Construction Projects in the GCC

According to the MEED Projects database, there is approximately USD 3.1 trillion of known, planned and unawarded project spending across the GCC, with Saudi Arabia’s pipeline alone valued at USD 1.65 trillion, making it the third largest in the world behind only the USA and China. 

From megaprojects in Saudi Arabia to developments across the UAE, Qatar and beyond, this ambitious growth and opportunity carries corresponding legal and commercial risk. Disputes go hand in hand with construction projects the world over, but the cosmopolitan nature of entities involved in projects in the GCC makes it a uniquely challenging disputes landscape to navigate. 

Drawing on our experience advising on construction disputes across the GCC, this article examines the key issues driving claims in the region and considers how they can be managed effectively.

Bespoke contracts - greater certainty or complexity?

Major GCC projects frequently use bespoke contracts or heavily amended international standard forms. There are good reasons for this. Complex projects require sophisticated risk allocation, particularly where there are multiple interfaces, significant design obligations and challenging programmes. However, extensive amendment can have unintended consequences. A signifiant proportion of disputes in the region stem from the use of bespoke contracts which either do not reflect what has been agreed, or set a risk profile that is likely to be commercially unworkable.

A recurring theme in the region, particularly in Saudi Arabia where competition amongst the supply chain is fierce, is the ability of employers to negotiate contracts that transfer significant risk to contractors. Whilst these contracts may be sophisticated in their drafting, the risk profile is often heavily weighted towards the employer. This creates a familiar tension: employers can adopt a strict contractual interpretation that leaves contractors facing an absolute commercial necessity to craft arguments seeking alternative constructions. The increasing volume and complexity of construction contracts compounds this further.

Genuine ambiguity most commonly arises at the interface between main contract conditions and the technical documents that form an integral part of the agreement, where different teams may have drafted the respective provisions with differing approaches to risk allocation. Parties frequently rely on precedence or prevailing clauses to resolve such inconsistencies, but these are no substitute for proper harmonisation of the contract suite at the procurement stage.

Cash is king

The GCC’s construction boom is real, but so is the reality that payment rarely flows as freely as the opportunities. Contractors who succeed here understand the importance of having a laser focus on cash flow.

Several structural factors contribute to this:

• Contractual risk profiles in the region tend to favour the paying party, providing arguable grounds to withhold or delay payment;
• A prevalence of “Pay when (or if) paid” mechanisms;
• The absence of any statutory adjudication regime equivalent to that available in the likes of the UK and Australia;
• The widespread use of on demand bonds, which can be called by employers without proof of default and are frequently used as leverage in payment disputes; and
• The withholding of payment being a go-to commercial lever, particularly in the context of wider contractual negotiations or claims.

Because there are no statutory protections for construction payments in the GCC, parties are reliant on local courts or arbitration for the resolution of payment disputes. Whilst local courts or arbitral tribunals have a long track record of resolving payment disputes, they often cannot do so on a timeline that helps maintain cash flow on a live project. As projects increase in size, so too do the supply chains and we regularly see cash constraints at the top of a supply chain having a ripple effect. Regional geopolitical instability and shipping disruptions have added further pressure to project financing and payment flows. Disputes over variations are also common: where contracts do not set out clear pricing mechanisms, disagreements often arise over whether additional works should attract extra payment, and at what rate.

To manage payment risk, contractors should consider security measures such as advance payment bonds, parent company guarantees, or letters of credit where these can be agreed. Keeping close track of cash flow, submitting payment applications promptly, and following contractual notice requirements are all important. If disputes do arise, many standard form contracts offer interim payment mechanisms, and arbitral institutions like the DIAC provide emergency procedures that can help maintain cash flow while the underlying dispute is resolved.

The human dimension

There is another layer of complexity. GCC projects often bring together employers, consultants, contractors and subcontractors from numerous jurisdictions.

English may be the contractual language without being the first language of much of the project team. Contractual concepts may therefore be understood differently across the supply chain, particularly where notices, instructions and variations are being administered at speed. We have also seen a case where poor translation of a contract led to a party’s mistaken belief that an event qualified as force majeure. As the GCC continues to grow as a global and multilingual construction hub, the need for precise and well-considered drafting is more important than ever.

However, the risk is not simply mistranslation. Different commercial and contracting cultures can influence how strictly parties expect contractual procedures to be followed, when issues should be escalated and whether informal agreement is regarded as sufficient.

