CMS Expert Guide on rising raw material prices in Belgium

Consequences for the performance of public contracts

1. Have specific legislative or regulatory provisions been adopted by the Government in relation to the increase in the price of raw materials?

The Belgian government did not take any specific legislative action to regulate the price increases in public contracts. The Belgian government did however formulate some recommendations “regarding the substantial price increases linked with the war in Ukraine” (published on 16 May 2022).

These non-binding recommendations confirm that contractors are facing difficulties when submitting tenders or implementing public contracts due to the price increases of raw material (energy, fuels, aluminum, steel, copper, adhesives, hydrocarbon products, wood, etc.). These price increases and price fluctuations mean contractors are unable to calculate their price or maintain the prices agreed upon in the public contract. Price revision clauses are not necessarily adapted to cover these circumstances. The recommendations provide the following possibilities: 

  • Parties could consider reviewing/modifying the price revision clause (if any),
  • Parties could agree on a new price revision clause that will only apply for a limited period,
  • Parties could review the contract on the basis of article 38/9 of the royal decree of 14 January 2013, which is applicable in case of unforeseeable circumstances and entitle a contractor to request one of the following measures (‘unforeseeable circumstances’ are those which the contractor could not have reasonably foreseen when submitting its tender or upon the conclusion of the contract, which it could not avoid and the consequences of which it could not prevent, despite having taken all the necessary steps to do so): 
    • an extension of the terms of the contract;
    • the termination of the contract; or
    • the revision of the contract (including a price adjustment).

Article 38/9 of the royal decree aims to restore the economic equilibrium of the contract. A request to terminate the contract or to obtain a price increase is only possible when the contractor suffered a very large loss. Such a loss is defined as following: 

  • Public works contract: 2.5 % of the initial contract value OR 
    • 175,000 € if the initial contract value is > 7,500,000 € & ≤ 15,000,000 €;
    • 225,000 euro if the initial contract value is > 15,000,000 € & ≤ 30,000,000 €;
    • 300,000 € if the initial contract value is > 30,000,000 €;
  • Public supply and service contracts: 15% of the initial contract value.

The recommendations underline that the contractor should report in writing, to the contracting authority, the circumstances as soon as possible, by briefly stating the effect(s) they are having or could have on the progress and cost of the public contract. This should be done within 30 days of their occurrence or after the date on which the contractor should normally have become aware of them. If this notification is not done in due time, the contractor’s request is inadmissible.

Although the recommendations are well intended, we note that contractors and contracting authorities are still facing many difficulties: 

  • in public services and supply contracts, it is often quite complicated to reach the threshold of 15% of the initial contract value (this is for example the case in energy supply contracts in which the total invoice includes a lot of costs (taxes, green certificates, transport costs) that the supplier has to invoice to its client but should subsequently be paid to different administration; these costs mean that the total invoice strongly increases; in consequence, the supplier can sell at a loss without reaching the 15%); 
  • The notification deadline of 30 days is interpreted by many contracting authorities very strictly; according to many contracting authorities this term started to run from the beginning of the war in Ukraine; but this is not necessarily correct as the contractor did not at that moment necessarily realize how the event would impact the public contract in question; 
  • Many contracting authorities also require a very long period of validity of the tender; this means that some tenders were submitted before the price increase, but are still valid and binding; the Belgian public procurement law does not provide a solid solution for this situation.

2. Does this situation give rise to amendments to existing public contracts?

Our current experience is that contractors are requesting contract revisions mostly based on the unforeseeable circumstances or request to modify the price revision clause. Parties are negotiating the extent to which contracts can/should be modified.  

3. Does this situation allow for the imprévision theory to be implemented?

Yes, although the imprevision theory is currently not accepted under Belgian law (although there are some nuances to be made), there is one exception: in the case of public contracts, this theory is implemented by art. 38/9 mentioned above. The aim of the revision based on that provision is to restore the economic equilibrium. 

4. Will delays or the failure to perform a public procurement contract in this context lead to sanctions being imposed on economic operators?

The extension of the deadline is one of the claims that a contractor can make due to unforeseeable circumstances. The contractor should however clearly indicate in its notification that the contractual deadline is impacted directly by the unforeseeable circumstances. If the claim is admitted, the economic operator should avoid the sanctions normally applicable for delay. 

5. Do the relevant regulations contain anything about the execution of public contracts?

Yes, we refer to our answer to the first question. 

6. Are public contracts that are governed by private law mentioned in the relevant regulations?

No, this is not the case.