☛ Want the latest procurement and supply chain news delivered straight to your inbox? Sign up for the Supply Management Daily
29 May 2014 | Will Green
Disputes over construction projects rose in value to an average of $32.1 million (£19.2 million) globally in 2013, according to a study.
In a report consultancy ARCADIS said the top cause of disputes was “failure to properly administer the contract”, followed by “failure to understand and/or comply with contractual obligations” and “incomplete design information or employer requirements”.
The 2013 figure is $400,000 (£239,270) up on the $31.7 million (£19 million) average spent in 2012 and includes three “mega disputes” costing more than $1 billion each.
However, the length of time it took to resolve disputes fell in 2013 to 11.8 months, down on 12.8 in 2012.
Mike Allen, global head of contract solutions at ARCADIS, said: "Today's major construction programmes are fast paced, complex and involve a multitude of supplier parties, so there are numerous points at which a dispute can occur. 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."
The report said the “mega disputes” included the Panama Canal Expansion project, in which the Panama Canal Authority fell out with the contractor GUCP consortium over cost overruns said to be worth $1.6 billion (£957 million).
In the UK the average value of disputes hit a record high of $27.9 million (£16.7 million), with the top cause being failure to understand or comply with contractual obligations.
The report, Global Construction Disputes: Getting the Basics Right, said construction dispute average values were highest in Asia at $41.9 million (£25.1 million), followed by the Middle East at $40.9 million (£24.5 million).
Researchers also found the chance of a dispute in a joint venture increased to 35 per cent in 2013, compared to 19 per cent in 2012.
The top five causes of disputes in 2013 were:
1. Failure to properly administer the contract
2. Failure to understand and/or comply with contractual obligations
3. Incomplete design information or employer requirements
4. Failure to make interim awards on extensions of time and compensation
5. Poorly drafted or incomplete and unsubstantiated claims