underpins contract law in civil-law and common-law systems alike. Treaty law codifies it in Article 26 of the 1969 Vienna Convention on the Law of Treaties, under that very heading.

Qatar goes further. The English text of Article 171 of the Qatar Civil Code on Al Meezan, the state's legal portal, opens with the phrase itself. A contract may be altered only by mutual consent or for reasons the law provides. Of all the legal maxims in construction contracts, this is the one the others have to work around.

For a contractor, the consequence is commercial before it is legal. A fixed price is a promise to deliver a defined result for a defined sum. A rise in steel, fuel or labour costs does not change that promise. It changes the margin. Choosing between fixed price, remeasurement and cost-reimbursable pricing is really choosing who carries cost risk, and on an LSTK contract almost all of it sits with the contractor.

How Can a Fixed Price Move Under FIDIC?

FIDIC's guidance memorandum on inflation and shortages, published in March 2023, starts from the same rule: a contractor 'cannot claim merely because the work costs more to execute'. It then lists the exceptions, each one a door the parties chose to keep or delete.

The first is the adjustment for changes in cost, Sub-Clause 13.8 of the 1999 Red and Yellow Books and 13.7 of the 2017 editions. It adjusts payments by an index-linked formula, but only where the contract includes a table of adjustment data (1999) or Schedule(s) of cost indexation (2017). The 1999 Silver Book offers it only through the Particular Conditions.

Any rise the formula misses is deemed included in the Accepted Contract Amount, so a lagging index leaves the gap with the contractor. A price adjustment calculator shows what a formula would return.

The second is change in laws, Sub-Clause 13.7 in 1999 and 13.6 in 2017. It gives time and cost for a change in the Laws of the Country after the Base Date, which falls 28 days before the latest tender submission date. A new levy or import ban where the works are built can qualify. A market price spike caused by events abroad cannot.

The third is force majeure under Clause 19 of the 1999 forms, renamed Exceptional Events under Clause 18 in 2017. FIDIC's guidance says these 'are not hardship provisions' and give relief only when performance is prevented, 'not when it is made more onerous or expensive'. Relief is mainly time, with cost only for certain man-made events and a termination right after prolonged prevention. Variations under Clause 13 are not a fourth door, because they change the scope, not the market.

Rebus Sic Stantibus and Hardship in Civil-Law Systems

Rebus sic stantibus means 'things standing thus'. It is the idea that a promise binds only while the circumstances behind it remain broadly the same. Many civil-law systems turned the idea into hardship, which Gulf lawyers usually call exceptional circumstances.

In the UNIDROIT Principles of International Commercial Contracts, a party whose performance becomes more onerous is 'nevertheless bound to perform'. Hardship arises only where 'the occurrence of events fundamentally alters the equilibrium of the contract'. The events must also be unforeseeable, beyond the party's control and outside the risks it assumed. The remedy is renegotiation, then a court that may adapt or terminate the contract.

The ICC Hardship Clause 2020 offers a drafted version. It binds a party to perform 'even if events have rendered performance more onerous than could reasonably have been anticipated'. Only an unforeseeable, unavoidable event that makes performance 'excessively onerous' triggers a duty to negotiate, and the parties choose in advance what follows if talks fail. Hardship rebalances a contract. It does not refund a bad bid.

Hardship in Qatar and the UAE: When a Court Can Reduce the Obligation

Article 171(2) of Qatar's Civil Code applies where exceptional, unforeseeable events make performance, though not impossible, so onerous that it threatens the obligor with exorbitant loss. The judge may then reduce the excessive obligation 'to a reasonable level' after weighing both parties' interests. The Arabic text requires the events to be general, and any agreement to the contrary is void.

The UAE now has two regimes. Federal Decree-Law No. 25 of 2025, the new Civil Transactions Law, took effect on 1 June 2026 and does not reach transactions made before then.

