Disputes relating to major construction projects in North America decreased in value to an average of $29.6 million in 2014, according to ARCADIS.
At the same time, the length of time to resolve these disputes increased significantly to an average of 16.2 months. For the second year running, the most common cause for disputes in North America during 2014 was errors or omissions in the contract document. Differing site conditions ranked second, while a failure to understand or comply with contractual obligations on the part of an employer, contractor or subcontractor ranked third. These findings are included in a just-released report, ARCADIS Global Construction Disputes: The Higher the Stakes, the Bigger the Risk.
ARCADIS U.S. sees the length of a dispute as a significant finding. The industry has recognized that the cost of counsel, consultants and internal resources to proceed with formal litigation is extremely expensive. Therefore there is willingness on behalf of all the involved parties to try to arrive at a settlement. The three most common methods of alternative dispute resolution that were used during 2014 in North America were:
- party-to-party negotiation;
- mediation; and
Significantly, the number of projects going into dispute is also expected to rise during 2015, with projects accepted for lower margins during economic downturns and labor shortages in some markets likely to prove a catalyst for disputes.
It is no secret that the North American infrastructure system, much of it built in the 1950s, is in dire need of not just repairs, but a significant overhaul. With big projects ahead, the industry is now seeing a program of interconnected projects, rather than discrete projects. With big programs come even bigger risks and increased political and public attention. As owners consider these factors, failure and high visibility disputes are not an option. Owners have turned to alternate project delivery, increased project controls and early intervention to mitigate disputes to help manage that risk.
The report also cited the following as having the single largest impact in avoiding disputes:
- proper contract administration;
- accurate contract documents; and
- fair and appropriate risk and balances in the contract.
This year’s report, ARCADIS Global Construction Disputes: The Higher the Stakes, the Bigger the Risk, is ARCADIS’ fifth annual study into the duration, value, common causes and methods of resolution of construction disputes across the globe. 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. In the UK, dispute values dipped to $27 million.
Meanwhile, the global average time taken to resolve disputes rose to 13.2 months, up from approximately less than 12 months in 2013. Significantly, all areas of the world saw the resolution process take longer, with the exception of Asia where the average dispute length took two months less. According to Mike Allen, global leader of contract solutions at ARCADIS, “Governments and developers are commissioning large-scale construction programs with levels of investment reaching tens of billions. These programs are often highly complex and include a combination of tender pricing made during the recession and low availability of resources. In this scenario, disputes are not only much more likely but also potentially more costly.”