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
Contractors | Feb 14, 2023
The average U.S. contractor has nine months worth of construction work in the pipeline
Associated Builders and Contractors reports today that its Construction Backlog Indicator declined 0.2 months to 9.0 in January, according to an ABC member survey conducted Jan. 20 to Feb. 3. The reading is 1.0 month higher than in January 2022.
Contractors | Feb 13, 2023
Webcor names Matt Rossie CEO
Matt Rossie, the President and Chief Operating Officer at San Francisco-based general contractor Webcor, assumed the responsibilities of Chief Executive Officer effective January 1.
Office Buildings | Feb 12, 2023
Smyrna Ready Mix’s new office HQ mimics the patterns in the company’s onsite stone quarry
Designed by EOA Architects to showcase various concrete processes and applications, Smyrna Ready Mix's new office headquarters features vertical layering that mimics the patterns in the company’s stone quarry, located on the opposite end of the campus site. The building’s glass and concrete bands are meant to mirror the quarry’s natural contours and striations.
Multifamily Housing | Feb 10, 2023
Dallas to get a 19-story, 351-unit residential high-rise
In Dallas, work has begun on a new multifamily high-rise called The Oliver. The 19-story, 351-unit apartment building will be located within The Central, a 27-acre mixed-use development near the Knox/Henderson neighborhood north of downtown Dallas.
Sustainability | Feb 9, 2023
New guide for planning, designing, and operating onsite water reuse systems
The Pacific Institute, a global nonpartisan water think tank, has released guidance for developers to plan, design, and operate onsite water reuse systems. The Guide for Developing Onsite Water Systems to Support Regional Water Resilience advances circular, localized approaches to managing water that reduce a site’s water footprint, improve its resilience to water shortage or other disruptions, and provide benefits for local communities and regional water systems.
Office Buildings | Feb 9, 2023
Post-Covid Manhattan office market rebound gaining momentum
Office workers in Manhattan continue to return to their workplaces in sufficient numbers for many of their employers to maintain or expand their footprint in the city, according to a survey of more than 140 major Manhattan office employers conducted in January by The Partnership for New York City.
Giants 400 | Feb 9, 2023
New Giants 400 download: Get the complete at-a-glance 2022 Giants 400 rankings in Excel
See how your architecture, engineering, or construction firm stacks up against the nation's AEC Giants. For more than 45 years, the editors of Building Design+Construction have surveyed the largest AEC firms in the U.S./Canada to create the annual Giants 400 report. This year, a record 519 firms participated in the Giants 400 report. The final report includes 137 rankings across 25 building sectors and specialty categories.
University Buildings | Feb 8, 2023
STEM-focused Kettering University opens Stantec-designed Learning Commons
In Flint, Mich., Kettering University opened its new $63 million Learning Commons, designed by Stantec. The new facility will support collaboration, ideation, and digital technology for the STEM-focused higher learning institution.
Sustainability | Feb 8, 2023
A wind energy system—without the blades—can be placed on commercial building rooftops
Aeromine Technologies’ bladeless system captures and amplifies a building’s airflow like airfoils on a race car.
Codes and Standards | Feb 8, 2023
GSA releases draft of federal low embodied carbon material standards
The General Services Administration recently released a document that outlines standards for low embodied carbon materials and products to be used on federal construction projects.