Contract issues drive disputes

The cost of disputes relating to major global construction projects rose to an average of £33 million in 2014, according to new research.

The average cost increased for the second year running, with the 2014 figure around £12 million higher than in 2013, analysis carried out by ARCADIS, a global natural and built asset design and consultancy firm, revealed.

In a report published on 25 June, ARCADIS said the number of projects going into dispute was also expected to rise during 2015.

The report, titled Global Construction Disputes: The Higher the Stakes, the Bigger the Risk, found that construction dispute values were the highest in Asia at £55 million, closely followed by the Middle East at £49 million. However, in the North America and the UK, dispute values fell to £19 million and £17 million respectively.

The average time taken to resolve disputes in 2014 also rose, to 13.2 months, up from just under a year in 2013.

Failure to properly administer contracts topped the list of the most common causes of construction disputes for the second year running, followed by poorly drafted or incomplete and unsubstantiated claims and errors and/or omissions in the contract document. The report said the key factors in avoiding a dispute were proper contract administration, accurate contract documents and “fair and appropriate risk and balances” in contracts.

The analysis also found that, where a joint venture was involved, almost a third of disputes (31 per cent) were driven by a joint venture-related difference.

Mike Allen, global leader of contract solutions at ARCADIS, said: “Over the last five years disputes have been increasing year on year in both value and duration. As the stakes get higher so, too, does the associated risk for all parties involved.

“The most common cause of disputes is a failure to properly administer the contract. This is both a revealing and concerning statistic. The solution appears to be predominantly within the gift of both employers and contractors.”

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 construction 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.

As part of our broader company law services, we can advise on all aspects of putting in place joint venture agreements, whether for a single project or on an ongoing basis, to underpin the way that parties work together and help them gain maximum benefit from sharing expertise and risk. For more information, please contact BJ Chong or BJ Chong.