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Bigger is better for construction

23 December 2024

 

Nothing encapsulates a buoyant construction market better than signing a contract to complete the world’s tallest tower. That happened on 2 October 2024, when Saudi Binladin Group (SBG) was awarded a $2bn contract to complete the 1,000-metre-plus Jeddah Tower.

The award was significant in many ways. It was a revival of the tower project, which has been on hold since 2018, and it was also a comeback for SBG after years of financial stress that had led many in the market to think it would never win another major construction deal.

On a macro level, the construction deal confirmed that the region is home to the world’s most daring and challenging construction projects.

More importantly, these projects are more than just aspirations; they are real projects that are being built.

Biggest contracts

While Jeddah Tower was the most symbolic contract award in 2024, at $2bn, it was not the largest. That accolade went to the Italian contractor WeBuild when it was awarded a $4.7bn contract for the construction of the three dams at the Trojena mountain resort at Neom in January. 

Like Jeddah Tower, the project is a challenging one. Time pressure is a key issue. Trojena has been selected to host the 2029 Asian Winter Games, and the reservoir will be used to make the snow for the event. This means the dams must be completed and the reservoir filled well in advance.  

The project is also technically complex. The main dam will have a height of 145 metres and will be 475 metres long at its crest. Inside the reservoir there will be a kidney-shaped dam that will house an attraction known as the Enchanted Forest, which will be connected to the rest of the Trojena development by an underwater tunnel.

WeBuild’s involvement also highlighted that international contractors, after sitting on the sidelines for a number of years, are playing an active role in the Saudi construction market. 

One market segment that has attracted strong interest is building stadiums, which like Trojena have to be completed for football tournaments with fixed dates: the 2027 Asian Games and the 2034 Fifa World Cup. 

In October, Spain’s FCC in joint venture with the local Nesma & Partners secured a $1bn contract to build the Prince Mohammed Bin Salman Stadium at the Qiddiya City development on the outskirts of Riyadh.

Earlier in the year, a joint venture of Belgian contractor Besix and the local Albawani was awarded the contract to build the Aramco football stadium in Al-Khobar, and Beijing-headquartered China Railway Construction Corporation and local contractor Sama Construction for Trading & Contracting won the contract to construct the Jeddah Central stadium project.

Outside of Saudi Arabia, there were only two contract awards valued at over $1bn and both were in the UAE emirate of Abu Dhabi. 

In January, a $1.2bn contract to complete phases two and four at the Saadiyat Lagoons project was awarded to a joint venture of two Abu Dhabi-based contractors, Trojan Construction Group and Arabian Construction Company. 

The other $1bn-plus deal was a $1.4bn contract to complete dredging and marine works for the Nisi Island development, which was awarded to the local NMDC Group. 

These deals were highlights in what was a strong year for the rest of the market. In total, according to regional projects tracker MEED Projects, there were $67.9bn of construction contract awards by the end of October 2024. If the trajectory is maintained until the end of the year, it will result in about $81.4bn of awards, which is lower than the $96.9bn of awards recorded in 2023, but still higher than any of the eight years from 2015 to 2022. 

Market challenges

Replicating the record-breaking performance of 2023 was never going to be easy, especially after Riyadh warned that its spending would be more targeted at the end of 2023. Those comments, made by the finance minister, set the tone for 2024, which proved to be a year with plenty of contract awards, but without the apparent carefree attitude to spending that characterised 2023. 

The other challenge with following on from a bumper year is supply chain constraints. With full order books, contractors and suppliers have lost some of the appetite that they had for new work in 2023. The result of this for project clients has been difficulties in attracting enough bidders, and when bids are submitted, the offers are often not competitively priced.

These challenges have been felt most acutely by projects in the remote regions of Saudi Arabia. The issue is so prevalent at Neom that there is now a phenomenon known as ‘Neom inflation’, which implies that the $500bn gigaproject in the remote northwestern corner of the kingdom has its own unique inflation rate.

These regional issues have added to the international supply chain constraints that have been felt since the Covid-19 pandemic and, more recently, during the conflict in Gaza and threats to shipping lanes in the Red Sea.

Addressing challenges

The market has responded to these challenges. In Saudi Arabia, the Public Investment Fund (PIF) invested in four of the kingdom’s largest general contractors in 2023. Then, in February 2024, the sovereign wealth vehicle announced that it had, together with the National Infrastructure Fund, introduced a new contractor financing programme, designed to strengthen the construction sector’s finances. 

The programme aims to provide contractors with finance solutions to help improve their cash flows.

Developers have also been improving their contract terms and, crucially, working to ensure payments are processed on time – a move that should also help improve contractor cash flows. 

The PIF-backed development companies have also been actively working on attracting new companies to Saudi Arabia. They have been travelling the world on roadshows to attract more contractors and suppliers to projects in the kingdom. 

These roadshows have been highlighting the volume and scale of the opportunities in Saudi Arabia, and have shown that the kingdom offers long-term opportunities for companies that come and invest in the market. 

