Change of Law in Government Construction Projects – Risks and Contractors Rights

Theme: Legal Framework; Module: Law & Contracts

Author: Dr. Pradeep Reddy Sarvareddy

Published Date: 10 Jan 2026

What happens when the rules of the game are changed after starting the game?  In Government construction and infrastructure projects, Change of Law (such as a new tax notification, a revised royalty rate or changes in environmental regulations) is a common situation.  This new change affects costs, time periods, creates new risks and obligations on the Contractors.  But many Contractors realise such impacts only after facing the financial burdens, delays and disputes.  Understanding how the Change of Law results in new entitlements to compensation or Extension of Time or new financial burdens or other risks depends on the contract and the legal framework.  This article examines the risks created by the Change of Law and how contractors can identify and protect their rights, and act before losses become unrecoverable, or file new Claims.

This term, i.e., “Change of Law”, is enough to confuse most.  Utilising this clause in the Contracts, many times Contractors are subjected to some kind of disadvantage that costs a significant amount of money.  For example, was GST a change of Law?

What exactly is law?  In the context of construction contracts with Government Departments, you have to read the Contract.  If nothing is contained in the Contract, you have to see which Government changed the law, i.e., the State Government or the Central Government.  Then, you have to see the impact of the change of the law on your project.  And more layers to unravel.  This is a highly complicated Topic and every judgement is different based on the facts of that case. 

For now understand that any of the following could be considered as change of law:

* Primary legislation:

• Laws
• Statutory Laws
• Ordinances

* Secondary legislation:

• Rules
• Regulations
• By-laws

* Policy and standards:

• Policies
• Codes
• Guidelines

* Government instruments:

• Orders
• Directions
• Instructions
• Notifications
• Circulars

* Judicial decisions:

• Court Judgements

If you are negatively affected by the Change of Law, you can save yourself by depending on “Law” itself.  Which Law?  That depends.  Ironic, isn’t it?

I will write a more expanded version later.  For now, anytime you come across any of the above situations, that you believe is a change of law, immediately issue a Notice to the Department stating that this is a Change of Law and how it negatively affects you, with quantified losses.  At least you have taken the first step in the positive direction. 

As always with Law, be cautious.  Sometimes, instead of “Change of Law”, your best arguments could be: Contract Variation, Change of interpretation or application, doctrine of frustration or illegality (if you want to terminate the Contract), Force Majeure, Escalation Clause, etc.  But this requires deeper understanding of your Contract, your specific situation, and definitely a great Advocate.  Then in this case, if you had issued a Notice earlier stating “Change of Law”, it is likely that you will not be able to argue these other options.  So what to do?  Law is not just about knowing remedies, but about choosing the right one at the right time.

Did someone say that ignorance of law is not an excuse?  Ask them what to do now.