The 2016 Arcadis Global Construction Disputes report indicates that while the cost and time involved in solving construction disputes is rising in some parts of the world, the costs have decreased for the third year in a row in North America—the only global region where it’s also taking less time to resolve disputes.
The construction disputes report provides insight into the main causes of disputes and how best to avoid, mitigate, and resolve disputes quickly and cost effectively. Further, the report predicts that the decline in duration and value of construction disputes in North America will continue into 2016. These trends represent a positive signal, reducing the financial drag on construction overall.
The reasons for the change in behavior is that both owners and contractors in North America appreciate how expensive and time-consuming the formal dispute resolution process can be. Legal fees, consultant fees and business distraction have prompted the construction industry to consider quicker and less costly ways of addressing disputes. Provisions are now included in many major construction contracts that outline a specific procedure for addressing disputed issues. The result is that the field staff of active projects is resolving most disputed issues, resulting in fewer full-blown disputes. In addition, U.S. courts are reluctant to try construction cases due to the complexity and large volumes of documentation.
It appears 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. More participants are including provisions in construction contracts specifying a procedure to address disputed issues. The result is a growing number of disputes being dealt with early, while fewer are growing into full-blown disputes involving consultants and counsel.
Although 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 because U.S. courts are reluctant to try construction cases due to their large volumes of documents and greater complexity.
The most common cause of disputes globally remains the failure to administer contracts properly, perennially the most common reason. A new cause in the rankings is related to incomplete design information, which is considered to be linked generally to the poor quality of design information and a proportionate increase globally in the use of design and build forms of contract. In North America, errors and omissions in the contract documents are the number one cause of disputes, followed by failure to properly administer the contract and differing site conditions.
In North America, there are more disputes in the transportation, water and wastewater sectors. Globally, the property/building construction sector had the most disputes, closely followed by the social infrastructure/public sector, although the natural resources sector has some of the largest disputes.
Globally, construction disputes hit a record length of more than 15 months. The United States was the only region to experience a reduction in both dispute value and resolution time.
With uncertainty reigning in markets around the world and construction projects becoming more complicated, construction disputes are a major risk and can have far-reaching consequences. The parties involved could see themselves in a situation where differing views and interests could prolong the dispute. It is generally agreed that a speedy resolution of any dispute is desirable:
- to use current and available people and documents, which are directly relevant;
- to maintain case flow within the supply chain;
- to maintain party relationships;
- to keep the respective delivery teams focused on delivering the project; and
- to avoid a cumulative effect of minor issues being aggregated into large disputes.
Other findings include:
- The property and real estate sector was found to have the most disputes, closely followed by the social infrastructure and the public sector.
- Joint ventures were found to be at particular risk, with 25.5 percent of joint ventures ending in dispute.
- When it came to resolving disputes, party-to-party negotiation remained the most popular method of alternative dispute resolution, while mediation and arbitration ranked second and third, respectively.
The 2016 report, now in its sixth year, analyzes how global economic conditions are impacting the construction industry as well as construction disputes. This research was conducted by Arcadis’ Contract Solutions experts and is based on construction disputes handled by the teams during 2015.