Rising Material Prices on Live Projects: What FIDIC Really Allows Contractors to Claim

This note is written from the perspective of our senior dispute resolution practice for contractors, employers and project teams dealing with cost escalation on ongoing projects. It addresses the FIDIC 1999 and 2017 Red, Yellow and Silver Books and Saudi law. It is general guidance, not legal advice. Every contract — and above all its Particular Conditions — must be read on its own terms.

Every few years, the construction industry relearns the same uncomfortable truth: a fixed price is fixed for only one of the parties. When steel, cable, fuel and freight move sharply after tender, it is the contractor who carries the difference — unless it can point to a clause, a law or an Employer event that moves the risk back.

Since 2020 the shocks have come in quick succession: the post-pandemic supply chain crisis, the energy spike that followed the war in Ukraine, the diversion of shipping away from the Red Sea, a new wave of trade tariffs and, closer to home, regional conflict that has raised freight, insurance and supply risk across the Gulf. On a three- or four-year project in the Kingdom, a contractor may price its tender in one market and buy its materials in a very different one.

In more than four decades of preparing and assessing time and cost claims, I have seen escalation claims succeed and fail for the same small set of reasons. The claims that succeed are rarely the ones with the largest numbers. They are the ones that answer three questions with documents rather than assertions:

1. Which clause or law moves this risk to the Employer?
2. Was it notified in time?
3. What would the price have been if that event had not happened?

This note explains how I approach those questions under FIDIC and Saudi law, where contractors most often go wrong, and how to build a claim that will survive the Engineer, a Dispute Avoidance/Adjudication Board (DAAB) and, if it comes to it, an arbitral tribunal.

1. What is driving prices — and why live projects are exposed

Price escalation on today's projects rarely has a single cause. The drivers I see affecting projects in Saudi Arabia and the wider GCC are:

• Freight and shipping routes. At the 2021 peak, global container freight rates rose more than five-fold on pre-pandemic levels. Since late 2023, attacks on shipping in the Red Sea have pushed many carriers around the Cape of Good Hope, adding roughly 10–14 days to Asia–Europe voyages and raising freight and insurance costs on routes into Jeddah and the Red Sea coast.
• Energy. Energy-intensive materials — steel, cement, glass, aluminium and bitumen — follow energy prices, often with a lag of several months.
• Commodity metals. Rebar and structural steel, copper for cabling and MEP systems, and aluminium for façades trade on volatile global markets. In many markets, rebar prices nearly doubled between mid-2020 and early 2022.
• Trade measures. Tariffs, anti-dumping duties and export restrictions redirect global trade flows and reprice materials even in countries that did not impose them.
• Regional conflict. War-risk surcharges, insurance premiums and the risk to shipping through the Strait of Hormuz feed directly into delivered material costs. I examined this in The Iran Conflict and GCC Construction.
• Local demand. The concentration of Vision 2030 giga-projects means many projects compete at the same time for the same materials, plant, specialist subcontractors and skilled labour.

Live projects are exposed for a structural reason: the contractor prices at one moment and buys over several years. Supplier quotations rarely hold for more than 30 to 90 days. Long-lead items such as switchgear, chillers, lifts and façade systems may be ordered a year or more after award. And every month of delay — whoever caused it — extends the period of exposure. That last point is where much of the recoverable money lies, as Section 6 explains.

2. Start with the risk allocation, not the invoice

Under Sub-Clause 4.11 of the FIDIC Red and Yellow Books (1999 and 2017), and its Silver Book equivalent, the Contractor is deemed to have satisfied itself as to the correctness and sufficiency of its price, and that price covers all of its obligations under the Contract. Unless the contract or the governing law provides otherwise, a rise in market prices is a commercial risk the contractor accepted when it tendered — just as it keeps the benefit if prices fall.

The practical consequence is that a price increase is a consequence, not a cause. It becomes claimable only when it results from something the contract or the law places on the Employer. Tribunals are not persuaded by evidence that prices rose. They are persuaded by evidence of why the contractor should not bear that rise.

