The top 12 drivers of construction disputes and how to avoid them
- Design problems have overtaken change in project scope as the primary cause of claims and disputes in the construction industry in the U.S., according to global consulting firm HKA’s CRUX Insight 2020 report.
- Projects have also become more prone to deficiencies in workmanship and unforeseen physical conditions, according to the report, which primarily examines pre-pandemic data. Other top drivers of conflict include poor management of third parties and inadequate contract management, which may be contributing to the design issues.
- According to the report, “design problems are more likely to occur as a result of increasingly tight timescales imposed upon third parties engaged in design,” which result in late or incomplete designs and conflict between the parties. Report authors also blame “failings in the management of third parties across increasingly complex supply chains,” for these top issues.
The toll of disputes on the industry is staggering. The value of claims on the 1,100-plus projects HKA studied worldwide from 2018-2020 worked out to $48.6 billion (excluding legal and related fees) and the extensions of time claimed would accumulate to 593 years, according to the report.
Here were the top causes of claims and disputes in the U.S. and the Americas more broadly from data on 410 projects collected in 2020:
- Design was incorrect.
- Workmanship deficiencies.
- Design was incomplete.
- Physical conditions were unforeseen.
- Change in scope.
- Poor management of sub-contractor/ supplier and/or their interfaces.
- Design information was issued late.
- Claims were spurious, over-inflated, opportunistic and/or unsubstantiated.
- Access to work site was restricted and/or late.
- Contract management and/or administration failure.
- Weather conditions were exceptionally adverse.
- Installation failure.
Given increased pandemic-related uncertainty, the report said investing more time in up-front planning, design and coordination can help nip conflict in the bud by ensuring that all parties are clear on their roles, responsibilities and risks at the outset. Report authors also encouraged contractors to be more intentional about taking lessons from successful and problematic projects alike.
Here are more strategies from the October 2020 report that contractors can use to mitigate disputes:
- Don’t rush Requests for Proposals (RFPs). Wait until the design is as advanced as practicable, so that the associated schedule and cost can be relied upon.
- When structuring RFPs, weigh factors such as experience and expertise, quality and price in a more balanced way to gauge the true value bidders provide.
- Allocate adequate design resources and set realistic timelines for design deliverables.
- Ensure all relevant stakeholders are involved in a design review process that incorporates the appropriate level of quality assurance.
- Develop and implement a project execution plan with buy-in from the client, as well as the supply chain.
- Apportion risks and opportunities to the party best placed to own, manage and mitigate them, using an appropriately managed risk register.
- Promote transparency among all parties, and promptly address and communicate issues as they arise.