Out-Law News 2 min. read

Sharp rise in value of construction disputes internationally, says report

The average value of construction disputes worldwide reached $51 million in 2014, up from $32.1 million in 2013, while the average length of a dispute grew from 11.8 to 13.2 months, according to research by international consultancy firm Arcadis.

In its fifth annual study of the duration, value, common causes and resolutions of global construction disputes, Arcadis found that the highest growth was in Asia, where the average figure doubled in 2014 to $85.6mn. The Middle East followed with an average value of $76.7mn, Arcadis said.

In the UK, the average value fell, from $27.9mn to $27mn, while the rest of Europe saw a rise from $27.5mn to $38.3mn.

The most common cause of disputes internationally was failure to administer contracts effectively, followed by poorly drafted or incomplete and unsubstantiated claims, and errors and omissions in the contract document.

Hong Kong-based Vincent Connor of Pinsent Masons, the law firm behind Out-Law.com said: "The report by Arcadis of a doubling in the value of sums in dispute [in the Asia region] certainly fits with our experience – and as Arcadis observes, the size and complexity of infrastructure projects procured in the region very much influences this."

"However, the stand-out point for me is on the causes of dispute," said Connor.

The top causes given in Asia were: failure to properly administer the contract; failure to make interim awards on extensions of time and compensation; poorly drafted or incomplete and unsubstantiated claims; a biased PM or engineer; and poorly drafted or incomplete and unsubstantiated claims.

"Four out of five relate to failures in the standard and objectivity of contract administration and one relates to the poor quality of claims and submissions by contractors – suggesting that contract administrators neither have the mandate nor the resources properly to certify; compounded by situations where contractors do not help themselves by ensuring that their submissions have the right level of legal, factual and technical rigour; all leading to an inevitable rise in formal dispute resolution across Asia," Connor said.

Dubai-based construction expert Sachin Kerur, also of Pinsent Masons, said: "The increase in the value of claims [in the Middle East] could be explained by the fact that bigger, more complex infrastructure projects such as airports, processing plants and power plants were now reaching completion. These projects, by their nature, attract higher numbers of claims for larger sums."

The growing size of projects is behind some of the rise in disputes, said Mike Allen, head of global contract solutions at Arcadis.

In a market where projects are being "aggregated into major programs, which themselves

contain huge contractual and delivery risks … our insights suggest that where a program experiences difficulties, arising disputes very often escalate into multi-billion dollar ‘mega’ disputes which prove extremely costly for all involved," Allen said.

This year's report also reinforces last year's findings that "the most common cause of disputes is a failure to properly administer the contract. This is both a revealing and concerning statistic. The solution appears to be predominantly within the gift of both employers and contractors," Allen said. 

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