Saudi Aramco terminating a contractor from one of its megaprojects would be an unprecedented act and an extremely courageous decision, considering the repercussions it will certainly cause.

If the state-owned oil company follows through on its plan and expels South Korea’s SK Engineering & Construction (E&C) from the Jizan Refinery Project, it will be doing so after weeks of deliberation and approval from the highest echelons.

Whether or not there is the possibility of a last minute deal that would see SK E&C stay on site is a question only Aramco can answer. SK E&C told the international media this week that it is still negotiating with Aramco, but sources indicate there is no chance it will receive the $1.2bn requested to finish the package it was awarded in October 2012.

So SK E&C’s choice will be either to accept Aramco’s offer, if it is still on the table, and take a massive hit on the project, or leave the scheme completely. Aramco will also be faced with further delays on a scheme already almost two years behind schedule.

Some industry experts working in the kingdom have said this proves the low-risk, low-cost, lump-sum turnkey (LSTK) contracting model has now had its day and that a different method could now be ushered in where a fixed margin for all contractors is used.

As tempting as this may sound to contractors, it is unlikely to actually happen. Aramco should not be expected to take on more risk because contractors are bidding too low for its projects.  

The oil major is regarded by most contractors as an understanding client that pays extra if the circumstances demand it, but at the end of the day, it is the firms that want to bid for these schemes. They are not coerced into it and should only submit commercial terms that are realistic.  

Should Aramco go ahead and expel SK E&C from Jizan, the message from Dhahran will be loud and clear: the days when Aramco bailed out every low-bidding contractor unconditionally are well and truly over.

We could now be entering a new era where realism replaces optimism in the kingdom’s most vibrant projects market.