In this post, I’ll look at ARCADIS’ annual Global Construction Disputes Report 2019, as it makes interesting, but, not altogether surprising reading.

For the time period covered in the report, the top three reasons for disputes are:

1. ‘Owner/Contractor/Subcontractor failing to understand and/or comply with its contractual obligations;

2. Errors and/or omissions in the contract document;

3. Failure to properly administer the contract.

Some other interesting noteworthy observations are:

1. ‘Human factors and misunderstanding of contractual obligations continue to be a primary cause of disputes’;

2. ‘With more project participants, it is essential for those involved to understand the contract, their role in the project and how to work with the team’;

3. ARCADIS suggest that ‘at least three building blocks are needed for successful dispute avoidance and resolution: (1) contractual mechanisms whereby risks are identified early and parties are obliged to consider how to address them; (2) appropriate training of staff on the specifics of the contract and ongoing specialist technical support, including legal support, throughout the execution of the contract; (3) a readily available contractual dispute avoidance mechanism in the form of a Dispute Avoidance Panel or a DAAB as under the 2017 FIDIC suite of contracts;’

4. The average value of disputes is $33M;

5. The average length of a dispute is 17 months.

Let’s take a moment to think about what this damning report is telling us. If the average value of a dispute is $33M, then the average project value where disputes occur must be several times that figure, so probably $1B plus. Given these huge project values, why is it that the industry manages and administers such projects with people who obviously do not understand the obligations, rights, and remedies contained in the contracts upon which the projects are based? Yes, I say people and not companies, because ultimately, it is individuals who manage and administer the projects and make the decisions.

You may think that employing suitably qualified and experienced people on your project is expensive, but let’s take a moment to consider the cost of employing incompetent people on or our projects.

At a recent FIDIC conference, it was reported that the cost of arbitration is between $150,000 and $200,000 per day of arbitration and could be 10-15% of the project value. Given that, on average, arbitration proceedings could be around 10 days, we have a cost of $2M just to settle the dispute. I would suggest that suitably competent, qualified, and experienced professionals could be employed on the project for a small fraction of that amount and this, according to ARCADIS, would prevent disputes occurring in the first place.

Let’s look at another major reason for disputes (and the No. 1 reason in the Middle East), namely ‘Poorly drafted or incomplete and unsubstantiated claims’. If any of the global top three occur, inevitably, it will result in a claim, so ARCADIS is saying here that when we have a claim situation, we don’t even know how to go about claiming for our entitlement in the correct way. I would suggest that the reasons for this are the same as for the global top three, i.e. the lack of suitably qualified and experienced people on the project. In other words, we are making a bad situation worse.

I usually refrain from advertising on these blogs, but ARCADIS’ suggestion that the players provide ‘appropriate training of staff on the specifics of the contract’ means that I am going to make an exception.

The ICCP works to improve the standard of the construction claims profession. We provide regular educational webinars for CPD. Our Member Area also includes a template library full of templates and accompanying guidance documents to assist our members in their claims.

Our training partner, Claims Class, provide training to companies to help them avoid each and every one of the main reasons for disputes as reported by ARCADIS. Training to individuals is also available to help them acquire the knowledge and skills required to turn them into the type of construction professionals that will become a valuable asset to their employers by giving them the skill sets to understand and manage contracts and claims in an appropriate manner to avoid disputes.

This blog was written by ICCP Executive Officer and Fellow, Andy Hewitt

If you would like to learn more about claims, check out our training partner, Claims Class.

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