Arcadis: value of global construction disputes continues to rise

Disputes tracked by Arcadis, the consultancy, were worth an average of $43.4 million last year, up from $32.5m in 2016; and took an average of 14.8 months to resolve, up from 13.9 months in 2016. The biggest increase in value was recorded in the Middle East, where the average dispute was valued at $91m last year, reflecting "the scale of the programs being delivered in the region", according to Arcadis.

The main causes of construction disputes have remained roughly the same over the eight years that Arcadis has been tracking trends, according to the report (17-page / 3.35MB PDF). It said that it findings therefore showed "the need for involved parties to understand the critical nature of contract administration" and to properly assess risk.

"In an environment of labor shortages and increased pressure from expediting projects, it is often instinctual to focus on getting a project started first and dealing with consequences later," said Roy Cooper, head of contract solutions at Arcadis North America, in his introduction to the report.

"Even though many owners are fully aware that taking the time to administer a sound contract and negotiating clauses and terms are best practices, the results still show that failure to do so is an industry-wide problem. This emphasises the importance of understanding the human factors that play into disputes as much, or even better than, understanding the technical issues themselves," he said.

The findings of the report are based on construction disputes handled by Arcadis in 2017, along with contributions from industry experts. The findings therefore reflect the global regions in which Arcadis operates: North America; the Middle East; Continental Europe and the UK.

The top three overall causes of disputes tracked by Arcadis remained unchanged from last year's report. These were failure to properly administer the contract; poorly drafted or incomplete/unsubstantiated claims; and failure by one of the parties to understand or comply with contractual obligations. The last of these showed the need for "experienced industry advisors" to be appointed at the outset, Arcadis said.

Party-to-party negotiation remained the most common means of settling disputes, followed by mediation and then arbitration. In the UK, however, adjudication was the most common dispute resolution method, reflecting the fact that it is incorporated into UK construction contracts.

The report draws no conclusions about construction disputes in Africa, as Arcadis does not operate there. However, Johannesburg-based construction expert Rob Morson of Pinsent Masons, the law firm behind Out-Law.com, said that it would be surprising if the general trends were very different. Failure by one of the parties to properly understand or comply with its contractual obligations would probably rank above failure to properly administer the contract and poorly drafted or incomplete/unsubstantiated claims as a common cause, he said.

"We would also expect to see employer-delayed payment and delays attributable to inadequate project planning as a major cause of disputes," he said.

"Disputes across Africa are typically protracted, and often resolved through party-to-party negotiation. In South Africa, party to party negotiation plays a key role, but typically only as a follow-on from adjudication proceedings, especially on major public sector projects," he said.

The report goes on to make a number of region-specific recommendations to better resolve disputes, or to prevent them from arising altogether. In particular, it recommends "proactive risk management" in order to identify and address potential problem areas during the design stage and build relationships between parties early in the project lifecycle. Digital technologies can also be used to increase transparency, build trust and encourage collaboration, Arcadis said.

"A digital transformation strategy built around tackling existing business issues and enhancing the experience of the stakeholders will propel companies into more efficient and refined versions of themselves," Arcadis said.

Construction expert Graham Robinson of Pinsent Masons said that growth in global mega-projects, such as China's one belt, one road (OBOR) initiative, would drive the size and complexity of construction disputes even higher than the average figures set out in the Arcadis report. Global construction spend is expected to reach $11 trillion this year, and to grow at a faster rate than in either 2017 or 2016, he said.

"The size and cross-border nature of disputes are likely to rise rapidly, both with continued globalisation of construction markets and the use of global supply chains to deliver huge and ever-increasing complex projects," he said. "The use of emerging technologies to digitise the design and management of complex infrastructure projects could help mitigate disputes, but collaboration across project teams is also essential to delivery of successful project outcomes."