3. The five questions I ask before looking at any numbers

1. Does the Contract contain a cost indexation schedule (Sub-Clause 13.7 of FIDIC 2017; 13.8 of FIDIC 1999) — and has it survived the Particular Conditions?
2. Is any part of the increase caused by a change in the Laws of the Country made or published after the Base Date?
3. Was any affected work or procurement pushed later by an Employer event that carries an entitlement to Cost?
4. Is the affected work varied, executed under a Provisional Sum, or valued at cost?
5. What law governs the Contract, and does it contain mandatory hardship relief?

Each question corresponds to a different route, with its own notice, evidence and remedy. They are not alternatives to be chosen by preference. A single price increase may be recoverable partly under one route, partly under another, and not at all for the remainder. The table summarises the routes; each is explained below.

4. Route 1 — The contract's own price adjustment clause

FIDIC contains a built-in mechanism for adjusting the Contract Price for changes in the cost of labour, Goods and other inputs: Sub-Clause 13.7 [Adjustments for Changes in Cost] in FIDIC 2017, and Sub-Clause 13.8 in FIDIC 1999.

The mechanism is optional. Under FIDIC 2017, if Schedule(s) of cost indexation are not included in the Contract, Sub-Clause 13.7 does not apply. Under FIDIC 1999, the same result follows if there is no table of adjustment data in the Appendix to Tender. Many employers in the Kingdom delete the clause in the Particular Conditions or leave the schedule blank, so the first task is always to check.

Where the clause applies, the adjustment is calculated through a formula of this type:

• P_n is the multiplier applied to the value of work carried out in the period.
• a is a fixed coefficient representing the non-adjustable portion of the price. The larger it is, the less protection the contractor has.
• b, c, d are the weightings for each cost element — for example labour, equipment and fuel, and materials. Together with "a", they add up to 1.
• L_n/L_o, E_n/E_o, M_n/M_o compare the current index with the base index for each element. The base indices are those applicable at the Base Date — 28 days before the latest date for submission of the Tender.

A worked example

Assume a schedule with a fixed portion of 0.15 and weightings of 0.30 for labour, 0.15 for equipment and fuel, and 0.40 for materials. In a given month, the labour index stands 5% above its base, the fuel index 10% above, and the materials index 25% above.

If the work valued that month is SAR 10 million, the adjusted amount is SAR 11.3 million — an adjustment of SAR 1.3 million for that month alone, paid through the Interim Payment Certificate without the contractor having to prove its actual costs.

The sentence most contractors miss

Both editions contain a short provision that changes how the whole clause should be read. In substance, it says that to the extent full compensation for any rise or fall in costs is not covered by this or other Sub-Clauses, the Accepted Contract Amount is deemed to include amounts to cover the contingency of other rises and falls in costs.

The consequence is important. Where indexation applies, the formula is a risk-sharing mechanism, not an indemnity. If it under-compensates — because the indices lag the market, because the fixed element "a" is large, or because a particular commodity has outrun its index — the shortfall is, as a rule, the contractor's risk. I regularly see claims for "the difference between the formula and our actual costs". They almost always fail.

Note, however, the words "or other Sub-Clauses". The deemed contingency does not displace entitlements that arise under other provisions — which is why the delay-linked route in Section 6 remains available even where indexation applies.

Practical points that decide the value of the adjustment

• The indices matter as much as the formula. Check that each index is published reliably and actually tracks the cost it represents. A general construction index may badly understate the movement in, say, copper cable.
• Provisional indices must be recalculated. Where a current index is not yet available, a provisional index is used. Track these and make sure the adjustment is recalculated when the final index is published.
• Weightings can be revisited. FIDIC 1999 expressly allows the weightings to be adjusted where Variations have rendered them unreasonable, unbalanced or inapplicable. If the scope has shifted towards steel-heavy or MEP-heavy work, the original weightings may no longer be fair.
• An extension of time protects the formula. Under FIDIC 1999, if the Contractor fails to complete within the Time for Completion, later adjustments use either the index applicable 49 days before the Time for Completion expired or the current index — whichever is more favourable to the Employer. In a rising market, that freezes the contractor's protection. Because the Time for Completion includes any extension granted, a properly secured extension of time preserves indexation as well as protecting against Delay Damages. Check whether your 2017 schedule of cost indexation contains equivalent wording.
• The formula does not capture everything. Freight, war-risk surcharges, insurance premiums and specialist items often fall outside the indices used, and work valued at cost or current prices, such as Dayworks, is excluded from the adjustment.
• It works both ways. If prices fall, the Contract Price is reduced.