In the UAE, Abu Dhabi has invested heavily in its construction supply chain. With its government-controlled investment vehicles and a series of interconnected mergers and acquisitions, Abu Dhabi and its ruling family now own the emirate’s key contracting companies and the suppliers of vital raw materials such as cement and steel. 

These national champions shield Abu Dhabi from many, but not all, supply chain challenges that have impacted projects in other markets.

Meanwhile, in Dubai, where the real estate market is driving construction, private sector developers are courting contractors to work on their projects.

As private entities, they are not bound by the procurement regulations that government or government-controlled developers have, so they have been offering directly negotiated deals to help guarantee that their projects are delivered on time.

 

2025 outlook

Unless the market dynamics shift dramatically, the market will likely face many of the same challenges in 2025. 

One of the overriding fears is a sharp slowdown in project spending in Saudi Arabia. This has happened before and is a valid concern, and the market has already shown signs of plateauing in some areas. 

This is most noticeable when contract awards for the five official gigaprojects – Diriyah, Neom, Qiddiya, Red Sea Global and Roshn –  are examined. After a sharp ramp-up in awards from 2020 to 2023, the pace of contract awards levelled off in 2024, which reflects budgetary concerns within the development companies and the PIF, and the market’s ability to take on such large volumes of new work. 

With budgets under pressure, developers in Saudi Arabia are increasingly looking for investment to help fund their projects. The success of these efforts will determine how buoyant the market in the kingdom remains over the long term.  

Even if investment comes in, it will take time, which means there will likely be a degree of conservatism from development companies in 2025. This was signalled in mid-November, when Neom, while announcing the exit of CEO Nadhmi Al-Nasr and the appointment of Aiman Al-Mudaifer as acting CEO, said: “As Neom enters a new phase of delivery, this new leadership will ensure operational continuity, agility and efficiency to match the overall vision and objectives of the project.”

While there may be a pause in spending on some of the Saudi gigaprojects, other schemes continue to underpin the performance of the construction market. 

Oil prices remain supportive of government spending on projects across the Gulf, and for the private sector, in markets such as the UAE, real estate projects continue to move into construction as developers rush to deliver units to investors and capitalise on the ongoing strength of the property market. 

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Colin Foreman

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    The scale and complexity of construction projects under way in the GCC region has attracted global attention. And while large-scale project announcements continue to dominate the headlines, the underlying risks – insufficient financing, harsh contract clauses and a tendency to delay dispute resolution – are often overlooked.

    Around the region, many contractors are experiencing difficulties once projects have started because they mistakenly believe they have the necessary in-house skillsets to navigate these complex issues.

    MEED has convened a panel of construction consultants and specialists to develop a checklist to help contractors and subcontractors operating in the region to navigate the market’s challenges as the sector moves into 2026.

    The proactive steps are aimed at positioning a company so that it can maximise recovery and mitigate threats posed by unresolved claims and poor commercial or contractual administration.

    Systemic risk

    The regional market is characterised by several systemic issues that amplify risks for contractors. 

    The fundamental problem is finance. Projects frequently suffer because they are not fully financed from the start, which places financial strain on contractors. This problem is then compounded by the region’s traditional contractual environment, which means disputes are typically not finalised until well after jobs have been completed, creating cash flow problems for contractors, particularly near the end of such projects.

    Further financial strain is created by unconditional performance guarantees and retention. The combined requirement for advance payment bonds, a 10% performance bond and sometimes 5%-10% retention represents a significant draw on contractors’ cash flow. The growing tendency of employers to pull bonds further exacerbates the situation.

    Many contractors sign up to one-sided contracts so as to secure more work, rather than challenging their employers. Key contractual issues include:

    > Unrealistic timelines: Contractors set themselves up to fail by accepting unrealistic timescales on projects, despite the knowledge that the work often takes twice as long.

    > Deficient design: A major risk, particularly on high-profile projects, is a lack of specification and design progress. Many contracts, such as the heavily modified Silver Book – a standard contract published by the International Federation of Consulting Engineers (Fidic) for turnkey engineering, procurement and construction projects – presuppose that the contractor has sufficient information to design, build and deliver, even when there is substantive information missing, which renders lump-sum pricing obsolete and inevitably leads to dispute.

    > Lowest-bid mentality: Contractors often fail to factor necessary commercial support from legal and claims specialists into their tender figures, making their bid appear more competitive but leaving them without a budget to seek help until it is too late. As a result, projects are managed with budgets that are barely sufficient, rather than being run properly to a successful conclusion.

    Supply-chain erosion

    The quality and capacity of the subcontractor market, particularly in the mechanical, electrical and plumbing (MEP) field, has eroded significantly. 

    Some major MEP players have closed or left the market due to underpricing, prompting contractors to call in their performance bonds. This means the region is receiving progressively lower quality for increasingly higher costs, further straining the delivery phase for main contractors.

