The amount of money wasted on disputes in major projects around the world is astonishing.
At more than $98m per project, the average value of contested costs amounts to 35.1% of project capital expenditure (capex).
That money could be spent on making people’s lives better.
The impact on schedules is no less damaging: claimed time extensions prolong project schedules by over two thirds (68.6%) on average.
That means ordinary people are waiting longer than they need to for critical infrastructure to improve their lives.
We can control this
Our fifth annual CRUX Insight Report investigated 1,600 projects in 100 countries to chart the underlying causes of claims and disputes.
A complicated web of factors cause disputes. Some are beyond our control, such as inflation and the lingering effects of the pandemic. The high-risk, low margin contracting model amplifies these dangers.
But many are down to how projects are scoped and managed, which is something we can control.
The biggest cause of claims and disputes is the poor management of changes in project scope.
Second is misinterpretation of contracts, suggesting a lack of care, time and competence among the parties.
Incorrect design is the third top cause of project distress, and other design-related failures feature prominently.
Different regions, different emphases
Below, we touch on some interesting regional variations, which you can explore in greater depth at the CRUX Interactive Dashboard.
But as you explore, keep in mind that most of these problems can be alleviated with better planning, proactive management, and collaboration.
Programmes here are susceptible to longer overruns than most other regions: almost 83% of planned schedules on average.
Restrictions on site access remained the leading cause. Better integration of operational practices and approvals for site works would solve this problem, which was already endemic before Covid.
Project leaders need to promote transparency from procurement through to claims management to strengthen governance and contract administration.
The dominant causes of disputes here – change in scope, unforeseen physical conditions, and deficiencies in design or workmanship – arise from short-sighted attempts to save time and money up front.
Claimed costs already exceed a third (33.8%) of average project capital expenditure (capex). With timelines and budgets stretched, acute skills shortages and rising labour and input costs risk overheating in North America.
Public projects need to be carefully phased to temper construction inflation.
Here, the pandemic led to frequent restrictions on access to sites and late approvals. Shocks continue to reverberate through supply chains originating in China.
Average sums in dispute (27.8% of capex) are below the global average, but action is needed on price adjustment clauses and efforts to hedge on raw material prices.
Asia has had a comparatively claims-averse contracting culture, but that’s changing. Notices no longer just signify aggression, but rather diligent contract administration.
We expect a shift to more technical disputes over time, founded on well-structured evidence.
Contentious costs here are the highest globally – 38.3% of average capex – fuelled by energy and general inflation.
Deficiencies in workmanship and lack of skills also loom larger here.
Doubling down on proven contract management practices can alleviate common problems of design, contract interpretation, the management of subcontractors and contract administration.
Greater clarity in force majeure clauses is necessary, but loading responsibility for future pandemics on contractors would be a backward step for risk management.
This region matches Africa for longest overruns: on average, schedules run over by more than 80%.
Claimed costs are at the higher end and typically amount to 35.8% of capex.
Top dispute causes are change in scope and late or incomplete design information.
Late approvals and poor cashflow spring from weak contract administration.
With markets overheating and a strong project pipeline in Gulf states, a re-balancing of risk allocation is long overdue.
A blizzard of major infrastructure projects is straining the industry’s capacity in Australia and New Zealand.
The root cause of many conflicts lies upstream in the planning, development and procurement of projects. A more strategic approach is required at project and government levels.
Project owners should set realistic objectives and engage better with the construction supply chain.
State and national governments should take account of the bigger picture and phase their pipelines accordingly.
Deploying modern construction techniques will boost productivity and sustainability.
To conclude, we’ll leave you with this: claims and disputes are not inevitable, like forces of nature.
They arise from poor decisions and a lack of awareness of what, demonstrably, leads to waste and delay.
- Harry Colledge and Julia Humpidge are partners at HKA, the global risk mitigation and dispute resolution consultancy