5. Route 2 — Changes in Laws

FIDIC 2017 Sub-Clause 13.6 [Adjustments for Changes in Laws] — Sub-Clause 13.7 in FIDIC 1999 — entitles the Contractor to an extension of time and/or payment of Cost where a change in the Laws of the Country, made or officially published after the Base Date, affects the Contractor's performance of the Contract. FIDIC 2017 extends this to changes in the official interpretation or implementation of those Laws.

For price escalation, this route captures increases imposed by the state rather than by the market:

• new or increased customs duties, government fees and levies;
• taxes the contractor can neither recover nor pass on;
• changes in the official interpretation or implementation of existing laws;
• changes to government-regulated prices, which may qualify depending on how they are implemented.

The timing trap

The change must be made or officially published after the Base Date. A change announced before that date is deemed to be priced, even if it takes effect later. The expatriate labour levy in Saudi Arabia is a good illustration: its annual increases from 2018 to 2020 were published in advance, so contracts tendered after the announcement were deemed to have priced the later steps.

A word on VAT

VAT is often cited as an example of a Change in Law, but it needs care. For a VAT-registered contractor, VAT charged on purchases is normally recoverable as input tax, so a rate increase is rarely a real cost on materials. The genuine exposure arises on the Contract Price itself: where the price was agreed as VAT-inclusive, an increase in the rate — such as the rise from 5% to 15% in July 2020 — can fall on the contractor unless the contract or the applicable transitional rules provide otherwise.

Two further limits

• It must be a law of the Country where the Works are located. A tariff imposed by another country may raise your supplier's price, but it is not a change in the Laws of the Country. Its effect reaches you through the market, not through the law.
• Causation and quantum must be proved. The contractor must show that the change actually increased its Cost, by how much, and on which elements of the work. The clause also operates in reverse: a reduction in Cost reduces the Contract Price.

Always check the Particular Conditions. Some employers narrow this clause or exclude particular taxes and duties from it.

6. Route 3 — Employer delay that pushes procurement into a higher-price period

This is, in my experience, the most valuable route — and the most frequently neglected.

Where the Contractor is entitled to Cost because of an Employer event — for example delayed drawings or instructions (Sub-Clause 1.9), late access to the Site (Sub-Clause 2.1), Employer suspension (Sub-Clauses 8.9–8.10 of FIDIC 2017), Unforeseeable physical conditions (Sub-Clause 4.12) or a Variation — it is entitled to the Cost resulting from that event. FIDIC defines "Cost" broadly as expenditure reasonably incurred by the Contractor, whether on or off the Site, including overheads and similar charges but excluding profit, unless the clause provides for "Cost Plus Profit".

If an Employer delay forced the contractor to buy materials later than planned, at higher prices, the extra price paid is part of the Cost of that delay. Increased prices for work deferred by Employer delay are a long-recognised head of loss in delay claims. They are distinct from indexation, and they do not depend on it.

What you must prove

• When you would have bought. The accepted programme and the procurement schedule that sits behind it.
• The price you would have paid then. Supplier quotations valid at the planned date, or the price allowed in the tender. If the tender already included an escalation allowance for the original programme, only the excess is recoverable.
• That the Employer event caused the deferment. A properly prepared delay analysis linking the event to the affected activities and their procurement dates.
• What you actually paid. Purchase orders, invoices and proof of payment.
• That you mitigated, or could not reasonably do so. Forward purchasing is not always reasonable: it ties up capital and storage, and the Employer may not pay for materials before delivery. Record why the course you took was sensible.

Three disciplines that keep the claim credible

• No double recovery. Deduct any indexation already received on the same quantities.
• Keep it separate from prolongation. Prolongation compensates the time-related costs of being on site longer. Escalation compensates the higher price of the work itself. Present them separately so the reviewer can see that nothing is counted twice.
• Exclude your own delay. Escalation during periods of contractor-caused delay generally stays with the contractor, and concurrent delay can reduce or defeat recovery. See our guide to concurrent delay in Saudi projects.

