I always look forward to reviewing Arcadis annual Global Construction Dispute Report.
The 2022 report starts with the following summary.
“From 2020 to 2021 the average value of disputes declined by 3% across the globe but remains at historically high levels compared to 2019 and earlier. The average time taken to resolve disputes increased significantly, by almost 15%, for the first time in three years. There was also a consensus that the overall number of disputes increased.”
So, the industry hasn’t learned much about dispute avoidance. It continues to spend significant time and money on dispute resolution. And, the effects of COVID and the Ukraine conflict is likely to create more challenges in future. It follows that in such circumstances, conflict and dispute will only increase.
Two Leading Causes
It is no surprise that the report identifies the two leading causes of disputes as being:
- Party failures to understand contractual obligations
- poorly drafted or unsubstantiated claims.
Nothing has changed here. Arcadis have highlighted these failures since they began publishing the report 12 years ago.
The report highlights that many contractors have had to absorb increased supply chain costs. It also notes that contractors have had to overrun costs to complete projects. This has a direct impact on their bottom line. Employers should expect to see a rise in change/variation requests and disputes, as contractors attempt to recover unanticipated costs.
Arcadis also identified the most important factors in the mitigation/early resolution of disputes as follows:
- Owner/contractor willingness to compromise.
- Accurate and timely schedules (programmes) and reviews by project staff or third parties.
- Contractor transparency of cost data in support of claimed damages.
The Middle East
In the Middle East, the report advises that “respondents also advised there were more disputes in 2021 and they expect the number of disputes to continue to increase throughout 2022”. Given that we continue to see inadequate contract administration and project controls performed by inadequately trained, experienced, and qualified personnel on Middle East projects, this comes as little surprise to us.
The report states that in the Middle East, “Owner/contractor/subcontractor failing to understand and/or comply with its contractual obligations remained the most common cause of dispute in 2021”. The third most common cause is “poorly drafted or incomplete and unsubstantiated claims” and ARCADIS make the point that “It is common to see extension of time claims using incorrect logic and analysis techniques, meaning the receiving party can easily reject the claim where poor narrative and incorrect logic prevent entitlement to a claim”. This is something that we agree with from hands-on experience.
The report notes that “Adherence to the basics of effective claims management such as early notification, accurate record keeping, correctly updated programs reflecting actual progress, and logically drafted claims based on factual evidence will assist parties to obtain earlier resolution and avoid the perils of this year’s top dispute cause of owner/contractor/ subcontractor failing to understand and/or comply with its contractual obligations.” We agree with this observation, and it echoes advice that we have been giving to our clients for many years.
So, Arcadis continue to report that things are not improving in the world of dispute avoidance, but also consistently identifies the same causes of disputes.
The Root Causes?
Here are my thoughts on the underlying root causes that contribute to this situation:
- Usually, on the advice of their consultants, Employers change a balanced allocation of risk contained in standard forms of contract. This typically obliges contractors to absorb more risk than is sensible or equitable.
- Contract documents are prepared by inadequately experienced individuals. This results in poorly expressed conditions, ambiguities and conflicts.
- Contractors do not carefully examine the contract documents during tender.
- The Contractor often fails to identify risks.
- Contractors do not review the contract documents before signing. As a result, they enter into contracts containing poorly expressed conditions, ambiguities and conflicts.
- The project participants do not invest in adequately trained, qualified or experienced contract administration and project controls staff. The staff they employ are unable to manage such responsibilities to an adequate professional standard.
- Project participants do not invest in advice and assistance from external experts when internal resources are not adequately experienced.
- Teams do not have the time to devote to dealing with challenging matters.
Mistakes Contractors Make…
- Contractors fail to submit notices or fail to submit them in the correct form.
- Contractors do not report progress accurately or truthfully.
- Contractors do not keep adequate records of deployed resources or activities being undertaken.
- Contractors consider claims on the basis of when they discover that they “need” more time and/or money. This is opposed to when they become entitled to compensation.
- Contractors fail to respect time frames for submission of claims and leave them to the end of the project, resulting in:
- Large, complicated claims for multiple events. These are difficult and time-consuming to prepare, respond to and agree.
- The respondent having little incentive to resolve claims equitably when the project is approaching completion.
- Cashflow issues.
- Demobilisation on both sides of the contracting fence of people with knowledge of the project and the events.
- Claims do not contain the required information to prove that entitlement exists or the amount of compensation.
- Responses to claims do not contain sufficient information. They then fail to convince either party that the findings of the claim are fair in accordance with the contract.
- Claims and responses may not be properly or easily understood by the other party.
Let Us Help
Hewitt Decipher Partnership’s expert consultants have been helping clients to avoid disputes for many years. We know how to comply with good practice. As a result, the team can help ensure your project controls and systems are suitable and professionally managed. If you have a justifiable claim, or if you are responding to claims, we ensure that claims are resolved in a timely manner. We also provide training and education to companies and individuals.
Can we help you? To find out how, get in touch.