    The risk of subcontractor insolvency is increasing and must now be considered a primary project risk. Contractors should monitor financial health, diversify subcontractor dependencies, challenge allocated resources and secure step-in rights wherever possible.

    Many Silver Book contracts in the GCC now include heavily amended, employer-friendly clauses that push design and ground-risk even further onto the contractor – often beyond what Fidic intended. These amendments require careful review and firm pushback.

    The GCC remains a market of opportunity, but success in 2026 will belong to contractors that combine disciplined tendering, transparent commercial governance and early issue resolution. Optimism is not a strategy; preparation is. 

    A 10-point checklist for contractors in 2026

    1. Mandate contractual due diligence: Invest time and money into a thorough contract review before signing. Be prepared to challenge harsh clauses, particularly those unfairly allocating risk, such as unknown conditions and full design responsibility. Assume that bespoke rather than standard amendments govern your entitlement. Treat the special conditions as the real contract.

    2. Factor commercial support into the budget: Do not omit the cost of essential commercial support from the tender, such as quantity surveyor teams, quantum and delay specialists, legal review and claims preparation. Even if not visible in the front-line figures, this cost – which could be as low as 0.01% of the project value – must be factored in to ensure a budget for early and continuous engagement.

    3. Prepare a realistic baseline programme: Stop committing to programmes just to fit the tender. Develop a realistic programme from the start, identifying risks and including necessary code books to track delays early. Consider commissioning an independent programme review at the tender stage – this is common internationally and reduces later arguments about logic, durations and sequencing.

    4. Confirm project funding: Ensure that the project financing is fully in position before starting work. Many problems stem from projects that are only partially financed, leading to cash running out near completion. Gone are the days of not asking employers for greater transparency when it comes to funding projects.

    5. Establish a strong commercial and claims function: This is where commercial management starts. Set up systems to ensure contractual compliance, including seven-day claim notifications. Variations are inevitable, and proper substantiation is required to secure entitlement – if it is not recorded, it cannot be recovered. Diaries, cost records and notice logs remain the foundation of entitlement.

    6. Seek early specialist engagement: Prevention is better than a cure. Bring in specialists early to examine time and cost issues before problems arise. Consultants can provide advice, help set up the correct commercial systems and prevent the escalation of unresolved issues.

    7. Adopt an old-school approach to claims management: Technology is useful, but nothing beats resolving issues face to face. Engage directly with the employer’s team regularly to negotiate and agree claims early. This manages the client’s expectations when it comes to budgeting and allows the contractor to secure cash flow sooner. A simple early-warning culture – even when not contractually required – prevents surprises and builds trust with the client.

    8. Avoid wasting resources: Focus claims efforts only on events that are actually recoverable and demonstrably critical. Contractors often waste time chasing things that will not be recoverable. Prioritise issues that are both time-critical and clearly fall under the employer’s risk – everything else should be logged but not pursued aggressively.

    9. Upskill internal teams: Use specialist involvement as an opportunity to upskill your in-house commercial team. Have them sit alongside specialist consultants to learn proper commercial and contractual administration processes, creating a lasting work-culture benefit.
    10. Push for faster dispute resolution: When a dispute arises, advocate for a swift resolution mechanism like adjudication, mediation or expert determination to temporarily resolve cash flow issues. Dispute adjudication boards are intended to give quick, interim decisions. However, if not set up from the start of the project, the process becomes protracted – sometimes taking many months – so fails to provide the cash-flow relief contractors urgently need.  Where clients resist adjudication, propose interim binding mediation or expert determinations, or failing this, milestone-based dispute workshops – anything that accelerates getting cash back on site.

    MEED would like to thank Refki El-Mujtahed of REM Consultant Services (refki@rem-consultant.com; www.rem-consultant.com) for facilitating this article, as well as the following co-contributors:

    Aevum Consult | Lawrence Baker | lawrence.baker@aevumconsult.com | www.aevumconsult.com

    Decerno Consultancy | Lee Sporle | leesporle@decernoconsultancy.com | www.decernoconsultancy.com

    Desimone Consulting | Mark Winrow | Mark.Winrow@de-simone.com | www.de-simone.com

    Forttas | Derek O’Reilly & Martin Hall | derek.oreilly@forttas.com & martin.hall@forttas.com | www.forttas.com

    IDH Consult | Ian Hedderick | ian.hedderick@idhconsult.com | www.idhconsult.com

    White Consulting | Nigel White | nigelwhite@whiteconsulting-me.com | www.whiteconsulting-me.com

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    READ THE DECEMBER 2025 MEED BUSINESS REVIEW – click here to view PDF

    Prospects widen as Middle East rail projects are delivered; India’s L&T storms up MEED’s EPC contractor ranking; Manama balances growth with fiscal challenges

    Distributed to senior decision-makers in the region and around the world, the December 2025 edition of MEED Business Review includes:

    > BAHRAIN MARKET FOCUS: Manama pursues reform amid strain
    To see previous issues of MEED Business Review, please click here
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    Yasir Iqbal