Disputes on construction projects are costing billions of dollars worldwide and leading to years of project delays, new data suggests.
In its latest report, construction advisory service firm HKA has analysed contract claims and disputes across more than 1,185 projects throughout 88 countries worth a combined total of more than $US 1.8 trillion over the two-year period up until February this year.
Across the projects analysed, the cumulative sum of values subject to dispute came in at $US48.6 billion.
Where disputes arose, claimed values averaged almost 56 percent of planned project cost.
Meanwhile, average delays associated with claims for extension of time amounted to 71 percent of the overall project timeframe.
Put together, cumulative extensions claimed amounted to 593 years.
According to the report, a change in scope is the most common cause of dispute.
Indeed, this was a cause of dispute across 573 of the projects analysed.
This was followed by contract interpretation issues; late issue of design information; incomplete design; poor management of subcontractors and suppliers; incorrect design; unforeseen physical conditions; late or restricted site access; level of skill/experience; spurious, over-inflated, opportunistic or unsubstantiated claims; late approvals; cash flow/payment issues; workmanship deficiencies and operational performance (see chart).
HKA says several strategies are needed to avoid disputes.
First, it is important to understand contracts and risk.
A common problem occurs where parties fail to read and understand contracts to which they are committing – a phenomenon often caused by agreements being complex, long, prescriptive and one-sided.
To counter this, tier-one contractors need to work with lower parties within the supply chain to ensure that all understand their obligations.
As well, risks need to be allocated to the party which is best placed to manage them.
Across all regions, HKA says parties are burdened with risks that they are ill-equipped to own or manage.
Next, more effort should be invested into up-front design.
On many occasions, compressed budgets and timeframes in design can lead to immature designs, inappropriate procurement routes, design conflicts, and poor workmanship.
As projects become more complex, meanwhile, effort must be made to synchronise the design undertaken by multiple parties and to align it with a reliable scheduled along with reviews performed by multi-disciplinary parties to ensure that designs are accurate and coherent across disciplines.
Finally, more effort is needed raise the standard of building competence and compliance.
A common tendency for cash-strapped organisations is to cut back on training and development and to fail to invest in buddying schemes which result in knowledge sharing between older and younger staff.
The effect of this will be particularly felt as skills are lost amid what are expected to be significant redundancies.
Simon Moon, Partner and Chief Operating Officer at HKA, says risk must be managed to avoid disputes
“A realist’s view is that every project carries inherent risk,” Moon said.
“The prudent course is to anticipate, recognise, manage, and mitigate the risks that give rise to claims and disputes so as to minimise, if not avoid, delay, disruption and cost escalation.”
The analysis covered all areas including buildings, industrial facilities, power and utilities, oil & gas facilities and infrastructure.