Legal Updates

Cancellation of a material clause of a contract automatically cancels its sub articles

July 2, 2019

Contracting company won a tender to execute works and signed a contract with the company managing and auditing the tender on behalf of the state, based on a shelf contract (governmental contract). The contracting company demanded additional payment due to a price increase that occurred while executing the works, as the agreement between the parties states that there would be no additional payment for price increases, but other articles of the shelf contract stipulate such payment.
The court rejected the claim and stated that the contract provisions are presented in addition to the shelf contract and in any event prevail over it. Where contract provisions in an amending document cancel the application of a material clause, its sub articles are automatically cancelled. In this case, the contract refers to an article in the shelf contract, amending it whereby contract prices will not be subject to any increase. Thus, even if the other articles of the shelf contract, which regulate the payment method and calculation of increases, were not explicitly canceled in the contract, they must be deemed as cancelled. In addition, accepting the company’s demand for payment due to the increase, in absolute contradiction of the tender terms, will lead to inequality and will detract from fair competition for bidders who did not submit their bid in light of transaction feasibility.