Construction disputes: an overview

The time and cost involved in resolving major construction disputes around the world has been highlighted in new research that puts the average value at $32.1million in 2013.

The fourth annual Global Construction Disputes: Getting the Basics Right report, published by built asset design and consultancy ARCADIS on 27 May, also revealed the average dispute cost rose by $400,000 on 2012.

In the UK, disputes rose to a value of $27.9million, the highest since the report began. Dispute values were highest in Asia at $41.9milllion, closely followed by the Middle East at $40.9million and the US, at $34.3million.

The most common causes of construction disputes related to the administration of contracts.  The top five causes in 2013 were:

  • failure to properly administer the contract
  • failure to understand and/or comply with contractual obligations
  • incomplete design information or employer requirements
  • failure to make interim awards on extensions of time and compensation
  • poorly drafted or incomplete and unsubstantiated claims.

The report also looked at the likelihood of a joint venture (JV) ending in dispute. It found that where a JV was in place, it had a one in three (35 per cent) chance of causing a dispute, up from 19 per cent in 2012.

The findings showed that disputes took, on average, less time to resolve in 2013 at 11.8 months, down from 12.8 months in 2012, with disputes in Continental Europe tending to be resolved most quickly at 6.5 months.

Party to party negotiation was seen as the most popular method of alternative dispute resolution in 2013, followed up arbitration and adjudication.

Mike Allen, global head of contract solutions at ARCADIS 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.

“As a result of an increasing active construction market, we are seeing the number of joint ventures increase. Our research shows it is leading to an increase in the number of disputes highlighting a need for some very careful focus around the selection, set up and management of the JV relationship.”

While the research focuses on major global construction projects, much smaller scale schemes can be affected by similar disputes, particularly around contractual issues.

At Palmers, we can provide expert advice on drafting contracts, to help avoid disputes arising at a later stage, as well as providing expert arbitration, mediation and adjudication services, to assist in out of court dispute resolution, as well as court representation. For more information, please contact Adam Davis.