A Look at B2B Contractual Indexation Clauses in Belgium

The recent global oscillations in material prices have sent shockwaves through many existing contracts and the businesses bound by them. Especially for industries that survive on thin margins, these price changes can jeopardize the very sustainability of companies.

A common knee-jerk reaction for many has been to review the indexation clauses in their sales contracts. However, many are in for a surprise when they realize that these clauses might not be legally sound due to a piece of legislation from the previous century that's still very much in play: The Economic Recovery Act of 30 March 1976.

It might seem unexpected, but automatic indexation of commercial or industrial prices – whether by the consumer price index or any other metric – is forbidden. Any clauses or stipulations contrary to this are automatically deemed null. A classic example: an indexation based on consumer prices in a transportation contract would be invalid. The exceptions to this rule are rents, salaries, wages, and some social security payments.

What's Permitted?

A pricing indexation clause can be legally viable if:

1. It doesn't adjust more than 80% of the original contract price.

2. It exclusively mentions tangible reasons for the price change.

Apart from avoiding references to prohibited indices, the price adjustment clause can only touch upon 80% of the agreed contract price. The remaining 20% must be fixed. Crucially, the clause should clearly spell out tangible factors justifying the price change, typically articulated through a sector-specific arithmetic formula tied to the contract's nature.

There are, however, nuances for specific sectors. For instance, a security guard business can adjust up to 90% of the starting price. On the other hand, a B2B contract in "technical management and facilities management" should focus on wage growth and commodity costs.

Client Awareness is Key

For a price adjustment clause to hold water, it's imperative the client was informed about it and had given their assent before sealing the deal. This can be explicitly through signing the contract or its terms. In B2B scenarios, silent acceptance, such as proceeding with the contract, may also count.

What should you do?

When engaging with your customers or suppliers into an often difficult pricing renegotiation, be aware of the pricing revision tools that your existing agreement may provide. These may include generic hardship clauses or highly detailed pricing modification formulas. But be equally aware that the validity of such tools may not be a given. When in doubt, do not hesitate to seek legal support to ensure that you have your bases covered.