The Building Material Index is typically used in the context of price reviews in (long-term) building contracts and public procurement contracts. Such price revisions represent a correction to the otherwise fixed-rate nature of contract prices in long-term contracts. From now on, these price review clauses will have to refer to the I-2021-index. In this news alert, we will briefly discuss the key takeaways of this reform.
The Building Material Index was first published in 1955, based on materials that were typically used for construction works at that time. The set of products on which this index was based contained mainly raw materials, few finished products and no high-tech applications. As a result, the existing index proved to be poorly adapted in reflecting real-world inflation. The I-2021-index aims to create a simplified, verifiable system reflecting the actual evolution of the costs associated with a construction project.
The set of products on which the I-2021-index is based consists of 60 “reference" products, divided into 11 product groups. Those reference products are representative of the variety of materials used by the construction industry, both for civil engineering works and residential and non-residential construction. However, unlike the old Building Material Index, the I-2021 index does not take into account the price evolution of petroleum products (petrol, diesel and bitumen). Each product is assigned a certain weighting based on its industry importance, as determined by its relative weighting in purchases by the construction sector according to the Supply and Use Tables of the National Bank of Belgium.
The I-2021-index is published monthly on the website of the Ministry of Economy. It was published for the first time in December 2020. Since then, figures are being published for both the old Building Material Index and the new I-2021-index, on a monthly basis. As of January 2023, the old Building Material Index will no longer be published.
What does this reform mean for your construction projects?
To assess the impact of this reform on your ongoing and planned projects, it is important to verify (i) when the relevant contracts were entered into, and (ii) when provisional acceptance is expected to take place.
Provisional acceptance takes place before 1 January 2023
If provisional acceptance takes place before January 2023, no issues arise. As the old I-index will continue to be published until December 2022, parties can continue to use the old index for these agreements.
Agreement entered into after January 2021
In agreements concluded as of January 2021, it is advisable to refer to the I-2021-index in price review clauses. If your agreements entered into after January 2021 still refer to the old Building Material Index, it is advisable to specify in an addendum that this should be construed as a reference to the I-2021-index.
As from 1 January 2023, parties must refer to the I-2021-index, as the old I-index will simply cease to exist. References to the I-index in contracts concluded from 1 January 2023 should, in our view, be read as references to the I-2021-index.
Agreement entered into before January 2021, provisional acceptance expected later than 1 January 2023
For agreements concluded before the introduction of the I-2021-index and where provisional acceptance is expected after December 2022, both indices should be combined in the context of a price review. To this end, the parties involved must agree on the moment of conversion from the old I-index to the new I-2021 index. This conversion should take place no later than January 2023, as the last publication of the old Building Material Index will be in December 2022. The Belgian Ministry of Economy has published a note in which they propose a formula to accommodate this contractually.