GCC giga-projects better positioned to manage construction cost inflation

By Staff Writer

Giga-projects in the GCC are better positioned to manage construction inflation than private-sector developments, despite a potential rise in tender price inflation (TPI) next year, according to a senior JLL executive.

The support for giga-projects comes from long-term planning horizons, strong sponsorship and the ability to engage supply chains at scale, Clarke Morton-Shepherd, Head of Markets, Saudi Arabia & Bahrain – Project & Development Services, JLL, told Zawya Projects.

Last month, the global real estate consultancy forecast TPI to hold at 5 percent in 2027, up from a previously projected 4 percent, amid higher input-cost pressures due to the Middle East conflict.

GCC project awards rose 2.5 percent year-on-year to $204 billion in the first nine months of 2026, Kamco Invest said in its October update. Saudi Arabia led the region with $24.4 billion in project awards, followed by the UAE at $15.6 billion and Qatar at $5.2 billion.

Morton-Shepherd said bulk procurement and early supplier engagement help giga-projects anticipate price movements and secure materials and construction capacity in advance.

He stated that public-private partnership (PPP) projects in the GCC remain attractive to investors, supported by population growth, economic diversification, infrastructure spending and strong government commitment.

Interview excerpts:

Are giga-projects more vulnerable or more resilient to TPI than the private sector?

In general, giga-projects are better positioned to manage tender price inflation (TPI) because they benefit from long-term planning horizons, strong sponsorship and the ability to engage supply chains at scale. These programmes have the visibility and strategic procurement capabilities needed to anticipate market movements and secure capacity well in advance.

That said, resilience is not simply a function of size. The most successful projects are those that actively manage procurement, phase delivery intelligently and work collaboratively with the supply chain. Across the GCC, we are seeing increasingly sophisticated approaches to programme delivery, which should help support greater cost and schedule certainty over the long term.

How long can contractors absorb input costs, and will owners move away from lump-sum fixed-price contracts?

Sustainable project delivery requires balanced risk allocation. While contractors can absorb some cost pressures in the short term through efficiencies and productivity improvements, prolonged inflation inevitably requires a more collaborative approach between owners and the supply chain.

We do not expect lump-sum contracts to disappear. Rather, we are seeing a broader range of procurement and contracting strategies being adopted. Models that encourage earlier engagement, greater transparency and more equitable risk-sharing are becoming increasingly common because they create stronger outcomes for all stakeholders and ultimately support more resilient project delivery.

Which procurement mechanisms are most effective at mitigating price volatility?

The most effective approach is to address volatility before it reaches the construction phase.

Three strategies consistently deliver the best results:

· Early contractor and supply-chain engagement.

· Advance procurement of critical and long-lead items.

· Procurement strategies that provide flexibility and transparency around market-driven cost movements.

Successful projects also place significant emphasis on planning and sequencing. In a high-growth market, procurement excellence is becoming a key competitive advantage, particularly on large and complex developments.

How are rising construction costs and sustained TPI of about 5 percent affecting PPP financing and returns?

The market has adapted well to a moderate inflation environment. Investors, lenders and developers increasingly recognise that inflation is a manageable factor when supported by robust planning, realistic cost assumptions and clear risk allocation frameworks.

The PPP market across the GCC continues to demonstrate strong fundamentals because the underlying drivers remain compelling: population growth, economic diversification, infrastructure investment and strong government commitment to long-term development. Well-structured projects continue to attract significant investor interest and remain highly bankable.

Are developers and contractors using hedging strategies against rising commodity prices?

We are seeing a more proactive and sophisticated approach to managing commodity exposure across the industry. In practice, this often takes the form of early procurement, strategic supplier partnerships, framework agreements and index-linked commercial arrangements.

The broader trend is that project stakeholders are increasingly treating supply-chain management as a strategic discipline rather than a purely operational function. As the market continues to mature, we expect this evolution to accelerate, particularly on major programmes where procurement decisions can have a significant impact on project outcomes.

Do you still expect TPI to hold at 4-6 percent in 2027 if the US and Iran resolve their conflict next year?

Yes. We would continue to expect inflation to remain broadly within that range.

While any improvement in regional stability would be positive for business confidence and could support greater supply-chain predictability, the primary drivers of construction inflation in the GCC remain fundamentally linked to project activity, capacity utilisation and demand for labour and materials.

The outlook for the region remains highly positive. The development pipeline across Saudi Arabia and the wider GCC continues to be substantial, and that sustained investment activity is likely to remain the dominant influence on market conditions over the medium term.

How does Saudi Arabia compare with the UAE and other GCC markets on TPI?

Saudi Arabia remains one of the most dynamic construction markets globally, driven by the scale and ambition of its development pipeline. This naturally places greater pressure on resources, labour and supply chains than markets with more moderate growth profiles.

The UAE continues to benefit from a mature and diversified construction ecosystem, while other GCC markets are progressing through their own investment cycles and infrastructure agendas.

What is particularly encouraging is that the entire region is benefiting from long-term, strategic investment. The GCC is no longer viewed simply as a collection of individual markets; increasingly, it is being seen as an interconnected ecosystem where talent, capital, expertise and supply chains operate across borders. That presents significant opportunities for investors, developers and project stakeholders alike.

(Reporting by P Deol; Editing by Anoop Menon)

(anoop.menon@lseg.com)

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