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
| Oct 21, 2014
Inside LEED v4: The view from the MEP engineering seats
Much of the spirited discussion around LEED v4 has been centered on the Materials & Resources Credit. At least one voice in the wilderness is shouting for greater attention to another huge change in LEED: the shift to ASHRAE 90.1-2010 as the new reference standard for Energy & Atmosphere prerequisites and credits.
| Oct 21, 2014
Perkins Eastman white paper explores state of the senior living industry in the Carolinas
Among the experts interviewed for the white paper, there was a general consensus that the model for continuing-care retirement communities is changing, driven by both the changing consumers and more prevalent global interest on the effects of aging.
| Oct 20, 2014
Singapore Sports Hub claims world's largest free-spanning dome
The retractable roof, which measures a whopping 1,017-feet across, is made from translucent ETFE plastic panels supported with metal rigging that arches over the main pitch.
| Oct 20, 2014
UK's best new building: Everyman Theatre wins RIBA Stirling Prize 2014
The new Everyman Theatre in Liverpool by Haworth Tompkins has won the coveted RIBA Stirling Prize 2014 for the best building of the year. Now in its 19th year, the RIBA Stirling Prize is the UK’s most prestigious architecture prize.
Sponsored | | Oct 19, 2014
The Exploration Tower in Port Canaveral dazzles visitors
With a mission to provide the experience of a lifetime, the Exploration Tower at Port Canaveral, Fla., is designed to inspire, as visitors learn about the history and nature of the port and beyond. SPONSORED CONTENT
| Oct 19, 2014
White House Visitor Center reopens in Washington, D.C.
Designed by SmithGroupJJR and Gallagher & Associates, renovated center shows public its unique role as office, stage, museum, park, and home.
| Oct 16, 2014
Must see: Illustrator interprets iconic windows concocted by renowned architects
Graphic designer Federico Babina has made a name for himself when it comes to art inspired by architecture, or more accurately, art inspired by architecture that's inspired by other forms of art.
| Oct 16, 2014
Henning Larsen Architects to design train station for planned Danish town
Danish firm Henning Larsen Architects won Frederikssung municipality’s architecture competition for a regional train station in the planned city of Vinge—Denmark’s largest urban development.
| Oct 16, 2014
Report: How to keep public libraries relevant in a digital age
Public libraries will avoid being relegated to the scrap heap of history in a digital age as long as they continue to serve as platforms for learning, creativity, and innovation that strengthen their communities, according to a new Aspen Institute report.
Sponsored | | Oct 16, 2014
Drilling deeper: The booming Bakken Shale region
The Bakken Shale region, which spans from central North Dakota to the northeastern corner of Montana, is rapidly growing as a result of the oil and gas boom. SPONSORED CONTENT