With uncertainty reigning in markets around the world and construction projects more complicated than ever before, construction disputes are a major distraction that tie up key personnel and cash flow.
Now in its seventh year of publication, the annual Arcadis Global Construction Disputes Report 2017: Avoiding the Same Pitfalls, takes a look at the causes, financial value, length and means of global construction disputes and resolutions. Compiled by the Arcadis Contract Solutions experts, the report provides insights into the behaviors that are driving market trends for construction disputes both globally and regionally.
Report findings show that both the dispute value and the time taken to resolve a dispute has declined slightly on a global scale. The social infrastructure and public sector was found to have the most disputes. Meanwhile, when it came to resolving disputes, party-to-party negotiation remained the most popular method of alternative dispute resolution.
In regard to what causes a dispute globally, failure to properly administer the contract remained the number one culprit—for the fourth consecutive year. Moving up the rankings two spots since last year, the number three cause was the employer, contractor or subcontractor failing to understand and/or comply with contractual obligations. Both are key indicators that experienced industry advisors are not being sought at the outset of a project.
The five most common causes of disputes were the following:
- failure to properly administer the contract;
- poorly drafted or incomplete/unsubstantiated claims;
- employer/contractor/subcontractor failing to understand and/or comply with its contractual obligation;
- errors and/or omissions in the contract document; and
- incomplete design information or employer requirements.
North American data
The Arcadis report highlights that for the third consecutive year, the average value of construction disputes in North America has dropped slightly in 2016 to $21 million. This average dispute value is lower than most parts of the world; however, the average time taken to resolve disputes increased by two months over the previous year—countering global trends. It appears the U.S. construction industry has become more sophisticated in their approach to managing risk, and early intervention appears to be an effective means to keep average dispute values in check.
The Arcadis North American Contract Solutions team continues to stress the importance of addressing disputes early in their life cycle. The core reasons for this approach remain unchanged and are even more relevant now than in the past. All parties involved should resolve dispute issues early on in order to sustain the following:
- maintain cash flow within the supply chain;
- preserve productive relationships;
- keep the respective delivery teams focused on delivering the project; and
- avoid a cumulative effect of minor issues being aggregated into large disputes.
While it is good news the average value of disputes has dropped, it’s concerning they are taking longer to resolve in North America. The report shows the recurring reasons for disputes, or “pitfalls,” have as much to do with human emotions that can impede settlements as they do with physical factors, such as differing site conditions and design errors. Ultimately, the Arcadis research points to the need for contract solutions experts to step in early in the process to provide better contract administration, more robust documentation and proactive approach to risk management to help mitigate most common causes of disputes.
Other noteworthy regional highlights include that Asia took the top spot from the Middle East with the highest average construction dispute value at $84 million, and the United Kingdom saw a double-digit increase in both the average dispute value at $34 million and dispute duration of 12 months.