Part 1: Price Escalation and Construction Contracts in the GCC – When Can the Court Intervene?

Construction companies operating across the GCC continue to face significant cost pressures. Prices for key construction inputs have risen, labour markets remain tight, and regional geopolitical instability has increased supply chain and logistics risks. In particular, concerns regarding shipping through the Strait of Hormuz have contributed to volatility in freight and insurance costs, affecting the timely and cost-effective delivery of materials and equipment. For contractors locked into lump sum or fixed-price contracts, these escalations can transform a viable project into one that threatens serious financial loss.

In these circumstances, contractors and employers should be aware of an important legal mechanism available under GCC civil codes: the doctrine of exceptional or unforeseen circumstances. This doctrine is particularly relevant where cost escalation, supply chain disruption or increased logistics risk has fundamentally altered the financial basis on which a contract was priced. It provides a route for judicial intervention where a supervening event, which could not reasonably have been foreseen at the time of contracting, renders performance of a contractual obligation excessively onerous, even if not impossible.

Not force majeure: something different

The doctrine is distinct from force majeure. Force majeure typically applies where performance has become impossible. Exceptional circumstances provisions address a different situation: where performance remains possible but has become so burdensome that it threatens the contractor with serious loss. A contractor that can still build, but only at a cost far exceeding the contract price due to unforeseen increases in material costs, freight, insurance or labour, is facing exactly this type of scenario. In such cases, the court may intervene to rebalance the contractual relationship.

The common legal threshold across the GCC

The civil codes of the UAE, Saudi Arabia and Kuwait all contain versions of this doctrine. Although the precise wording differs between jurisdictions, the core requirements are broadly consistent. The relevant event must be exceptional, extraordinary or public in nature. It must go beyond ordinary commercial risk, such as normal market price fluctuation. It must have been unforeseeable at the time of contracting. And performance must remain possible, but must have become so onerous that it threatens the obligor with grave or serious loss. Significant, sustained price escalation driven by external factors beyond a party’s control may meet this threshold, but routine market movements will not.

Judicial intervention under these provisions is discretionary. Courts will consider the circumstances of the case and balance the interests of both parties. The objective is not to release a party from a bad bargain, but to restore the contractual obligation to a reasonable level where strict enforcement would be unjust.

Importantly, the general exceptional circumstances provisions in all three jurisdictions are mandatory. Any contractual agreement that purports to exclude them is void.

Construction-specific provisions: a new development

Both the New UAE Civil Code (which came into effect on 1 June 2026) and the Saudi Civil Code now contain construction-specific provisions that go further. These allow courts to restore the contractual equilibrium of a construction or muqawala contract where exceptional circumstances have undermined the financial basis on which the contract was priced. The court’s powers may include extending the programme, adjusting the contract price, or ordering rescission or termination. Kuwait does not have an equivalent construction-specific provision; parties there rely on the general doctrine.

What should contractors do now?

The threshold for relief is high. Courts will not intervene simply because a contract has become less profitable or material prices have risen. A party seeking relief will need to demonstrate that the price escalation was driven by an external, general and unforeseeable event, and that it had a direct and serious impact on the financial viability of the contract. Parties should be prepared to produce contemporaneous evidence, including tender pricing assumptions, material cost records, supplier quotations, programme updates and correspondence, showing the scale of the escalation and what steps were taken to mitigate its impact.

For parties entering into or currently performing long-term, high-value construction contracts in the GCC, these provisions deserve careful attention. They are not a substitute for clear contractual risk allocation, robust force majeure clauses and well-drafted price adjustment mechanisms. However, in truly exceptional circumstances, they may provide an important route to relief.

In the next article in this series, we examine how the New UAE Civil Code has changed the position for construction contracts in the UAE.

Beale & Co’s construction team regularly advises employers and contractors on hardship, force majeure and contractual risk allocation across the GCC. For further information, please contact Claire Miller.