Stafar, Here's how I see it. You will need 2 strips 2 1/2" x 8 1/2" to sew on the top and bottom of your 8 1/2" blue. Then you will need 2 strips 2 1/2" x 12 1/2" for your sides. I think that will be an unfinished size of 12 1/2" However, I'm kinda new at this also, so hopefully someone else will give some input.
btw, you block looks great !