The mechanisms for price review offer a solution to ensure the economic viability of railway projects. Introducing flexible clauses in public contracts for rolling stock, railway infrastructure, and control systems would facilitate manufacturers’ adjustment to market fluctuations, according to a KPMG report.
The independent report, titled “Railway Sector in Europe and Portugal,” states that such mechanisms promote both the continuity of projects and a fair balance between the contracting parties, easing the way for public entities and contractors to handle exceptional economic challenges posed by global instability and uncertainty.
In Portugal, the report from December last year recalls decree-law 36/2022, related to price revisions and applied to all public contracts, which was created to address the inflationary pressures of 2022.
The document cites examples of railway contracts not covered by the decree, such as Stadler and Siemens Mobility’s provision of a new signaling system and trains for Lisbon Metro, the contract for 22 new trains for CP – Comboios de Portugal supplied by Stadler, and the contract for 117 urban and regional trains for CP awarded to Alstom.
On the other hand, more recent contracts included price review mechanisms, such as the order for 24 triple units (with an option for 12 more) for Lisbon Metro commissioned from Stadler, the public tender for Lisbon Metro’s violet line, and the tender launched in 2024 for 22 vehicles (plus 10 optional) for Metro do Porto.
The 2022 decree-law’s implementation extended the existing civil construction contract capability to review prices in public railway contracts, a vital step to protect long-term contracts against inflation and market fluctuations, the document concludes.
However, as the decree had a limited duration resulting in many contracts being excluded from review possibilities, it highlights the necessity for establishing a permanent model.
The report also lists measures taken in countries like Romania, Germany, France, Ireland, and Spain, noting that public contracts in the railway sector are complex, long-term, and highly technical, requiring careful planning regarding schedule, costs, quality assurance, regulatory compliance, and maintenance.
As these projects are long-term, they face economic fluctuations during implementation, increasing uncertainty about the costs of materials, labor, and energy supply, according to the document. Thus, contracts in this sector require sufficient flexibility to adapt to unexpected price changes.
This situation arose after 2019 and 2020 with the impact of the COVID-19 pandemic, the war in Ukraine, and current trade and geopolitical uncertainties, which mostly affected material and energy prices.
The independent report notes that the railway rolling stock supply sector operates with relatively low profit margins, making it highly vulnerable to price fluctuations, with margins ranging from -1% to 3% in 2023.
Companies find themselves trapped, as their suppliers pass on cost variations without being able to relay the increases to their clients without jeopardizing competitiveness, it warns.
