In October, Statistics Sweden announced a policy decision that entailed phasing out its index assignments. According to the policy decision, a formal decision to phase out index assignments would be made at the end of 2022. Nevertheless, publication would continue in 2023 to give the industries affected a chance to convert. The Contract Price Index is based on data from Statistics Sweden, which is why the decision was perceived as meaning that the closure of the Contract Price Index was imminent. This led to concern in the construction industry and in this article, we briefly describe what the Contract Price Index is and discuss its future prospects.
WHAT IS THE CONTRACT PRICE INDEX?
As a consequence of the increases in the price of materials that have occurred in the market in recent years, we foresee a more widespread use of indexation in construction contracts. However, the Swedish standard agreements AB 04 and ABT 06 do not contain any rules specifying how ongoing cost adjustment should take place. If cost adjustment is to take place, the parties must therefore actively agree on the right to it and describe how the cost adjustment should take place. The most common procedure is to indicate this under AFC/AFD.614 in the administrative regulations. In those regulations, the parties can either specify how indexation should take place themselves or refer to an existing indexing method.
There are several different indexing methods that can be used in a contract. The most common indexing method is Entreprenadindex för husbyggnads- och anläggningsverksamhet [the Contract Price Index for Building Construction and Civil Engineering] – the Contract Price Index. The Contract Price Index consists of approximately 200 different index series, known as “littera” [letters], which are divided into main groups, subgroups and basic groups. The main groups are made up of subgroups and basic groups according to a predetermined cost distribution adapted to the main group in question. The main groups therefore enable indexation to be adapted to each individual contract.
The index figures for each subgroup or basic group are collected by Statistics Sweden from companies in the industry and are published in consultation with the Swedish Construction Federation and Installationsföretagen at www.entreprenadindex.se. The index figures are published on the 15th of each month and show the cost trajectory compared to the previous month.
The way in which costs should be adjusted in the individual contractual relationship is calculated on the basis of the index figures using a specific calculation method. The calculation method used in the application of the Contract Price Index was developed by the Construction Contracts Committee, which also publishes AB 04 and ABT 06.
THE FUTURE OF THE CONTRACT PRICE INDEX
Statistics Sweden will fulfil its index assignment for another three years. In other words, Statistics Sweden will continue to collect and provide data in 2023, 2024 and 2025, which is why the Contract Price Index will continue to be published in its current form during that period.
The Swedish Construction Federation is also holding discussions with Statistics Sweden on further publication from 2026 onwards. If Statistics Sweden reevaluates its decision and continues to provide the Contract Price Index with data, the collaboration will continue as it is at present. However, if Statistics Sweden stands by its policy decision, the Swedish Construction Federation plans to take over future data collection and publication or else launch a well-founded replacement service. The Swedish Construction Federation is currently holding monthly meetings with Statistics Sweden on index series and data collection.
Regardless of whether Statistics Sweden or the Swedish Construction Federation are responsible for data collection, the Contract Price Index will probably continue to exist from 2026 onwards. Operators who are currently planning to carry out procurements or enter into construction contracts can therefore feel confident that they will continue to be able to apply the Contract Price Index in their contractual relationships.
Want to know more about indexation and the management of rising materials prices prior to and during a contract?
Lindahl follows the progress of the Contract Price Index and is able to assist in the design, assessment and application of various index clauses. We also provide advice regarding increases in the price of materials and changes in agreed prices in advance of and during discussions. If there is any interest, we are also able to develop training courses and seminars on the Contract Price Index, AMA AF, AB 04/ABT 06 and cost changes. You are very welcome to contact us using the contact details below.