Contractors in Nigeria's construction and real estate sector are abandoning fixed-price contracts as economic shocks and geopolitical tensions drive up costs by nearly 20% since December. Industry leaders warn that the surge in prices of iron rods, cement, diesel, and labor, triggered largely by the Iran-Israel conflict, is forcing firms to adopt flexible pricing models to stay afloat.
Phase-by-Phase Contracts Gain Traction
Speaking at a webinar organized by Fortren & Company in Lagos, Temitope Runsewe, Managing Director of Dutum Company Limited, explained that fixed contracts have become unsustainable. “Over the last three years, we stopped signing fixed contracts from beginning to the end, except when a client pays 100% upfront,” he said.
Runsewe outlined a new approach: “If a client provides N2 billion for a N10 billion project, we determine the scope that amount covers and fix the contract only for that phase. At agreement, we set baseline prices for cement, reinforcement, diesel, and petrol. Once the milestone is reached, we reassess indices and adjust pricing if major market shifts occur.”
Advanced Procurement and Client Relations
He noted that advanced procurement strategies are essential to mitigate exchange rate volatility and rising import costs. “Some materials can be secured in advance, but others like concrete cannot. Contractors now need creativity, flexibility, and careful client selection. Transparency and integrity help sustain projects even when price adjustments upset clients.”
Impact on Real Estate and Affordability
Akin Opatola, President of FIABCI Nigeria, described the Iran-Israel conflict as a global crisis with severe implications for African economies. “It is repricing construction projects, development budgets, and investment decisions across the continent. Luxury real estate has become more expensive, with dollar-denominated rentals and sales rising, while affordable housing is increasingly inaccessible.”
He added that the affordable and social housing segment has become even more unaffordable, and conversations around addressing housing shortages will take much longer to achieve. “Transactions have slowed from both rental and sales perspectives, while developers struggle on the supply side.”
Broader Economic Effects
Martin Uche, Research Director at Fortren & Company, noted that the economic effects extend beyond construction sites. “Even individuals not directly involved in construction feel the impact through rising diesel costs, transportation expenses, and higher household running costs. Multiple economic shocks have weakened purchasing power, affecting real estate transactions nationwide.”
Chude Osiegbu, Founder and CEO of Venco, highlighted that facilities and estate management operations have historically been exposed to forex fluctuations. “Fuel costs, especially diesel, have always been dollar-linked, but now we see direct geopolitical exposure. Diesel prices are approaching N2,000 per litre.”
