Asia has taken over from the Middle East as the global hotbed for large and expensive disputes in the building and construction industry, with disagreements on large projects within the continent not only being costlier than anywhere else but also taking longer to resolve.
In a new report, built asset consultancy giants ARCADIS and EC Harris said the combined average construction dispute values handled by their teams rose from $US31.7 million in 2012 to $32.1 million in 2013.
Asia led the way, with values coming in at a whopping $41.9 million followed by the Middle East ($40.9 million), while dispute values tripled in the United States and those in the United Kingdom rose to their highest value since the report began.
Furthermore, with disagreements on the continent taking 14 months on average to resolve, average dispute lengths in Asia were greater than anywhere else and more than double those in Continental Europe.
The report found the most common reasons for construction disputes (in order) included failure to properly administer contracts, failure of one or more parties to understand and comply with contractual obligations, incomplete design information or employer requirements, failure to make interim awards on extensions of time and compensation and poorly drafted or incomplete and unsubstantiated claims.
It also found most disputes were resolved by (in order) a party to negotiation, arbitration and adjudication, while proper contract administration, fair and appropriate risk and balances within the contract and accurate contract documents were keys to avoiding disputes.
Mike Allen, global head of contract solutions at ARCADIS, said construction disputes were becoming more common as project complexity increases.
He said the increasing desire to form joint ventures as project complexity grows is opening up a further area of disputes and that these relationships need careful selection, setup and management.
“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,” Allen said.
“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.”
A final notable trend documented in the latest report revolves around the emergence of ‘mega-disputes’ (those worth more than $US1 billion) – three of which the ARCADIS/EC Harris teams had worked on during 2013.
A dispute between the Panama Canal Authority and contractor consortium GUCP over cost overruns on the Panama Canal Expansion Project is a key example, with the dispute reportedly concerning an amount of $US1.6 billion and grabbing global headlines as it pushed back the opening of the expanded waterway connecting the Atlantic to the Pacific oceans from later this year until December 2015.