7. Route 4 — Variations, Provisional Sums and Dayworks

• New rates for varied work. Under Sub-Clause 12.3, contract rates are used where they are appropriate. But a new rate is justified where varied work is not of similar character, or is not executed under similar conditions, as any item in the Contract. A Variation instructed in year three, when market prices are materially higher than at tender, gives a legitimate basis to argue that the original rates are no longer appropriate. This is an argument, not an automatic right, and it must be supported with evidence.
• Price Variation proposals on current costs. When the Engineer requests a proposal before instructing a Variation (Sub-Clause 13.3.2 of FIDIC 2017), price it on current costs and say so expressly. Do not adopt the bill rates by default "for convenience" — once accepted, they are very difficult to reopen.
• Significant changes in quantity. FIDIC 2017 Sub-Clause 12.3 also allows a new rate where the measured quantity of an item changes by more than 10% and specific further thresholds are met.
• Provisional Sums. Work executed under a Provisional Sum (Sub-Clause 13.4 of FIDIC 2017; 13.5 of FIDIC 1999) is generally paid at the actual amounts paid by the Contractor plus a percentage for overheads and profit. Escalation on these items is therefore borne by the Employer.
• Dayworks. Check whether the Daywork schedule is priced at fixed rates or at cost — it makes a significant difference in a rising market.
• Value engineering. Sub-Clause 13.2 allows the Contractor to propose alternatives. Where a particular commodity has spiked, proposing an equivalent material, system or source can reduce cost for both parties, and is often received more positively than a claim.

8. Route 5 — Exceptional Events and supply shortages

Contractors often reach first for force majeure — called "Exceptional Events" in FIDIC 2017 Clause 18 (Clause 19 in FIDIC 1999). For price escalation alone, it is usually the wrong route.

Relief under this clause requires the affected party to be prevented from performing. Performance that has become more expensive has not been prevented. Even where an Exceptional Event is established, FIDIC allows recovery of Cost only for certain categories of event; for the rest, relief is limited to time.

The event behind a price spike — a war, an epidemic, a government export ban — may, however, also cause physical shortages. FIDIC 2017 Sub-Clause 8.5(d) (8.4(d) in FIDIC 1999) entitles the Contractor to an extension of time for Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions. That extension does not pay the extra price, but it protects the contractor from Delay Damages and, where indexation applies, from the late-completion freeze described in Section 4.

The correct approach is to plead the event for time and to pursue the cost through the routes above. Pleading the price rise itself as an Exceptional Event weakens both.

9. Route 6 — The governing law: hardship under Saudi law

This is the route contractors most often overlook. Where the contract is governed by Saudi law, the Civil Transactions Law (Royal Decree M/191, in force since December 2023) contains mandatory provisions that can override a strict fixed-price allocation.

Article 97 — exceptional circumstances

Article 97 applies where general, exceptional circumstances that could not have been foreseen at the time of contracting make performance — though still possible — excessively onerous, threatening the obligor with serious loss. The sequence matters: the affected party may request renegotiation; requesting it does not entitle the party to suspend performance; and if no agreement is reached within a reasonable time, the court may reduce the onerous obligation to a reasonable limit. Any agreement to the contrary is void, so this protection cannot be excluded by contract.

Article 471 — construction contracts

Article 471 deals specifically with construction contracts. The general rule in Article 471(1) is that a contractor who agreed a lump sum cannot demand an increase merely because the cost of materials or labour has risen. Article 471(3), however, allows the court to intervene to restore the balance where general exceptional circumstances, unforeseeable at contracting, have severely disrupted the financial balance between the parties' obligations. Commentators note that this may extend to terminating the contract.

In practice I treat hardship as a backstop, not a lead argument. It is strongest where the contractual routes have been exhausted, the contract date pre-dates the shock, and the evidence shows a market-wide movement of a scale no prudent tenderer could have priced. Other GCC jurisdictions contain comparable provisions, most notably Article 249 of the UAE Civil Code.

