Global construction disputes rising in value, but taking less time to resolve according to new research

Out-Law News | 28 May 2014 | 10:42 am | 2 min. read

The average value of disputes relating to major global construction projects rose by $400,000 last year, but took less time to resolve, according to research by an international consultancy firm.

Failing to properly administer contracts; failing to understand or comply with contractual obligations; incomplete design information; failing to make interim awards on extensions of time and compensation; and poorly drafted, incomplete and unsubstantiated claims were the most common causes of disputes in 2013, according to Arcadis. The report is the consultancy's fourth annual study of the duration, value, common causes and resolutions of global construction disputes (16-page / 1.3MB PDF).

"Today's major construction programmes are fast-paced, complex and involve a multitude of supplier parties, so there are numerous points at which a dispute can occur," said Mike Allen, head of global contract solutions at Arcadis.

"Many of these disputes are resolved out of the public eye but do often result in heavy costs and time overruns. Our research indicates the scale of this problem and highlights the need for better contract administration, more robust documentation and a proactive approach to risk management to help mitigate against the most common causes of dispute," he said.

According to the report, the worldwide average value of a major construction dispute in 2013 was $32.1 million, up from $31.7m in 2012. Dispute values were highest in Asia, with an average value of $41.9m; closely followed by the Middle East with an average of $40.9m. The average value of a US dispute more than tripled in value in 2013, to $34.3m; while in the UK the average dispute value rose to $27.9m, the highest value since Arcadis began tracking construction disputes.

Disputes took 11.8 months to resolve on average in 2013, down from 12.8 months in 2012, according to the report. They took longest to resolve in the Middle East, at 13.9 months on average; and the US, at 13.7 months on average. Disputes in continental Europe were resolved relatively quickly, at an average of 6.5 months, according to the report.

Arcadis said that there had not been any "landmark" case law which set "important practical precedent" in 2013. Instead, the most notable trend it recorded was the rise of the 'mega dispute', which it defined as one with a disputed sum in excess of $1 billion. The expansion of the Panama Canal was one of the highest profile of these to take place in 2013, according to the report.

Disputes involving joint ventures were increasingly common in 2013, according to the report. Where one of these was in place, it had a 35% chance of causing a dispute; up from 19% in 2012, Arcadis said.

"As a result of an increasingly active construction market, we are seeing the number of joint ventures increase as employers seek to divest risk across major programmes and blend specialist skills in the supply chain into one contract," Allen said. "This is clearly not an easy undertaking and our research shows it is leading to an increase in the number of disputes, highlighting a need for some very careful focus around the selection, set up and management of the JV relationship."

The report found that party-to-party negotiation, arbitration and adjudication were the three most popular methods of alternative dispute resolution used in 2013.