10% PRICE ADJUSTMENT LIMIT IN PUBLIC ELECTRICITY PROCUREMENT: DOES IT APPLY DURING MARTIAL LAW?

Russia's full-scale military invasion of Ukraine on February 24, 2022, fundamentally changed the operating environment for both the state and businesses.  

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The public procurement sector was no exception, requiring immediate adaptation to new realities—the need to rapidly meet defense and essential national needs amidst extreme economic turbulence, disrupted supply chains, and unprecedented price volatility, particularly in energy markets.  

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To this end, the Cabinet of Ministers of Ukraine, pursuant to and in implementation of the Law of Ukraine "On Public Procurement," adopted Resolution No. 1178, which established the Specifics of Public Procurement during the period of martial law (hereinafter – the Specifics).  

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One of the key and most debated issues arising from the introduction of the Specifics has been the possibility of adjusting procurement contract prices in response to market fluctuations—specifically, whether an increase exceeding the 10% limit set by the general provisions of the Law of Ukraine "On Public Procurement" is permitted (taking into account the conclusion of the Grand Chamber of the Supreme Court set forth in the ruling of January 24, 2024, in case No. 922/2321/22). 

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This issue became particularly pressing following the emergence of Supreme Court case law which, in our view, creates legal uncertainty and undermines the very purpose of introducing a more flexible price adjustment mechanism for the wartime period. 

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The General Rule of the Law: Immutability and the 10% Limit 

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One of the fundamental principles of public procurement is the immutability of essential contract terms after signing (Part 5, Article 41 of the Law).  

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Changing the price as an essential term is only possible in exceptional, clearly defined cases. Clause 2 of Part 5 of Article 41 of the Law allows for an increase in the unit price of goods by "up to 10 percent" in proportion to market fluctuations, provided the total contract value remains unchanged.  

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This quantitative restriction was the focus of judicial attention, and its interpretation as a strict limit was upheld by the Grand Chamber of the Supreme Court in case 922/2321/22 (In any event, the unit price of goods may not be increased by more than 10% of the price originally determined by the parties in the contract following the procurement procedure, regardless of the number or timing of price adjustments during the contract term. In other words, while the contract is in effect, the parties may increase the unit price multiple times, provided the conditions set out in Article 652 of the Civil Code of Ukraine and Clause 2 of Part 5 of Article 41 of Law No. 922-VIII are met; however, the cumulative increase in such price must not exceed 10% of the price determined by the parties at the time of contract conclusion following the procurement procedure). 

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Recognizing that peacetime public procurement rules do not meet the needs of martial law, the legislature provided in paragraph 3-7 of Section X of the Law that the specifics (i.e., special rules distinct from the general ones) for procurement during martial law are to be determined by the Cabinet of Ministers of Ukraine. 

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In compliance with this provision, the Cabinet of Ministers adopted the Specifics. Key to our inquiry is subparagraph 2 of paragraph 19 of the Specifics, which establishes the rules for price adjustments in the event of market price fluctuations: 

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"2) agreement to change the unit price of goods in a procurement contract in the event of a fluctuation in the market price of such goods that has occurred since the conclusion of the procurement contract or the last amendment to the procurement contract regarding the unit price. The change in the unit price of goods shall be proportional to the fluctuation in the market price of such goods (the percentage increase in the unit price may not exceed the percentage of the fluctuation (increase) in the market price of such goods), provided that such fluctuation is documented and does not result in an increase in the total amount specified in the procurement contract at the time of its conclusion" 

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An analysis of this provision shows: 

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• The rule allows for the adjustment of unit prices in response to market fluctuations. 

• The change must be proportional to the market fluctuation, and the percentage of the price increase cannot exceed the percentage of the market fluctuation. 

• This wording lacks the direct 10% quantitative limit contained in the Law. 

• The change requires documentary evidence and must not increase the total contract value.

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Thus, the Specifics establish a mechanism for proportional price adjustment without duplicating the 10% limit specified in the Law. 

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Clearly, these changes were dictated by the objective need to ensure contract flexibility amidst the unprecedented price volatility in markets (especially energy) during the war, where price fluctuations significantly exceed 10%, and maintaining a rigid adjustment limit could have led to widespread contract failures and the inability of counterparties to fulfill their obligations. 

