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
Building Team | Oct 18, 2022
Brasfield & Gorrie chairman’s home vandalized by anti-development activists
Activists vandalized the home and vehicles of Miller Gorrie, chairman of Birmingham-based Brasfield & Gorrie, in protest of a planned $90 million, 85-acre police, fire and public safety training center in Atlanta.
Mixed-Use | Oct 18, 2022
Mixed-use San Diego tower inspired by coastal experience and luxury travel
The new 525 Olive mixed use San Diego tower was inspired by the coastal experience and luxury travel.
University Buildings | Oct 18, 2022
A carbon-neutral-ready university campus opens in Hong Kong
In early September, the Hong Kong University of Science and Technology (HKUST) officially opened its new, KPF-designed campus in Nansha, Guangzhou (GZ).
Market Data | Oct 17, 2022
Calling all AEC professionals! BD+C editors need your expertise for our 2023 market forecast survey
The BD+C editorial team needs your help with an important research project. We are conducting research to understand the current state of the U.S. design and construction industry.
Codes and Standards | Oct 17, 2022
Ambitious state EV adoption goals put pressure on multifamily owners to provide chargers
California’s recently announced ban on the sale of new gas-powered vehicles starting in 2035—and New York’s recent decision to follow suit—are putting pressure on multifamily property owners to install charging stations for tenants.
Contractors | Oct 17, 2022
Interior Investments, LLC, joins PARIC Holdings family of companies
PARIC Holdings announced that Interior Investments, LLC, has joined the PARIC Holdings family of companies. This strategic collaboration will leverage the strengths and expertise of each organization to deliver a comprehensive suite of turnkey services to best support their customers.
Justice Facilities | Oct 17, 2022
San Antonio’s new courthouse aims to provide safety and security while also welcoming the public
The San Antonio Federal Courthouse, which opened earlier this year, replaces a courthouse that had been constructed as a pavilion for the 1968 World’s Fair.
Market Data | Oct 14, 2022
ABC’s Construction Backlog Indicator Jumps in September; Contractor Confidence Remains Steady
Associated Builders and Contractors reports today that its Construction Backlog Indicator increased to 9.0 months in September, according to an ABC member survey conducted Sept. 20 to Oct. 5.
| Oct 13, 2022
Boston’s proposed net-zero emissions code has developers concerned
Developers have raised serious concerns over a proposed new energy code by the City of Boston that would require newly constructed buildings over 20,000 sf to immediately hit net-zero emissions goals.
Education Facilities | Oct 13, 2022
A 44-acre campus serves as a professional retreat for public-school educators in Texas
A first-of-its-kind facility for public schools in Texas, the Holdsworth Center serves as a retreat for public educators, supporting reflection and dialogue.