BEST PRACTICES
Disputes Cost Money CONSTRUCTION DISPUTES ARE COSTING MORE MONEY AND TAKING LONGER TO RESOLVE, WORLDWIDE
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n the annual “Global Construction Disputes Report 2015,”1 ARCADIS found that, worldwide, construction projects are getting larger, more complex and as a result, carry more risk. The
report launched earlier this year highlights data gathered by the ARCADIS Construction Claims Consulting and EC Harris Contract Solutions teams that handled disputes in 2014. The research team found that worldwide, the industry has continued to experience growth in construction disputes in both cost (USD $51M on average) and
is completed, the issue becomes a formal dispute. The value of
the length of time required to resolve them (14.3 months).
a dispute includes the “additional entitlement to that which is
The research also revealed that the top causes of disputes—
included in the contract, for the additional work or event that
including errors and omissions; unforeseen site conditions,
is being claimed.” The length of the dispute is from when the
lack of understanding of the work by owner, contractor, or
disagreement becomes formalized under contract to when a
key subcontractors; and a failure to properly administer the
settlement is reached or at the conclusion of a hearing.
contract—are all under the construction team’s control.
Definitions
Overall Findings The research revealed some interesting data about global
The research team defines a “dispute” as any situation where
construction disputes. To IPI, these are the most compelling:
two parties differ on the “assertion of a contractual right, which
• The overall average value of a dispute has climbed since 2012
results in a decision being given under the contract.” Ultimately,
• The overall average length of time required to resolve a
when the project team disagrees on the decision and the project
dispute has climbed since 2012 • 1 in 3 (31%) Joint Ventures end up in a dispute (although
Top 5 Reasons for Disputes Worldwide: 1. Failure
to administer the contract
2. Poorly
drafted or incomplete and unsubstantiated claims
3. Errors
and omissions in the contract document
4. Failure
by team member to understand or comply with
its contractual obligation 5. Failure
to make interim awards on extensions of time
and compensation
averages vary widely worldwide) • The average dispute the ARCADIS and EC Harris teams were exposed to was USD $51M and the largest was valued at $2.13 billion • The most common method used by construction project teams is “party to party” negotiation, followed by Claims Mediation and then Arbitration • The most common cause of disputes worldwide is a failure to administer the contract properly, while in the United States it is errors and omissions in the contract. (Continuted on page 18)
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Partnering Magazine September/October 2015
www.partneringinstitute.org