Government contracts

Saudi government contracts are subject to the Government Tenders and Procurement Law. Article 68 of the 2019 law (Royal Decree M/128) allows contract prices to be increased or decreased in limited cases, including changes in the prices of main items or services as specified in the Implementing Regulations, and changes to customs tariffs, fees or taxes. Price adjustment requests are considered by a committee at the Ministry of Finance, whose decisions are binding on government agencies, and the contractor must meet the conditions and evidential requirements of the Regulations.

A new Government Tenders and Procurement Law (Royal Decree M/76 of 1448H) was published in September 2026 and takes effect in early 2027, replacing the 2019 law. Contractors on public projects should confirm which regime governs their contract and follow its procedure precisely.

10. Route 7 — A negotiated solution

In many cases the best outcome is a negotiated one, and employers have good reasons to engage. A contractor under severe financial stress slows down, under-resources the works or fails altogether, and the cost of re-procuring a half-finished project almost always exceeds the cost of a fair adjustment. The renegotiation step built into Article 97 of the Civil Transactions Law reinforces this approach.

The tools that work well in practice are:

• A contract amendment introducing indexation for the remaining work, or for specific volatile commodities such as steel, copper, cable or bitumen.
• Risk-sharing bands, under which the contractor bears movements up to an agreed percentage and the parties share costs beyond it.
• Early purchase supported by payment. Payment for Plant and Materials before incorporation under Sub-Clause 14.5 is available only for items listed in the Contract. Where the list is empty or short, an amendment adding the volatile items — with suitable security for the Employer — together with an advance payment under Sub-Clause 14.2, allows the contractor to buy early and lock in prices.
• Employer direct procurement of key materials as Employer-Supplied Materials (Sub-Clause 2.6 of FIDIC 2017).
• Re-sequencing or value engineering to reduce reliance on the most volatile items.

A negotiated solution needs the same quality of evidence as a formal claim. Present it as a substantiated commercial proposal, made in writing and expressly without prejudice to the contractor's contractual entitlements — not as a complaint.

11. Building the claim: notices, records and quantification

Notices

• FIDIC 2017. A Notice of Claim within 28 days after the Contractor became aware, or should have become aware, of the event (Sub-Clause 20.2.1), and a fully detailed claim within 84 days (Sub-Clause 20.2.4). Late notice can extinguish the claim entirely.
• FIDIC 1999. Notice within 28 days under Sub-Clause 20.1, and a fully detailed claim within 42 days.
• Continuing effect. Escalation usually continues over many months. The first detailed claim is treated as interim, with monthly updates and a final claim within 28 days after the effects end.
• Advance warning. FIDIC 2017 Sub-Clause 8.4 requires each party to warn the other of known or probable future events that may increase the Contract Price or delay the works. Early warning of escalation trends is good practice and strengthens later claims.
• The Engineer's determination. Under FIDIC 2017 Sub-Clause 3.7, if you disagree with the Engineer's determination you must give a Notice of Dissatisfaction within 28 days. Otherwise the determination becomes final and binding.

Indexation flows through the monthly Statements and does not usually need a separate claim. Disputes about the indices, the weightings or the late-completion rule, however, should be notified and pursued in the normal way. For more detail, see our guide to notice requirements under FIDIC 2017.

Records

• The tender build-up, including the quotations behind each rate and any escalation allowance. Without a proven base, you cannot prove an increase.
• The procurement programme and the validity periods of supplier offers.
• Purchase orders, invoices, delivery notes and proof of payment.
• Market data at the relevant dates — for example price indices from the Saudi General Authority for Statistics (GASTAT), London Metal Exchange prices for metals, and recognised fuel and freight indices.
• Supplier correspondence notifying price increases, allocation limits or shortages.
• Evidence of mitigation — alternative quotations sought, and forward purchases made or considered.

Quantification

• Actual cost method: the price actually paid compared with the tender base, applied to the affected quantities.
• Index method: the movement in a recognised index applied to the value of affected work. Useful where records are incomplete, but the index must fit the cost.
• Delay-linked method: the price at the planned purchase date compared with the price at the actual purchase date, for the quantities deferred by the Employer event.

