Ongoing regional developments, including the continuing conflict involving Iran and neighbouring states, have heightened geopolitical tensions across the Middle East, with direct implications for construction projects in the region. Cross-border trade, airspace access, and maritime shipping lanes have all been affected, with knock-on consequences for project delivery.
This alert provides a brief overview of the potential impacts on construction projects and highlights key legal and contractual considerations for project participants.
Potential Impacts on Construction Projects
The ongoing regional instability has had a tangible impact on a number of aspects of project delivery. The key impacts may broadly be categorised as follows:
1) Damage to the Works and Project Site
The most direct impact of regional conflict on a construction project is the potential for physical damage to the works, plant, equipment, or project site. This may arise from conflict events in or near the project area — including missile strikes, munitions, or other acts of hostility — and may cause immediate interruption to construction activities as well as significant remediation costs and programme delays depending on the extent of the damage sustained.
2) Supply Chain Disruptions
Contractors and project owners may experience supply chain disruptions affecting the availability or delivery of construction materials, plant, and equipment, particularly where materials are sourced internationally or shipping routes pass through affected areas. Projects may also be exposed to increased transportation and fuel costs if shipping routes, freight availability, or logistics networks are disrupted.
Regional conflict conditions may also give rise to broader cost escalation across the project. This may include significant increases in the price of materials and commodities driven by market volatility, elevated insurance premiums and security costs, and additional financing costs where project delays extend the construction programme beyond the periods originally anticipated.
3) Personnel and Mobilisation Restrictions
A further challenge concerns travel restrictions or delays affecting key project personnel, including international specialists, consultants, and technical staff whose movement may be impeded by airspace restrictions or reduced flight availability. Projects may also encounter delays in contractor or subcontractor mobilisation. For large infrastructure or EPC projects with complex, multi-jurisdictional supply chains, the cumulative effect may give rise to schedule delays and cost pressures not anticipated at the time of contracting.
Practical Contractual Considerations
In light of the current developments, project participants should review their contractual position and identify the applicable relief mechanisms. Construction contracts vary significantly in their treatment of war-related risks. Taking the Conditions of Contract for EPC/Turnkey Projects, First Edition 1999 (the “FIDIC Silver Book”) as an example, a regional conflict event may engage three distinct regimes as set out below.
1) War-Related Incidents as Force Majeure (Clause 19)
Force majeure under FIDIC is bilateral. War, hostilities, rebellion, terrorism, and riot are expressly listed as qualifying events. To succeed, the invoking party must satisfy a four-limb test: the event must be (i) beyond its control; (ii) not reasonably foreseeable at the contract date; (iii) not reasonably avoidable; and (iv) not substantially attributable to the other party. Where the event qualifies, the Contractor is entitled to an extension of time and, where it falls within Clause 19.1(i) to (iv), additional cost recovery. A 14-day notice under Clause 19.2, and a 28-day claim notice under Clause 20.1 are required, the latter operating as an absolute bar to entitlement. Protective notices should therefore be issued promptly, even where the full extent of the disruption is not yet known. If prevention continues for 84 continuous days or 140 cumulative days, either party may terminate, entitling the Contractor to work done, demobilisation costs, and reasonable profit on unperformed work.
2) War-Related Incidents as Employer’s Risk (Clauses 17.3 and 17.4)
This regime operates independently of the force majeure provisions with no foreseeability threshold. Clause 17.3 expressly allocates war, hostilities, rebellion, riot, and munitions as Employer’s Risks. Where such an event causes physical loss or damage to the Works — including the types of damage described under Category 1) above — Clause 17.4 entitles the Contractor to rectification costs and an extension of time. This is of particular strategic importance where foreseeability is contested, for example, where conflict was already ongoing at the contract date. Parties should consider pleading both regimes in the alternative. The Clause 20.1 28-day notice bar applies equally.
3) Performance Rendered Impossible or Frustrated (Clause 19.7)
Where a conflict event renders performance objectively impossible, not merely more difficult or costly, the contract may be discharged under applicable law via Clause 19.7. The threshold is high, requiring destruction of the project site beyond reinstatement, a government prohibition making performance unlawful, or a fundamental alteration of the contractual basis. A premature assertion of impossibility may constitute a repudiatory breach. Recovery is limited to work done and costs incurred, with no profit on unperformed work.
While the FIDIC Silver Book serves as a useful reference point, parties are advised to review their specific contract terms carefully, as the applicable provisions may differ from the FIDIC standard form in ways that affect the availability or scope of the reliefs described above.
Legal Frameworks
Where contracts are governed by local law, mandatory rules may provide additional or alternative remedies even where the contract is silent.
Under UAE law, Article 273 of the Civil Code extinguishes obligations where performance becomes impossible, a materially higher threshold than FIDIC Clause 19.1, which requires only that a party be prevented from performing. Parties should not assume a successful contractual force majeure claim will automatically satisfy Article 273. Article 249 provides a further hardship remedy, allowing courts to restore contractual equilibrium where exceptional and unforeseeable circumstances have rendered performance unduly burdensome. Under Saudi law, Article 125 of the Civil Transactions Law 2023 (CTL) similarly exempts a party from liability for causes beyond its control, with gaps filled by Sharia principles. The CTL also contains a hardship provision in Article 97 and a muqawala-specific provision at Article 471(3), allowing a court to restore the financial balance of a construction contract where exceptional circumstances have severely disrupted the financial equilibrium of the parties.
Conclusion and Key Takeaways
In light of the ongoing regional conflict, project participants should take proactive steps to manage contractual risk. In particular, parties should: (i) review force majeure and risk allocation provisions to understand available relief; (ii) consider whether UAE or Saudi mandatory rules provide additional remedies where the contract is silent; (iii) note that for projects entered into during the current conflict, the foreseeability threshold under Clause 19 warrants particular attention, and parties should consider addressing the scope of force majeure expressly in new contracts; (iv) ensure strict compliance with contractual notice requirements, which, under FIDIC operate as conditions precedent to entitlement; and (v) maintain clear and contemporaneous records of all disruptions, delays, and additional costs.
Given the evolving situation and the complexity of the applicable frameworks, parties are strongly advised to seek advice from experienced legal practitioners at the earliest opportunity, which will assist in managing project risks and reducing the likelihood of disputes as circumstances develop.
Key Contacts
Euan Lloyd, Partner, Head of Construction and Infrastructure, e.lloyd@tamimi.com
Justin Jie Zhang, Legal Director, j.zhang@tamimi.com
Rashed Abdel Hadi, Paralegal, R.AbdelHadi@tamimi.com