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Report: Construction Disputes Increased in 2017

Wednesday, July 18, 2018

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A new report from global design and consultancy firm Arcadis (Highlands Ranch, Colorado) has revealed that although the value of construction disputes in North America dropped for the fourth consecutive year, the average time taken to resolve these disputes increased in 2017, exceeding the global average and begging the question in the report’s title: Does the construction industry learn from its mistakes?

The report focuses the causes, duration and value of construction disputes while also looking at how such disputes are handled.

© iStock.com / flukyfluky

A new report from global design and consultancy firm Arcadis (Highlands Ranch, Colorado) has revealed that although the value of construction disputes in North America dropped for the fourth consecutive year, the average time taken to resolve these disputes increased in 2017, exceeding the global average and begging the question in the report’s title: Does the construction industry learn from its mistakes?

“In an environment of labor shortages and increased pressure from expediting projects, it is often instinctual to focus on getting a project started first and dealing with consequences later,” said Roy Cooper, head of contractor solutions, North America, for Arcadis.

“Even though many owners are fully aware that taking the time to administer a sound contract and negotiating clauses and terms are best practices, the results still show that failure to do so is an industry-wide problem. This emphasizes the importance of understanding the human factors that play into disputes as much, or even better than, understanding the technical issues themselves. We further explore the common causes of disputes and the related solutions to aid in the future delivery of projects and hope this will serve as a helpful guide for the future.”

Report Highlights

For this report, “dispute” was defined as a situation in which two parties typically differ in the assertion of a contractual right, resulting in a decision being given under the contract, which in turn becomes a “formal dispute.”

The value of a dispute is defined as the additional entitlement to that included in the contract, for the additional work or event which is being claimed. The length of a dispute is the period between when it becomes formalized under the contract and the time of settlement, or the conclusion, of the hearing.

In 2017, the average dispute value in North America was $19 million, down from 2016 ($21 million) and less than the global average ($43.4 million). The Middle East had the highest average at $91 million (all values were represented in U.S. dollars), the United Kingdom rang in second with $34 million and continental Europe averaged $29.5 million.

While North America was the lowest in dispute value, it ranked second-highest in average length of disputes (17.7 months), far exceeding the global average (14.8 months).

Continental Europe had the longest average duration, at 18.1 months, followed by the Middle East at 13.5 and the U.K. at 10. The report noted that analysts had anticipated both dispute values and dispute lengths to decrease for North America, yet the dispute length increased from 15.6 months in 2016.

Arcadis

In 2017, the average dispute value in North America was $19 million, down from 2016 ($21 million) and less than the global average ($43.4 million). The Middle East had the highest average at $91 million (all values were represented in U.S. dollars), the United Kingdom rang in second with $34 million and Continental Europe averaged $29.5 million.

“While design errors & omissions continue to be the genesis of many construction claims, the most basic function of poor and/or untimely communication continues to bedevil projects,” said Brian K. Stewart, Esq., Partner, Collins Collins Muir + Steward, LLP.

“In many instances when the problem starts as a technical issue, it can be exacerbated by failing to tackle the issue head on and instead many project members can take an ‘ostrich’ approach, which only causes the situation to fester. The ‘ostrich’ approach is absolutely the wrong way to deal with a developing problem on a project.”

The top three causes of contract disputes globally, which remained the same year over year, include:

  1. Failure to properly administer the contract;
  2. Poorly drafted or incomplete/unsubstantiated claims; and
  3. Employer/contractor/subcontractor failing to understand and/or comply with its contractual obligations.

The most popular methods to resolve the disputes include:

  1. Party-to-party negotiation;
  2. Mediation; and
  3. Arbitration.

The report also noted that contract and specification reviews were considered the most effective claims avoidance technique.

In the North America analysis, the report closes by noting the anticipated increase in large construction projects in 2018.

“With these larger and more complicated projects comes a need to embrace more sophisticated claims-avoidance techniques,” the report says, including:

  • Identifying potential problem areas during the design stage;
  • Encouraging relationship building between the project participants early in the project’s life cycle;
  • Using the most sophisticated technology and techniques the industry can offer to avoid disputes; and
  • Creating a platform where potential project issues can be regularly addressed.

   

Tagged categories: Business matters; Contracts; Disputes; Laws and litigation

Comment from Phil Kabza, (7/18/2018, 10:08 AM)

Very valuable article. Analyses such as this enable the industry to look for the "low hanging fruit" by targeting the fault lines in the landscape. How to make contracts better, and how to limit legal expenses and administrative costs by speeding resolution processes. We continue to work every day to make contracts better by improving the documents we prepare, and identifying areas for improvement by watching where addenda, RFIs, and change orders are required in order to perfect the contracts. Quality loop efforts mean the next project should be better. This is the low tech answer to dispute avoidance; then all we need to do is get the project participants to look at the drawings and read the specifications . . .


Comment from Michael Halliwell, (7/18/2018, 12:28 PM)

Of course, there is the contributing factor of more design-build projects too (another report recently in PaintSquare News or Durability and Design). More design-build will lead to more claims and disputes if the project goals aren't well defined before the work starts or change during the process.


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