That matters when a dispute subsequently requires a tribunal to reconstruct events several years later.

Complexity of delay claims

Delay in construction projects is not unique to the GCC; it is endemic across the global industry, driven by the increasing complexity of modern construction. However, the region faces a heightened exposure to schedule risk. The sheer volume and ambition of giga- and mega-projects in the region, many of which involve cutting-edge design and engineering, means that delay risk is inherently greater than on more conventional projects. Regional factors compound this further: geopolitical tensions have disrupted trade routes through the Gulf, wider instability has affected material deliveries and increased shipping costs, and it is no surprise that delay claims remain a major area for dispute.

An interesting dimension to delay disputes in the GCC is the role of force majeure. The scale of recent regional events has meant that in many cases parties have been able to reach agreement that a force majeure event has occurred. That is not to say that disputes do not follow; disagreements over the consequences of force majeure, including entitlement to extensions of time and the allocation of additional costs, remain common. However, where the triggering event is beyond question, the focus of the dispute tends to shift from liability to quantum and practical impact. Proving the event caused the actual critical delay and loss becomes increasingly hard for contractors to demonstrate.

How can such issues be managed effectively? 

Effective management requires contractual discipline, early escalation and careful handling of communications. Robust dispute resolution provisions are particularly important on GCC projects, where complex supply chains and cross-border contracting structures can make issues harder to contain once they arise.

• Build dispute escalation into the contract - International arbitration through institutions such as the ICC, DIAC or SCCA remains a common method of dispute resolution in the region. However, parties should also consider staged escalation mechanisms, including senior management negotiation, mediation or referral to a Dispute Adjudication Board. Used well, these mechanisms can promote early resolution, preserve commercial relationships and reduce disruption to live projects.

• Monitor financial distress in the supply chain - Warning signs can include supplier payment failures, deteriorating performance, reduced labour on site, unexplained delays, early payment requests, visa renewal difficulties or banking constraints. Where insolvency risk emerges, parties should move quickly to preserve materials and equipment, understand the payment position, review step-in and termination rights, and assess available insurance cover, including political risk insurance where relevant. Further practical guidance is available in our article: Financial distress on global construction projects | Eversheds Sutherland.

• Maintain contractual discipline

  - Serve notices on time and comply with any conditions precedent, particularly where time-bars apply;

  - Keep clear records of meetings, instructions, variations and reservations of rights;

  - Ensure project teams understand who has authority to agree changes or settle issues informally;

  - Consider the tone and timing of communications, given the close-knit nature of the Gulf construction market.

• Control privilege, confidentiality and disclosure risk - Legal privilege may not apply at all, or in the same way across the region, so parties should take care when creating documents, analyses and internal communications that may later be scrutinised in arbitration or local court proceedings. Confidentiality protocols should be established for sensitive supply chain information, and data protection requirements should be considered before information is shared in anticipation of a dispute.

• Getting the relationship right - The importance of relationships in the GCC cannot be overstated. The multicultural nature of construction projects is fascinating, but adds a layer of complexity in the region that is often underestimated. In our experience, the most successful projects are not those with the most tightly drafted contracts, but those where the people involved are able to work together effectively. Setting the right culture and mindset on a project early on and from the top of the supply chain is crucial. This can encourage early information exchange and help parties work together to put in place mitigation measures.

Concluding thoughts

Disputes are, to a degree, an inevitable feature of projects of this scale and complexity, compounded by global supply chain dependencies and regional factors including extreme weather and the Gulf's position as a critical trade transit point now affected by ongoing geopolitical tensions. 

From our perspective as a construction disputes team advising across the GCC, the most effective means of managing these risks is through early legal engagement and clear contractual certainty on risk allocation, relief entitlement, extensions of time and change. Proactive dispute management, including the meaningful use of ADR mechanisms, can help to preserve the commercial relationships that underpin the Gulf's construction ecosystem. 

This reflects what we are increasingly seeing in practice: clients in the Gulf market are prioritising contractual certainty as a tool to strengthen resilience across infrastructure projects, while also navigating evolving regional sustainability and localisation requirements. With the right legal framework and early, informed engagement, parties can position themselves not merely to manage disputes when they arise, but to prevent them turning potential conflict into successful project delivery.