TOP CAUSES FOR CONSTRUCTION DISPUTES IN 2022 AND What’s in Store for 2023

By the time you’re reading this article, 2023 will be in full swing and 2022 may seem like the distant past. But before going any further, it may be worth a moment to reflect on how some of the top disputes in the construction industry impacted 2022, as well as what 2023 may have in store for us.

Top Construction Disputes in 2022

Before 2020, the average person was probably unfamiliar with the terms “supply chain”, “workforce”, or “cost inflation”. Now, however, every person not only use these buzzwords, but claim to be quasiexperts on all three. This is because going into 2022, the top causes for disputes in the construction industry stemmed from scheduling and pricing issues caused by supply chain bottlenecks, a lack of skilled laborers, and/or a volatile market on costs of material. These issues caused contractors’ margins to shrink, resulting in them trying to employ cost and time saving mechanisms at the beginning of a project. But as we saw in 2022, with every action there is a consequence.

In October 2022, HKA, a global consultancy focusing on risk mitigation and dispute resolution in the construction industry, published its 5th Annual CRUX Insight Report1. In relevant part the report lists the top 10 causes of claims or disputes for construction projects. Below is the list: scope of work, overlooked physical conditions during inspections, design errors or incomplete designs, and untimely design information.

So, what does all this mean? According to HKA, if construction projects continue to hurriedly move from design to construction, there may be an increase in disputes which can lead to solvency issues for smaller construction companies. This would then only compound the ongoing problem of meeting potential demands for future projects. In short, the hyper-competitive market and tight margins over the last two years creates a financially tough market for all companies, but particularly smaller ones.

Another result of improper project planning is how disputes are being litigated. Interestingly, HKA reports that due to the uncertainty in the market, arbitrators—who inevitably have experience and connections in the construction industry—may be more lenient or sympathetic towards contractors and their practices when they historically wouldn’t have been otherwise. This in turn may cause owners and general contractors to reconsider how they weigh disputes under a risk-benefit analyses. Additionally, contractors are tending to bring their subcontractors, vendors, and suppliers into litigation to either recoup lost profits or spread the liability. Consequently, subcontractors’ and suppliers’ overhead costs could increase with increased premiums and legal fees.

Reflecting on these issues, I am reminded of the adage, measure twice, cut once. Going forward, it would appear this could be the lesson for 2022. While the market is forcing tight schedules, it would seem the even tighter margins should incentivize parties to take steps to prevent timely and costly disputes down the line. How this exactly looks will be on a case-by-case basis, but overall, it certainly involves increased collaboration between owners, architects, and contractors, a shift to utilizing digital tools that promote efficiency and information sharing, and implementing fail-safes built into the construction process that allow periodical evaluations and adjustments (rather than pushing forward at all costs).

Anticipated Trends in 2023

leads non-residential construction activity by 9-12 months. By surveying architectural firms across the country, the ABI finds whether these firms’ billings have increased, decreased, or stayed the same. In October 2022, for the first time in almost two years, the ABI showed a decrease in billings. A further decrease occurred in November 2022. These decreases imply that while architecture firms’ billings—i.e. workload—decrease, the rest of the construction industry will follow suit.

For the golf course industry, the steady number of projects for 2023 seems to be true as well. Over the last few years, the majority of golf course construction has tended to be renovations or rebuilds. The pandemic drove more people to taking up golf than before. This increased owners’ profit margins, allowing them to make capital improvements to existing courses. It also spiked the interest of investors, which led to creative results. More now than ever we are seeing an increase in golf facilities like TopGolf, par-three courses (East River 9 in Houston, Texas), lighted courses, and reversible golf courses (Meadowood Golf Course, Westlake, Ohio).

Still, due to the market conditions, and the potential downturn, some economists expect owners and investors may be growing a little weary about spending money on construction projects. Take for example the volatility of material prices. While some materials’ pricings are beginning to stabilize, the cost of diesel and cement are still concerning. Additionally, while the number of workers in the construction industry continues to grow, predicted increases in interest rates may make it difficult to compensate an adequate labor force. Interest rates heavily influence the construction industry, and if the Federal Reserve continues continue to increase rates for an extended period, it could result in tighter margins and reduced labor forces.

As you can see, the top 3 causes—and 5 of the top 7 causes—are related to the upfront planning for a project. These rankings appear to be the result of market conditions incentivizing owners and contractors to minimize up-front costs. Some ways up-front costs are saved are by demanding quick deadlines that prevent due-diligence and allow construction to start while the design phase is still underway. Naturally, this results in changes in the

What about 2023? In short, there should be plenty of work in 2023, but it seems the industry could still face issues with labor shortages, increased material costs, and tightened margins.

As for the workload in 2023, the AIA’s Architecture Billings Index (ABI) shows that there should be a steady number of construction projects until at least the fourth quarter. At that point, however, there may be a decline. The ABI is an economic indicator that

The above information indicates owners, contractors, and suppliers need to implement mechanisms that promote flexibility and collaboration during the contracting, design, and construction phase of any project. They also need to be vigilant in monitoring market conditions to promptly identify any changes and allow enough lead time to employ the mechanisms they have in place to avoid delays, price increases, or terminations.

In the end, 2022 was a good test-run for 2023. The demand for work is present, for now. But everyone should be aware that the fast-paced schedules, tight margins, and volatile market conditions call for proactive and collaborative approaches to planning projects. If done, 2023 could be a good year for the construction industry.

Editor’s Note: This article is not legal advice. Rather, this article is intended to alert readers to new and developing legal topics and promote critical thinking about hypothetical legal issues. Readers are urged to consult their own legal counsel or the author of this article if the reader wishes to obtain a specific legal opinion regarding how the matters discussed in this article may apply to the reader’s particular circumstances. The author Adam L. Robertson can be contacted at (713) 850-4200, or at Andrews Myers, P.C., 1885 Saint James Place, 15th Floor, Houston, Texas 77056, arobertson@andrewsmyers.com.