Can a contractor claim extra cost because imported equipment becomes more expensive?

A contractor is not automatically entitled to additional payment merely because imported equipment became more expensive after a Pakistani construction contract was signed. The answer depends on the pricing mechanism, currency allocation, change-in-law clause, tax treatment, variations, notice requirements and any exceptional statutory or contractual relief. A fixed-price EPC bargain commonly allocates ordinary procurement and exchange-rate risk to the contractor, but some contracts provide specific adjustment formulas or relief for defined extraordinary changes.

Identify the price structure

The executed agreement may be lump-sum fixed price, unit-rate, cost-plus or subject to periodic adjustment. A contractor must identify the relevant contractual provision before submitting a claim. The fact that imported materials represented most of the original estimate does not itself shift risk to the employer. A fixed-price contractor may have deliberately priced currency or market contingencies. A variable-rate contract can allocate the same risk differently.

Currency of contract and payment

Determine whether the contract price is in Pakistani rupees, US dollars or a combination, and whether exchange-rate adjustment applies. A contract payable in dollars may protect some procurement costs while creating other tax or transfer risks. A rupee lump sum does not automatically adjust whenever the dollar appreciates. The parties should distinguish changes in payment currency from changes in actual supplier invoice prices.

Price adjustment formula

Some FIDIC-based and public works contracts include an agreed cost adjustment mechanism tied to indices for materials, labour and equipment. The formula may cover only defined components and periods. The contractor should calculate entitlement using the exact indices and coefficients. A general international price increase is not a substitute for the contractual calculation. The employer should not reject a properly supported adjustment merely because it did not anticipate the amount.

Change in law

A new customs duty, regulatory restriction or applicable tax introduced after an agreed base date may qualify for contractual change-in-law relief. The claim should identify the legal instrument, date and direct cost impact. A supplier's voluntary price increase or currency speculation is not necessarily a change in law. The party should distinguish legislative changes from ordinary market movements and comply with any notice and mitigation conditions.

Customs and import classification

Imported machinery can face customs duties, sales tax, regulatory duties and clearance charges. The legal cost depends on tariff heading, actual import date, exemptions and regulatory notifications. An incorrect declaration may create a tax loss that the contractor cannot automatically pass to the employer. Obtain original goods declarations and relevant customs assessments before quantifying a claim. The contract may assign particular taxes to one party.

Variations and changed specifications

If the employer changes equipment capacity, brand, technology or technical standards after contract signing, the increased cost may arise from a variation rather than ordinary market inflation. A valid variation should be authorised and valued under the contractual mechanism. The contractor should not make expensive substitutions without approval and later assume the employer will pay. Written instructions and comparable supplier quotations can help establish the actual cost difference.

Employer-caused procurement delay

The employer may have delayed design approvals, letters of credit, site access or technical submissions, causing the contractor to order equipment after prices rose. Whether compensation is available depends on causation, contractual duties and notice. The contractor should demonstrate the original procurement timeline and how the employer's act affected it. Merely showing that approval occurred later than expected is insufficient if procurement would have been delayed anyway.

Force majeure and hardship

Many force majeure clauses address prevention of performance rather than increased cost. A commodity price doubling may make performance less profitable without rendering it legally impossible. The Contract Act contains doctrines concerning impossibility and other contractual principles, but ordinary commercial hardship does not automatically discharge a bargain. A contractor should not assume courts will rewrite a fixed price because the tender became unprofitable.

Sanctions and import bans

A government prohibition on importing specified equipment may require alternative sourcing or legal relief under the contract. The parties should determine whether the event qualifies as change in law, force majeure or variation. Additional costs can arise from complying with new requirements. The contractor should preserve official import restrictions and evidence of reasonable alternatives rather than rely on an unverified supplier rumour.

Procurement and public finance controls

A government employer may be constrained by procurement rules and authorised variation limits when agreeing additional compensation. Even a commercially justified adjustment must have a lawful contractual and administrative basis. The federal Public Procurement Rules, 2026 and applicable provincial regimes should be considered for public contracts. The employer's desire to help a financially distressed contractor cannot automatically validate an unapproved increase in public expenditure.

Notices and time bars

The contract may require claims within a defined number of days after the contractor became aware of the event. FIDIC editions have detailed notice provisions, subject to Particular Conditions. Delayed notice can jeopardise entitlement. The contractor should identify the event, forecast cost and submit supporting particulars in the correct form. An informal request to "revise rates due to inflation" may not preserve a contractual claim.

Actual cost evidence

Obtain purchase orders, supplier quotations at tender stage, final invoices, bank remittance records, exchange rates, shipping bills, customs declarations and delivery schedules. A credible calculation compares the contractually assumed cost with actual qualifying increase and relevant savings. Avoid presenting gross invoice differences where equipment specifications also changed for other reasons. Experts may need to isolate exchange-rate effects from design or quantity variation.

Duty to mitigate

The contractor may be required to take reasonable steps such as alternate approved suppliers, earlier ordering or lawful shipping changes. Mitigation is limited by safety, quality and the employer's contractual approval rights. A contractor should not buy substandard equipment to save money and later claim the employer should accept it. Where a cheaper equivalent existed, the claim may need explanation of why it was not commercially or technically feasible.

A fixed-price industrial project example

A contractor agrees to supply machinery for a rupee lump sum, then the dollar appreciates substantially before shipment. The contract contains no price escalation clause and assigns procurement risk to the contractor. The increase may not automatically be recoverable. The contractor should still examine whether employer delay, variation or a qualifying legal change independently contributed to the cost. An unfortunate tender estimate is not necessarily employer breach.

A regulatory change example

After tender submission, Pakistan imposes a new applicable import duty on specified equipment. The EPC contract contains a change-in-law clause compensating the contractor for defined new taxes. The contractor may submit the official notification, goods declaration and calculations within required notice periods. The claim should exclude unrelated currency or supplier price increases unless separately covered.

A delay-caused increase example

A public authority withholds mandatory technical approval for months despite timely complete submissions, causing a supplier quotation to expire. The contractor may claim additional costs if the contract allocates the delay risk and notice requirements were met. The critical questions are whether approval was due, the actual procurement sequence and reasonable mitigation. Simply alleging the employer was difficult will not establish every cost.

Dispute resolution

If the employer rejects the adjustment, the contractor should examine determination, DAAB or arbitration provisions and preserve all notices. A statutory tax appeal may be needed separately where customs incorrectly assessed equipment. The arbitral tribunal cannot automatically change a tariff classification reserved to customs authorities. The claim must identify whether it is contractual compensation, a variation valuation or tax recovery.

Opinion and recommended course

Imported equipment cost escalation is recoverable only where a contractual or legally sustainable basis allocates the risk to the employer. Review fixed price, adjustment, currency, taxes, variations and employer delay. Prove causal costs, comply with notice and pursue the correct contractual determination or dispute mechanism. Price increase alone is not sufficient.

Principal authorities: Contract Act, 1872; applicable signed FIDIC conditions and Particular Conditions; Customs Act, 1969 and tax notifications; federal Public Procurement Rules, 2026 where applicable; project contract and statutory change-in-law provisions.