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Assessing Project Disputes

Thursday, June 9, 2016

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While the cost and time devoted to resolving construction disputes is rising in some parts of the world, the United States stands out as the only global region achieving a decrease in those expenditures—for the third year in a row, a new study says.

The report, “Global Construction Disputes Report 2016: Don’t Get Left Behind,” is the sixth annual study into worldwide construction disputes by Arcadis, a built asset design and consultancy firm.

“The North American industry has become more sophisticated in recent years, realizing what we have said for a long time—focusing on managing risk and early intervention will help reduce the number and cost of disputes,” said John Jastrem, chief executive officer of Arcadis North America.

project engineer
© iStock.com / aydinmutlu; all other images courtesy of Arcadis

A new study of construction disputes suggests the U.S. construction industry has become more sophisticated in its approach to managing risk and early intervention as an effective means to address overall risk.

Disputes relating to major construction projects in North America dropped in value to an average of $25 million in 2015, from $29.6 million seen in 2014.

The average length of time it took to resolve disputes decreased to 13.5 months in 2015 from 16.2 months the prior year, according to the study.

A Downside

“This trend is good news for the U.S. and Canada, but there is one downside,” warned Roy Cooper, vice president, Arcadis North America.

“Even though more disputes are being settled early, the ones that remain grow into complicated, emotional affairs, with large damages at stake. These also take longer to resolve, since U.S. courts hate to try construction cases due to their large volumes of documents and greater complexity.”

Around the Globe

Globally, construction disputes underway in 2015 averaged more than 15 months, up from 13.2 months in 2014, the report said.

The average value of the disputes in 2015 decreased to $46 million from $51 million in 2014.

Infographic

Research for the report was based on disputes Arcadis handled during 2015. Markets included in the report are North America, the U.K., Europe, the Middle East, and Asia.

Research for the report was conducted by Arcadis Construction Claims Consulting experts and based on disputes the team handled during 2015. Markets included in the report are North America, the U.K., Europe, the Middle East, and Asia.

The trends varied by region.

The Middle East saw an increase in value, overtaking Asia as the region with the highest valued disputes in 2015, with an average of $82 million. The UK, Asia, and Europe joined North America in a decrease in dispute costs.

Dispute

According to the data, more disputes rise up in the transportation, water and wastewater sectors for North American firms.

Globally, the property/building construction sector revealed the most disputes, closely followed by the social infrastructure/public sector. The natural resources sector, Arcadis noted, shows some of the largest disputes.

Top Five Causes

Globally, the most common cause of dispute is a failure to properly administer the contract. Poorly drafted or incomplete and unsubstantiated claims ranked second. Errors and/or omissions in the contract document came in third.

The fourth most common cause was incomplete design information or employer requirements. Rounding out the top five was the failing to understand and/or comply with contractual obligations on the part of the employer, contractor or subcontractor, according to the report.

top causes of disputes

The study found that joint ventures were found to be at particular risk, with 25.5 percent of JVs ending in dispute.

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

The full report is available here.

   

Tagged categories: Business matters; Construction; Contractors; Contracts; Design build; Disputes; Infrastructure; Market; Transportation; Trends; Wastewater Plants

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