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U.S. Construction Dispute Values Triple to $34.3 Million

In its fourth annual Global Construction Disputes Report, ARCADIS, a built asset design and consultancy firm, discovered that the average claimed value of construction disputes in the U.S. tripled to an average of $34.3 million between 2012 and 2013.

However, the United States was still well below average construction dispute values globally, behind Asia and the Middle East. At the same time, U.S. construction disputes took 1.8 months longer to resolve than in 2012, averaging 13.7 months.

This year’s ARCADIS report on the top trends driving the value, duration, causes and resolutions of construction disputes worldwide, “Global Construction Disputes: Getting the Basics Right,” also points to the number one cause for disputes in the United States in 2013: alleged errors and omissions in the contract document.

Worldwide, the most common causes of disputes were:

  1. failure to properly administer the contract;
  2. failure to understand and/or comply with its contractual obligations by the employer/contractor/subcontractor;
  3. incomplete design information of employer requirements;
  4. failure to make interim awards on extensions of time and compensation; and
  5. poorly drafted or incomplete and unsubstantiated claims.

The most common causes of disputes in the United States were:

  1. errors and/or omissions in the contract document;
  2. failure to make interim awards on extensions of time and compensation;
  3. differing site conditions;
  4. incomplete design information or employer requirements (for D&B/D&C); and
  5. failure to properly administer the contract.

This confirms the increasing expectation by owners that contracts should contain the needed remedies to resolve claims and that project management employees of owners and contractors need to properly administer these same contracts in a fashion that accomplishes fair and prompt resolution of disputes. This is confirmed by the fact that the most prevalent method of resolution continues to be direct negotiation or party-to-party resolution (followed by mediation and arbitration).

“Today’s major construction projects are fast paced, complex and involve a multitude of parties, so there are numerous points at which a dispute can occur,” says Joe Seibold, executive vice president of ARCADIS U.S. “Many of these disputes are resolved out of the public eye, but do often result in significant costs and time overruns. Our research confirms the scale of these problems and highlights the need for better contract administration, more robust documentation and a proactive approach to risk management to help avoid and mitigate the most common causes of disputes.”

The Panama Canal expansion was one of the highest profile disputes in 2013, with the Panama Canal Authority in dispute with the GUCP contractor consortium about cost overruns, said to be worth $1.6 billion, and delays to the project. It was reported a deal was secured that freed up some funds earlier this year and this has allowed work to continue.

Joint ventures in the United States tended to result in disputes in just over one-third of cases (36 percent), in line with the global average, which increased from 2012 where instances of joint venture disputes were less commonplace at 1 percent. The increased use of alternative project delivery approaches such as design-build, combined with the frequent involvement of joint ventures as the delivery entity, means that there is a high probability of a dispute either with the owner or within the joint venture team itself. This emphasizes the importance of proactive measures that will enable projects to mitigate or avoid the potential impact of disputes.

“As a result of an increasing active construction market, we are seeing the number of joint ventures increase as firms seek to distribute risk across major programs and blend specialist skills in the supply chain into one contract,” Seibold says. “This is clearly not an easy undertaking and research shows it is leading to an increase in the number of disputes, highlighting a need for some very careful focus around the selection, setup and management of the JV relationship.”

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