Many, if not most, construction contracts in
the Middle East are awarded on a fixed-price basis. The price is the price. No adjustments for inflation, no safety net for market swings.
You probably spent plenty of time at college learning about cost-fluctuation formulas and indices, only to find you have never once used them. That is because in the Gulf, fluctuating price contracts are rare. Employers like certainty. Contractors like winning work. The result is a region built on lump sums and thin margins.
But what happens when the market moves beneath your feet?
The Context
Across the region, input costs have shifted. In Saudi Arabia, the price of red sand, a basic fill and concrete ingredient, rose more than 24 percent year on year to SAR 38.47 per cubic metre in May 2025, with white sand up around 15 percent and mixed sand and gravel up about 9 percent, as reported by Al-Watan. Official monthly data also showed red sand reaching SAR 39.32 per cubic metre in March 2025.
In the UAE and wider Gulf, trade publications have noted intermittent pressure on concrete and rebar prices during 2025, largely due to high demand from giga-projects and transport costs. Headline inflation remains moderate, but input cost movement on key materials has been significant.
So, when a compensable delay event occurs, such as late access, design change, or late instruction, and your project runs longer than planned, are the increased costs of materials and services recoverable or not?
Fixed price does not equal fixed cost
Many assume the words “fixed price” close the door entirely. Not necessarily. The key question is what is being claimed for. You are not reopening the contract to adjust for general inflation; you are claiming the additional costs arising from the delay event. That distinction matters.
If a delay pushes your procurement into a period of higher prices, and the delay is demonstrably the employer’s responsibility, then those increased costs may form part of your prolongation claim. The bar is high: you must show the higher costs were a direct result of the delay, not a coincidence of timing.
A brief caveat. Some contracts in the region grant time without money by design. If your conditions provide for an extension of time but expressly exclude cost for that event, you may get time only. Read the Contract (including amendments) carefully before building your claim.
The wrong way: apply a generic inflation rate
A common shortcut is to take a published index and apply it to delayed costs. It feels logical and quick, but where the contract is silent on fluctuation, this often fails. Indices measure average market movement, not your project’s procurement position. Without clear linkage to the specific goods, quantities, specifications, delivery terms, and timing, index-based uplifts are usually discounted.
If your contract expressly includes a fluctuation or indexation mechanism, then using an index may be valid. Otherwise, avoid formulaic inflation add-ons that cannot be tied to actual procurement timing and material scope.
The right way: demonstrate actual cost increase
The credible path is substantiation. Show the actual increase you incurred and tie it to the actual delay period. That means:
- Set out your original pricing basis, such as supplier quotations, budget rates, or tender build-up, and show that they were realistic at the time.
- Identify when the materials or services would have been procured but for the delay, and show that this sat on the critical or near-critical path.
- Show what you actually paid once the works were pushed out, on a like-for-like basis of specification, quantity, delivery terms, and supplier.
- Demonstrate that the escalation falls within the compensable delay period, not within unrelated contractor inefficiency or resequencing.
- Filter out supplier opportunism by showing that current pricing is consistent across comparable suppliers for the same specification.
In short, pricing history, procurement timing, and delay chronology must align.
Mitigation still matters
Explain what steps you took to contain the exposure. Did you seek forward pricing or extended price validity? Did you consider early commitment for key materials? Did you issue timely notices warning of potential exposure and propose alternatives?
Failing to act can materially weaken entitlement. Tribunals and engineers alike expect contractors to recognise risk early and demonstrate reasonable efforts to manage it.
Practical hurdles
Even with good intentions, procurement files can be patchy. Quotes lapse, packages are repriced, decisions are decentralised. Few contractors keep tidy cost records by material type and delay window. That is why contemporaneous records are essential. The further you get from real-time data, the harder it becomes to demonstrate your case.
And remember, on many fixed-price contracts the employer’s position will be simple: you accepted the risk. Unless you can point to a compensable cause and show a clear chain of cause and effect, the market move is likely yours to bear.
So, is inflation claimable?
It depends. If you can show actual increased cost, tie it to an excusable and compensable delay, and show reasonable mitigation, it can be recoverable. General inflation, market drift, or opportunistic price changes are not.
The real skill lies in separating one from the other and supporting your claim through clear, consistent records.
Disclaimer
This article is provided for general information and discussion only. It does not constitute legal advice, expert advice, or professional opinion on any specific matter. Views expressed are those of the author and not necessarily those of DisputeIQ or its experts. Readers should seek appropriate professional advice before acting on any issue discussed.
