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Tender pricing over the next 12 months in the UAE and Saudi Arabia is likely to be more volatile than headline cost escalation suggests, according to Craig Finlayson, Senior Director, Middle East, Currie & Brown.
In a recent report, the UK-headquartered global cost and project management consultancy forecast construction cost increases of 4 percent in Saudi Arabia and 3 percent in the UAE in 2026, driven by strong demand and tightening contractor capacity amid expanding project pipelines in both countries.
“Underlying cost growth may remain in a similar range, [but] how it translates into bids will vary by contractor profile, workload, and risk appetite,” Finlayson said in an interview with Zawya Projects.
New/recently established contractors are likely to bid aggressively to build market share, while established Tier 1 contractors are prioritising margin, risk allocation, and balance sheet strength over volume with a long term view, according to the Currie & Brown executive.
The key differentiator this year will be risk pricing, he said, noting that the duration of exposure is a critical factor,
“A 48-month fixed-price contract may strengthen an order book, but unmanaged escalation, labour constraints or design development can quickly turn it into a financial problem.”
Point of divergence
Finlayson said the difference in cost escalation between the UAE and Saudi markets is driven by variations in project scale, demand concentration and labour pressure.
“Saudi Arabia is delivering an unprecedented volume of giga-projects within a compressed time frame,” he said. “This intensity is placing sustained pressure on contractor capacity, specialist trades, logistics and labour availability, particularly in Riyadh.”
On the other hand, the UAE remains active but is in a more mature and diversified stage.
“Demand in the UAE is spread across sectors and emirates, supply chains are established, and contractor competition remains strong,” Finlayson said. “That balance is moderating cost escalation.”
While labour shortages and higher material prices continue to add delivery risk, the Currie & Brown Report titled ‘Construction in 2026: Where Certainty Comes from Agility’ noted that the UAE market benefits from more stable procurement routes and long-term delivery models, particularly in sectors such as education and utilities.
It attributes the higher cost escalation forecast for Saudi Arabia to heavy reliance on imported and specialist materials, strong demand for Tier 1 and Tier 2 contractors and shortages of skilled labour.
Finlayson said contractor capacity remains the primary driver of cost escalation in the Kingdom, while material prices and labour constraints are secondary factors.
“The volume and concentration of live projects mean Tier 1 contractors have strong order books, which shifts pricing power in their favour,” he explained. “As capacity tightens, contractors become more selective, increase risk allowances, and prioritise margin over turnover. This behaviour has a faster and more pronounced impact on tender pricing than movements in individual material inputs.”
He added that material costs have been comparatively stable against recent years but skilled labour shortages, particularly in specialist and high-specification sectors, are adding pressure.
Excerpts from the interview:
Is the current cost escalation demand-driven or supply-constrained?
Demand is the primary driver of cost growth in the region. In Saudi Arabia, sustained public and private investment is driving escalation. Vision-led infrastructure, giga-projects, tourism, and logistics expansion are keeping contractor workloads high.
Supply pressures are emerging, but they are targeted. While overall contractor capacity remains available, specialist areas such as MEP services and data centre expertise are tightening. If timelines remain compressed, those constraints are likely to intensify well into 2026.
In the UAE, conditions are more balanced. The market is competitive, supply chains are established, and contractor appetite remains strong. Demand, rather than structural shortages, is driving cost growth.
As we move further into 2026, cost escalation risk is more likely to sit in specialist capacity than in broad supply disruption.
How tight is Tier 1 and Tier 2 contractor capacity in the UAE compared to Saudi Arabia?
The capacity is tight in both markets, but the degree and dynamics differ. In Saudi Arabia, capacity pressure is more acute. The scale and concentration of giga-projects limit the available contractor pool. Only a small number have the balance sheet strength, technical capability, and delivery experience to deliver large, complex schemes.
Many of those contractors are already heavily committed, which increases selectivity, strengthens pricing power and reduces appetite for poorly structured or high-risk contracts.
In the UAE, the contractor market is deeper and more mature, with broader international participation and a wider base of established players. However, for high-value, technically complex or long-duration projects, the number of truly capable Tier 1 and upper Tier 2 contractors remains limited.