• Older contracts are generally judged under Article 249 of the 1985 law, which allows a similar reduction 'if justice so requires', although contracts that straddle the change may raise transitional questions.
• Later contracts fall under Article 224 of the new law, which lets the court reduce the obligation or terminate the contract.
• Construction contracts specifically get Article 829(3): where general, unforeseeable exceptional circumstances upset the balance on which the price was assessed, the court may restore it, including by extending time or raising or lowering the price, or may terminate.

Saudi Arabia's Civil Transactions Law has a comparable rule in Article 97.

The threshold is high under every one of these codes. The event must be exceptional, general rather than specific to the contractor, and unforeseeable when the contract was made. Steady inflation, a supplier's insolvency or an underpriced bid will not normally qualify. The 2026 closure of the Strait of Hormuz, which drove up fuel, steel and freight costs across the region, is the kind of event commentators argue could. A contract priced after the closure will struggle, because the event was known.

The problem is rarely whether hardship exists in Gulf law. It is whether the facts reach its threshold. Even then, the court weighs both sides, so expect a shared loss rather than full recovery. And even where the rule cannot be excluded by agreement, a contractor that accepted an express no-escalation clause will find it harder to show it never assumed the risk.

Frustration in Common Law: Why Onerous Is Not Impossible

English law has no general doctrine of hardship. Its nearest equivalent is frustration, which needs performance to become 'radically different from that which was undertaken'. Lord Radcliffe set that test in Davis Contractors v Fareham UDC, a 1956 House of Lords case. The contractor agreed to build 78 houses in eight months, but labour shortages stretched the job to twenty-two. It argued frustration so it could be paid on a quantum meruit instead of the contract price.

The House of Lords refused, because 'it is not hardship or inconvenience or material loss itself which calls the principle of frustration into play'. In Canary Wharf v European Medicines Agency, the High Court in 2019 repeated that frustration 'must not be lightly invoked and must be kept within very narrow limits'. Brexit did not frustrate a 25-year lease. Where frustration does apply, it ends the contract automatically. It does not reprice the work.

This is where pacta sunt servanda meets lex non cogit ad impossibilia. The law does not compel the impossible. It does compel the expensive.

Pacta Sunt Servanda vs Hardship vs Force Majeure vs Frustration

The table compares the default rule with each route out of it.

How to Position a Hardship Claim

Treat hardship as the last argument, not the first. Lead with every contractual route that fits, and serve every notice those routes require. That includes the claim notice under Sub-Clause 20.1 (1999) or 20.2 (2017), due within 28 days of becoming aware of the event. A late notice can sink the contractual routes before hardship is even argued.

Then build the evidence the threshold demands. Show the event was general and unforeseeable when you priced, and separate its cost from ordinary inflation and your own estimating errors. Keep working while you ask, in writing, to renegotiate, since even the UNIDROIT Principles say such a request does not justify withholding performance. Under a FIDIC contract governed by Qatari or UAE law, the dispute board or arbitral tribunal applies that law. A claim can be valid and still disappointing.

Negotiating Price Adjustment at Tender

The cheapest hardship claim is the one you never need. GCC employers often delete the cost adjustment clause or leave its table empty, and bidders accept the gap without pricing it. At tender:

• Ask for the clause to be activated.
• Propose indices and weightings for steel, cement, fuel and labour.
• Agree the fixed portion that stays unadjusted.
• If the employer refuses, price a fluctuation allowance openly.

But a qualification protects you only if it survives into the signed contract. In Davis, the tender letter made the price subject to adequate supplies of labour and materials, yet the House of Lords held it was not incorporated into the contract. Write escalation and hardship terms into the Particular Conditions, and mirror them in supply orders so that upstream recovery matches downstream exposure.

We review hundreds of fixed-price contracts across the GCC every year, and the pattern is consistent. The escalation clause was deleted at tender, the risk was priced at nothing, and hardship became the only argument left.

At CALIM, we test the price adjustment, change-in-law and Exceptional Event provisions before a fixed price is signed. That discipline sits at the core of our commercial management for SME contractors.

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