Construction price escalation continues to be of widespread concern to Contractors operating in the Middle East and Africa. The imposition of economic sanctions has significantly disrupted world markets for raw materials. The cost of key raw materials for major construction projects, including steel, copper, iron ore and aluminium has risen even further. Project price hikes are compounded by the impact of the Covid-19 pandemic, which generated global supply-chain disruption, supply shortages and higher shipping costs.

We are therefore revisiting options available to Contractors in the recovery of significantly increased costs to their projects.

As a reminder, there needs to be a proper legal basis for any claim for additional costs. In the UAE, there are three potential legal bases available:

1. An entitlement to additional cost pursuant to the terms of the construction contract. 
2. An entitlement to compensation for breach of contract, in respect of the actual loss that is suffered by a Contractor, which may include an inflation element.
3. An entitlement pursuant to Article 249 of the UAE Civil Code, which deals with “exceptional circumstances” of a public nature and empowers a court or arbitral tribunal to rebalance the contractual obligations between the Employer and Contractor where the six conditions of the article have been fulfilled.

Want to learn more? Listen to episode 1 of our Middle East and Projects & Construction podcast series, where guest speaker Richard Harding QC and I discuss the challenges facing the Middle East construction industry: price escalation.

For further information or follow-up advice, please get in touch: alexa.hall@clydeco.com.