Avoid "global" or total-cost claims that simply compare total actual cost with the tender price. Tribunals are reluctant to accept them, because they assume the tender was accurate and that none of the overrun was the contractor's responsibility. For related guidance on time-related costs, see our guide to prolongation costs.

What the Engineer, a DAAB or a tribunal will look for

In my experience, decision-makers test an escalation claim against the same eight points: the clause, the notice, the causal chain, the base price, the actual price, the quantities affected, the mitigation, and the absence of double counting. A claim that addresses all eight on its face is usually agreed or settled. A claim that leaves any of them to be inferred is usually reduced — or rejected.

12. The most common mistakes

• Assuming price increases are automatically recoverable, and writing letters of complaint instead of contractual notices.
• Missing the 28-day notice, particularly on continuing claims.
• Claiming the shortfall between the indexation formula and actual costs, which the contract deems to be priced.
• Treating a foreign tariff, or a change announced before the Base Date, as a Change in Law.
• Pleading the price rise itself as force majeure or an Exceptional Event.
• Having no reliable record of the tender pricing base.
• Failing to secure extensions of time, which exposes the contractor to Delay Damages and, under indexation, to the late-completion freeze.
• Mixing escalation, prolongation and indexation in one figure, so that the reviewer cannot see what is being claimed twice.
• Overlooking the governing law, and the mandatory hardship provisions it may contain.
• Leaving the supply chain out of step: accepting escalation clauses from suppliers and subcontractors that the main contract does not allow you to pass on.

13. A practical checklist: what to do now

1. Review every live contract: the FIDIC edition, whether Sub-Clause 13.7/13.8 applies and what its schedule contains, the Changes in Laws clause, the Particular Conditions, and the governing law.
2. Map your exposure: the volatile commodities, the quantities still to be purchased, and when.
3. Lock in prices where you can: forward purchasing, supplier price agreements, and the Sub-Clause 14.5 list of materials eligible for early payment.
4. Issue advance warnings and protective notices as soon as a claimable event arises.
5. Link delays to procurement in your programme, so the escalation effect of each delay event is visible.
6. Collect evidence now: the tender base, quotations, invoices and index data at each relevant date.
7. Quantify each route separately, using a recognised method, and remove any double counting.
8. Open a commercial dialogue early, supported by evidence rather than assertion.
9. Mirror your protection in subcontracts and supply agreements.
10. Take specialist advice early — the choice of route and the framing of the first notice often determine the outcome.

A note for employers

Escalation risk that sits with the contractor on paper often returns to the employer in practice — through slower progress, claims, disputes and, in the worst cases, contractor insolvency. On new contracts, a balanced indexation schedule for the most volatile commodities is often cheaper than the risk premium tenderers will otherwise build into their prices, and it works in the employer's favour when prices fall. FIDIC 2017 Sub-Clause 13.7 provides a ready-made mechanism for exactly this purpose.

Closing remarks

Rising prices are not, on their own, a claim. But they are very often the visible symptom of something that is: an indexation schedule applied incorrectly, a change in Saudi law, an Employer delay that pushed procurement into a more expensive market, a Variation valued at out-of-date rates, or a hardship that Saudi law will not allow the contract to ignore.

Over the years I have watched good claims lost to late notices and missing tender records, and modest claims recovered in full because every number could be traced to a document. The difference is rarely the size of the price increase. It is the discipline with which the claim is identified, notified and proved.

The time to put that discipline in place is before the next invoice arrives — not at the final account.

About the author: This note draws on the Claimetrica Dispute Resolution & Contract Law practice. Our senior adviser has over 45 years of international experience in forensic delay analysis, time and cost claims, and dispute board practice across infrastructure projects in Africa, the Middle East, Turkey, Ukraine, and the Caribbean. He is a Member of the Institute of Arbitrators (UK), the Society of Construction Law (UK), and the Dispute Resolution Board Foundation (DRBF), and a Contributing Author to Lukas Klee's International Construction Contract Law (Wiley, 2nd edn 2018).

Related services: Claimetrica provides senior-level advisory on quantum and cost claims, FIDIC contract administration, forensic delay analysis, and dispute resolution and expert witness across the GCC and internationally. Request a confidential consultation →