When volatility is no longer the exception, the most urgent question is whether our contracts evolve quickly enough to reflect that reality.
On 28 February 2026, many contractors across the Gulf Cooperation Council (GCC) woke up to a radically different operating landscape.
Geopolitical instability has introduced a level of uncertainty few had priced into their tenders. Shipping routes became less predictable, cargo insurance premiums increased, and lead times for imported materials and equipment stretched out exponentially.
Contractors suddenly found themselves navigating a market where procurement assumptions that had been valid during tendering were no longer reliable.
RLB forecasts 2028 tender price inflation ranging from 3.0% in Doha to 5.8% in Riyadh, illustrating how differently risk is playing out across the region.
In the months since, I have reviewed an increasing number of claims arising from these circumstances. What is striking is that not all these claims originate from contracts that failed to recognise the possibility of cost escalation.
In some cases, the parties attempted to address the issue through rudimentary escalation provisions. The challenge in these cases arises from poorly defined mechanisms, conditions precedent, and insufficient clarity regarding how adjustments should be measured and applied. Rather than preventing disputes, the provisions themselves became sources of contention.
This exposes a broader issue within GCC contracting. For decades, the prevailing philosophy has been to transfer pricing risk to contractors through fixed-price arrangements. Yet, history shows that this does not eliminate risk; it simply alters its form. Contractors either price excessive contingencies into their bids, inflating project costs from the outset, or absorb the exposure until it eventually reappears as claims, disputes, delays and commercial tension.
Longer standing construction markets recognised this challenge decades ago. The United Kingdom introduced formal price adjustment formulae during the inflationary shocks of the 1970s, while Canada, South Africa, Australia and several Asian markets have all developed structured mechanisms that allow contract values to move in response to changes in labour, material, plant and fuel costs. These mechanisms have been refined through decades of practical application and market testing.
My own research at the University of Cape Town examined South Africa’s Haylett Formula, along with the Baxter Formula in the UK and escalation mechanisms used in Canada and other Commonwealth markets. The underlying principle was remarkably consistent across jurisdictions: extraordinary fluctuations in input costs are project risks that should be managed transparently rather than transferred absolutely.
Drawing on more than four decades of economic and construction cost data, my research tested whether cost adjustment indices reflect real changes in labour, material and market costs.
I found that well-designed adjustment mechanisms provide a fair and reliable basis for compensation that both employers and contractors can trust.
In practice, this means agreeing up front when adjustments apply, how they will be calculated, and which cost indices will be used.
The GCC is uniquely positioned to benefit from this collective global experience. Few regions possess such a concentration of professionals drawn from mature construction markets around the world.
As projects grow larger and more complex, programs lengthen and supply chains become increasingly global, there is an opportunity to move beyond the fixed-price myth and embrace smarter approaches to risk allocation.
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