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Position of the Commercial Cassation Court of the Supreme Court: The Law takes precedence 

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Despite the absence of a 10% cap in the text of sub-paragraph 2 of paragraph 19 of the Special Procedures, the Commercial Cassation Court of the Supreme Court has, in a series of rulings issued during martial law (notably in cases No. 916/747/24 of 06.02.2025, No. 918/1313/23 of 28.08.2024, and No. 918/694/23 of 28.08.2024), effectively concluded that the 10% price adjustment limit established by the Law remains in effect even while the Special Procedures are in force. 

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The court's core reasoning is as follows: 

• The Special Procedures are a subordinate act and cannot contradict the Law. 

• The Special Procedures merely "detail" the application of the Law rather than overriding its mandatory provisions. 

• Therefore, the proportionality rule from sub-paragraph 2 of paragraph 19 of the Special Procedures must be applied only within the 10% limit established by Article 41 of the Law.

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Why is this approach considered debatable?  

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1. Ignoring the purpose and special nature of the Special Procedures: the Law itself authorized the Government to establish "special procedures" for the duration of martial law. This implies the possibility of setting rules that differ from the general ones. If the intention had been to keep the 10% limit unchanged, it would have been logical to explicitly state it in the Special Procedures or not regulate the matter separately at all. Instead, a proportionality rule was formulated without setting a limit.

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2. Violation of the principle of Lex specialis derogat legi generali: if a law points to a specific subordinate act as the source of regulation for certain relations, that act becomes the lex specialis for those legal relations by the direct instruction of the legislator. 
   
   Although, in general, a subordinate act cannot take precedence over a law, in the case of a blanket provision, the law itself authorizes the application of specific rules set out in the subordinate act, integrating it into the mechanism of legal regulation for the relevant relations. 
   
   The mandatory nature of the Cabinet of Ministers' resolution in such a case is reinforced by the authority of the law itself, which delegated the power for its adoption. This dual source of legitimacy (the general powers of the Cabinet of Ministers and the specific instruction of the law) strengthens its status as a directly applicable regulatory act in the defined sphere. 
   
   Under these circumstances, the generally accepted legal principle of lex specialis derogat legi generali (special law overrides general law in the part where it contradicts it) should apply.  
   
   The provision of sub-paragraph 2 of paragraph 19 of the Special Procedures is a special rule regulating price changes due to market fluctuations specifically during the period of martial law, and it was adopted in fulfillment of the requirements of paragraphs 3-7 of Section X "Final and Transitional Provisions" of the Law of Ukraine "On Public Procurement". 
   
   Therefore, during the period the Special Rules were in effect, this specific provision took precedence over the general rule in Clause 2, Part 5, Article 41 of the Law regarding the maximum price increase limit. Consequently, the only restriction on price increases during the period in question was the requirement that they be proportional to documented market fluctuations, and the 10% limit set by the Law did not apply.

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3. Undermining the goal of flexibility: Establishing a proportionality rule without a cap in the Special Rules was intended to provide procurers and suppliers with a tool to respond to significant, unpredictable price spikes characteristic of wartime, which often exceed 10%. The interpretation by the Commercial Cassation Court of the Supreme Court, which continues to cap everything at 10%, effectively nullifies this potential flexibility and jeopardizes contract performance and supply stability. 

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4. Excessive formalism: The "subordinate legislation cannot contradict the law" approach was applied too formally, without considering that the Law itself explicitly authorized the Government to establish different, special rules for the wartime period. In this case, the Special Rules do not "contradict" the legislator's intent; rather, they implement it by establishing a special regime. 

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Thus, the position of the Commercial Cassation Court of the Supreme Court, which applies the 10% limit of the Law despite the absence of such a restriction in the text of Subclause 2, Clause 19 of the Special Rules, appears to insufficiently account for the special nature and purpose of public procurement regulation during martial law. 

‍What should market participants do?  

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Despite the criticisms and the debatable nature of the Commercial Cassation Court's position, judicial practice cannot be ignored. The conclusions of the Commercial Cassation Court serve as a benchmark for lower courts and regulatory authorities. 

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Therefore, market participants should be diligent in selecting counterparties and carefully review supply contracts before signing them.  

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The most important safeguard against potential issues is to clearly define the procedure and grounds for price changes in the supply contract and to subsequently exercise the right to increase the price in accordance with the procedure established in the contract. 

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Furthermore, to minimize risks, we recommend obtaining professional legal advice before initiating any price increases in electricity supply contracts.

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