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
| Jan 6, 2014
An interview with Jerry Yudelson, President, The Green Building Initiative
Green building consultant Jerry Yudelson has been named President of the Green Building Initiative and the Green Globes rating program. BD+C's Robert Cassidy talks with Yudelson about his appointment and the future of Green Globes.
| Jan 3, 2014
Norman Foster proposes elevated bikeways throughout London
Called SkyCycle, the plan calls for the construction of wide, car-free decks atop the city's existing railway corridors.
| Jan 3, 2014
World’s tallest vegetated façade to sprout in Sri Lanka [slideshow]
Set to open in late 2015, the 46-story Clearpoint Residences condo tower will feature planted terraces circling the entire structure.
| Dec 31, 2013
Top 10 blog posts from 2013
BD+C editors and our contributors posted hundreds of blogs in 2013. Here's a recap of the most popular topics. They include valuable lessons from one of the first BIM-related lawsuits and sage advice from AEC legend Arthur Gensler.
| Dec 31, 2013
BD+C's top 10 stories of 2013
The world's tallest twisting tower and the rise of augmented reality technology in construction were among the 10 most popular articles posted on Building Design+Construction's website, BDCnetwork.com.
| Dec 30, 2013
Calatrava facing legal action from his home town over crumbling cultural complex
Officials with the city of Valencia, Spain, are blaming Santiago Calatrava for the rapid deterioration of buildings within its City of Arts and Sciences complex.
| Dec 24, 2013
First Look: Calatrava's Sharq Crossing in Doha, Qatar [video]
The government of Qatar has released details of Sharq Crossing, a massive infrastructure project designed by Spanish architect Santiago Calatrava.
| Dec 23, 2013
MBI commends start of module setting at B2, world's tallest modular building
The first modules have been set at B2 residential tower at Atlantic Yards in New York, set to become the tallest modular building in the world.
| Dec 23, 2013
First Look: KPF's dual-tower design for Ziraat Bank in Istanbul
Kohn Pedersen Fox Associates (KPF) is designing a new headquarters for Turkey’s largest and oldest financial institution, Ziraat Bank, in a modern, suburban district of Istanbul.
| Dec 20, 2013
Top healthcare sector trends for 2014 (and beyond)
Despite the lack of clarity regarding many elements of healthcare reform, there are several core tenets that will likely continue to drive transition within the healthcare industry.