There have been reports about the re-phasing of certain projects and a moderation of some of the Kingdom’s more ambitious developments. Could this help cool down prices in the long run and bring down the costs?
Rephasing and adjusting elements of certain giga-projects is a pragmatic step from a delivery perspective. However, it is unlikely to materially reduce cost pressures in the near term.
While programme adjustments may smooth peaks of demand, the overall volume of committed development remains high, and the ambition to deliver to international standards remains high. When combined with compressed timelines, this continues to place pressure on contractor capacity, specialist trades, and experienced project leadership.
Over time, more measured sequencing could support better market balance. For now, the scale and pace of delivery continue to absorb capacity.
Data centres and digital infrastructure face the highest increases, at 6–8 percent, in the Kingdom, according to the report. The UAE may also face similar cost pressures. What factors are driving higher cost escalation in this sector compared to others? What would be the correct approach to manage these pressures?
Data centre projects are seeing higher escalation due to technical complexity, specialist supply constraints, and compressed programmes. Strong global demand is intensifying competition for capability and key equipment.
Managing these pressures needs early engagement with contractors and specialist suppliers. It also demands advance procurement of long-lead items and early agreement of performance specifications. Clear and balanced risk allocation is also critical.
Standardising pricing models and procurement frameworks help set clear benchmarks for key building systems. This reduces variability and improves cost predictability.
It is also essential to balance CAPEX and OPEX. Focusing only on upfront capital cost can be misleading. Decisions on cooling, redundancy, energy efficiency, and equipment specification have long-term consequences. They directly affect performance and lifecycle costs.
There are concerns that rapid investment in data centres could draw capital, skills, and labour away from other critical sectors. To what extent are these concerns justified?
It is less about data centres diverting capital or labour, and more about tight overall delivery capacity. Capital continues to flow across sectors, but specialist expertise is finite.
The main pinch point is experienced contractors and senior project leadership. As technology requirements increase, multiple sectors compete for the same scarce capability.
In this environment, early engagement is critical. Securing the right expertise is essential to maintaining delivery certainty.
In the current market, which project types give contractors the greatest pricing power, and which segments remain highly competitive?
Contractors have greater pricing power on technically complex, capacity intensive projects as they require specialist expertise and strong balance sheets.
Large giga-project packages, complex mixed-use schemes, and data centres fall into this category. They depend on experienced Tier 1 contractors and advanced building services. When that capability is limited and contractors have full order books, pricing power shifts in their favour. Projects with compressed timelines or significant coordination risk also attract higher pricing.
By contrast, sectors with more contractors and lower technical complexity face stronger competition. In the UAE, where the market is deeper and international participation remains strong, conventional residential and commercial projects still attract competitive pricing.
In simple terms, pricing power follows capability. When specialist expertise is scarce, contractors have leverage. When more firms can compete, pricing remains competitive.
In the report, you recommend “early planning, realistic phasing, and flexible procurement” to keep control costs without sacrificing momentum. Could you highlight some of the cost savings from adopting these measures?
There is no one-size-fits-all formula. Meaningful savings depend on understanding the asset type, programme, technical complexity, and commercial structure.
The aim is to align the scope, phasing, procurement strategy, and risk allocation with the project’s specific characteristics. If done early, projects can reduce unnecessary contingency, avoid duplication, and improve market response.
This approach can deliver savings from 5 percent up to 15 percent, and they come not from reducing quality, but from smarter planning, packaging, and commercial alignment.
Lastly, is the region entering a structurally higher cost cycle, or is this a transitional phase?
It is too early to determine whether the region is entering a permanently higher cost cycle, but volatility is increasing.
The challenge is not only the level of escalation, but the timing and concentration of pressure. Costs are not rising evenly. They are influenced by capacity, sequencing, and sector-specific demand. That makes forecasting more complex.
Whether this becomes structural will depend on how contractor capacity, labour supply and programme phasing evolve.
The message is clear. Plan early, phase realistically and build flexibility into procurement strategies. In a volatile environment, certainty comes from preparation and disciplined decision-making. Those who anticipate change can better manage risk and protect value.
(Reporting by Anoop Menon; Editing by SA Kader)
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