For the second consecutive year, the leading cause of construction contract disputes in North America was errors and/or omissions in contract documents. And while the value of disputes fell by nearly 14% in 2014, the time it took to resolve them lengthened substantially last year.
These are some of the key findings in the “Global Construction Disputes Report 2015,” the fifth such annual report produced by Arcadis, a leading global natural and built asset design and consultancy firm. Its data are based on contract disputes handled by Arcadis’ Construction Claims Consulting teams in North America, Europe, the UK, the Middle East, and Asia.
(Arcadis could not provide statistics on the total value of disputes. But last year it served as a claims consultant on approximately 40 disputes with values up to $100 million last year.)
Globally, the report found an increase in the value and length of disputes, with the most common cause being a failure to properly administer the contract. “This is both a revealing and concerning statistic,” observes Mike Allen, Arcadis’ Global Leader of Contract Solutions. “It raises myriad questions as to how projects and programs are briefed, scoped, [and] structured,” as well as questions about resourcing, training, and contracting environment itself.
The transportation sector accounted for 31% of global contract disputes. And despite the presumed advantages of joint ventures, one in three still ends up in a contract dispute, although that number dips to less than one in five (19.8%) in North America.
Worldwide, the average value of disputes increased last year to $51 million, from $32.1 million in 2013. The highest average was in Asia, where dispute values more than doubled to $85.6 million. Arcadis attributed the jump primarily to the region’s growth, the complexity of its construction projects, and the rise in joint ventures.
Dispute values in the Middle East rose to $76.7 million, from $40.9 million in 2013. In the UK, dispute values dipped slightly to $27 million.
The average time taken to resolve disputes globally rose to 13.2 months, up from just under 12 months in 2013. All areas of the world saw their resolution processes extend, with the exception of Asia where the average dispute length took two months less than it did the year before.
In North America, the length of disputes last year increased by more than 18% to 16.2 months. On the other hand, dispute values dipped by nearly 14% to $29.6 million, and there was evident willingness on behalf of contractual parties “to try and try again to arrive at a settlement” and avoid the inevitably escalating costs associated with formal litigation and negative publicity, said Roy Cooper, Arcadis’ Vice President and Head of Contract Solutions in North America.
For the second year running, the most common cause of disputes in North America during 2014 was errors and/or omissions in the contract documents. Differing site conditions came in second, while a failure to understand or comply with contractual obligations on the part of an employer, contractor or subcontractor was the third most commonly cited reason for a dispute.
With North America’s crumbling infrastructure system in need of a significant overhaul, Cooper sees the construction industry moving towards a program of interconnected projects, rather than discrete projects. But big programs can come with bigger risks, so “failure and high visibility disputes are not an option,” he said. “Owners have turned to alternate project delivery, increased project controls and early intervention to mitigate disputes to help manage that risk.”
The three most common methods of Alternate Dispute Resolution in the U.S. were party-to-party negotiation, mediation, and arbitration.
Still, Arcadis predicts that the number of projects going into dispute would to rise this year globally, with projects accepted for lower margins during economic downturns and labor shortages in some markets likely to prove the catalysts for disputes.
Related Stories
Mixed-Use | Mar 13, 2015
Dubai announces mega waterfront development Aladdin City
Planned on 4,000 acres in the Dubai Creek area, the towers will be covered in gold lattice and connected via air-conditioned bridges.
Contractors | Mar 13, 2015
Construction materials prices rise for first time in six months
The largest monthly gain in petroleum prices in over three years caused construction materials prices to expand 0.4% in February, ending a six-month streak when prices failed to rise, according to the Bureau of Labor Statistics.
Contractors | Mar 12, 2015
Construction demand exploding in 2015, but costs complicate recovery
Raw materials and labor costs temper expectations for soaring profits.
Codes and Standards | Mar 12, 2015
Energy Trust of Oregon offers financial incentives for net-zero buildings
The organization is offering technical assistance along with financial benefits.
Multifamily Housing | Mar 12, 2015
Multifamily construction has been a boon to L.A.’s economy
A new study finds that nearly one-quarter of Los Angeles’ population lived in rental homes and apartments in 2013, a number that undoubtedly has increased since.
BIM and Information Technology | Mar 11, 2015
Google plans to use robots, cranes to manipulate modular offices at its new HQ
Its visions of “crabots” accentuate the search-engine giant’s recent fascination with robotics and automation.
Sports and Recreational Facilities | Mar 11, 2015
Foster + Partners wins bid for 2022 World Cup centerpiece stadium in Qatar
Norman Foster described the design as “an exciting step forward in stadium design—it will be the first to break the mold of the free-standing suburban concept, and instead anticipates the grid of this future city.”
Modular Building | Mar 10, 2015
Must see: 57-story modular skyscraper was completed in 19 days
After erecting the mega prefab tower in Changsha, China, modular builder BSB stated, “three floors in a day is China’s new normal.”
Sponsored | Metals | Mar 10, 2015
Metal Building Systems: A Rising Star in the Market
A new report by the Metal Building Manufacturer's Association explains the entity's efforts in refining and extending metal building systems as a construction choice.
Museums | Mar 9, 2015
Architecture based on astronomy principles for new planetarium in Shanghai
The ancient Chinese civilization left some of the earliest records of humans studying the stars and skies. To exhibit this long history, a new planetarium and astronomy museum is planned for construction in Shanghai.