More strain on the budget: The state agrees to pay more to builders

The cost of major infrastructure projects – motorways, railways, and water supply and sewerage networks – is likely to rise further. The government has approved an amendment to the Indexation Methodology, voluntarily abandoning the previous mechanism limiting payments to companies for advances granted. The new rules oblige the state to charge inflation surcharges on the full value of the work performed, without reducing the amount due to advance payments.

This means in practice that the barely cobbled together budget will have to cover millions in additional expenses that until yesterday were saved through the old formula. At the same time, it remains unclear whether a critically important technical amendment has been included in the final text, without which the calculation of the money may prove impossible due to a lack of up-to-date statistical data.

The changes were posted for public consultation on September 1, 2025, by the Ministry of Regional Development, and the procedure was completed on October 1, 2025. However, at this time, there is no published summary of the comments received on the consultation portal.

Advance payments will not be deducted

The most significant and certain change concerns advance payments. In the grounds for the decision, the government acknowledges that the current approach has been unfair to businesses. The objective is formulated as "eliminating contradictory practices in the application of the indexation formula for advance payments." The cabinet notes that when the advance payment is deducted from the net value of the contract, this leads to a

reduction in the indexation base, which does not reflect the actual increased costs of the contractor."

With the new changes, this condition is removed. The text states that "a uniform indexation regime is established... regardless of whether an advance payment has been provided under the public procurement contract." In practice, this means that an inflation surcharge is now paid on the entire amount of funds, even when the state has financed the project in advance, which is a type of interest-free credit (and now the state will actually pay inflation "interest" on the "credit" it has granted to the builders).

New expenses

The changes also expand the range of companies that are entitled to request more money. Until now, indexation mainly covered construction. With the changes, the state officially allows for price increases in contracts for "design services in urban planning and investment design and consulting services within the meaning of Article 166, paragraph 1 of the Spatial Development Act."

This means that the claims of architectural firms and construction supervisors, whose contracts will also be subject to adjustment due to inflation, will now be added to the bills for more expensive materials.

"Accepted" activities will be indexed

The only text that tightens control is the replacement of the word "completed" with "accepted" construction and installation works. The government justifies this with the need for "indexation to be applied to activities that have actually been performed, reported, and accepted." This at least ensures that the state will not pay for work that has not been documented and approved.

In the construction process, there is a huge difference between "completed" work and "accepted" work. "Completed" may simply mean that the excavator has dug a hole or the wall has been built. However, this does not guarantee that the work is of good quality, that it complies with the project, or that it has been approved by the technical supervisor. "Accepted" means that it has gone through a verification procedure (signing of a document) whereby the contracting authority (the state/municipality) officially acknowledges that the work has been completed, checked, and is ready for payment.

Change in the statistical base

In addition to the financial part, the draft document published for public discussion also included a key technical change, which, however, was not mentioned in today's government decision. This concerns the abolition of the fixed "base year" (2015) in the calculations.

The problem is that the National Statistical Institute (NSI) changes its base every five years and, from mid-2024, will no longer maintain indices with a base of 2015=100, but will switch to a base of 2021=100. If the government has not accepted the proposal to "abolish the fixing of a specific base year," the methodology risks becoming inapplicable because the formula will search for statistical data that no longer exists in the information system.

Whether this amendment has survived in the final text will only become clear after the decree is published in the Legal Information System of the Council of Ministers.

The chronic deficit

Today's decision comes as no surprise. For over a year, the Bulgarian Construction Chamber (BCC) has been alerting the institutions that the old formula is "unworkable" precisely because of the deduction of advances. Builders claimed that this penalized them for having liquidity and halted work on projects.

For their part, the Chamber of Architects (CAB) and the Chamber of Engineers in Investment Design (CEID) fought to be noticed by the state. Their argument was that inflation is not only in concrete and iron, but also in software, the salaries of highly qualified specialists, and social security contributions.

The decision comes against the backdrop of the state's heavy indebtedness to the sector. In 2024 alone, the Ministry of Regional Development and Public Works reported unpaid debts of BGN 1.8 billion, and an additional BGN 238 million was allocated for railway projects. With the new methodology, which is more generous to business, these deficits will grow even more, calling into question the implementation of the investment program.

Translated with DeepL.