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Study: Construction Dispute Costs Drop

Wednesday, July 8, 2015

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AMSTERDAM--Unlike many other parts of the world, construction disputes in North America are taking longer to resolve but costing less in the end, a new study suggests.

The report, Global Construction Disputes Report 2015, is the fifth annual study into worldwide construction disputes by ARCADIS, a built asset design and consultancy firm headquartered in Amsterdam.

Conflicts relating to major construction projects in North America decreased in value to an average of $29.6 million in 2014, from $34.3 million seen in 2013.

Disputes Chart
ARCADIS Global Construction Disputes: The Higher the Stakes, the Bigger the Risk

Research for the report was conducted by ARCADIS Construction Claims Consulting experts and based on disputes the team handled during 2014.

However, the average length of time it took to resolve the disputes increased to 16.2 months in 2014 from 13.7 months the year prior, according to the report.

Worldwide Increases

Globally, construction disputes underway in 2014 averaged more than 13 months, up from less than a year in 2013, the report says.

In addition, the average value of the disputes in 2014 increased to $51 million from $32.1 million in 2013.

Research for the report was conducted by ARCADIS Construction Claims Consulting experts and based on disputes the team handled during 2014. Markets included in the report are North America, the UK, Europe, the Middle East, and Asia.

The trends varied by region.

Significance in Time, Resolution

The increase in time spent to resolve disputes is significant, according to Roy Cooper, vice president of ARCADIS U.S.

Contractor dispute
©iStock.com / SharpPhotoPro

The study found that party-to-party negotiation was the most common method of dispute resolution, followed by mediation and arbitration.

“The industry has recognized that the cost of counsel, consultants and internal resources to proceed with formal litigation is extremely expensive,” he said.

“Therefore there is willingness on behalf of all the involved parties to try and try again to arrive at a settlement.”

The study found that party-to-party negotiation was the most common method of dispute resolution, followed by mediation and arbitration.

Other findings include: 31 percent of construction disputes occur in the transportation sector and 1 in 3 joint ventures end up in dispute.

Common Causes

Globally, the most common cause of dispute is a failure to administer the contract, the study concludes.

However, the most common cause for disputes in North America during 2014 was errors and/or omissions in the contract documents, according to the report.

Differing site conditions ranked second, followed by a failure to understand or comply with contractual obligations on the part of the employer, contractor or subcontractor.

On the Rise

The study also predicts that the number of major projects going into dispute is likely to rise during 2015, with projects accepted for lower margins during economic downturns and labor shortages in some markets as the likely catalysts.

Cooper advises that with big projects in North America, such as upgrading the aging infrastructure system, owners should take an interest in managing the risk of a highly visible dispute.

bridge
ARCADIS

The report found that global construction disputes are taking longer to resolve, with an average length of over 13 months.

“Owners have turned to alternate project delivery, increased project controls and early intervention to mitigate disputes to help manage that risk,” he said.

Global Stats

All areas of the world saw the resolution process take longer, with the exception of Asia. The average length of dispute there is a year, down two months from 2013.

Moreover, the report found that construction dispute values were the highest in Asia at $85.6 million where values more than doubled year over year, closely followed by the Middle East at $76.7 million.

Europe saw dispute values climb in 2014 to $38.3 million from $25 million the year before.

In the UK, however, dispute values dipped to $27 million from $27.9 million in 2013.

   

Tagged categories: Annual report; Construction; Consultants; Contractors; Contracts; Laws and litigation; Market research; Subcontractors

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