Disputes costing almost US$100 million per capital project
By Catrin Jones03 November 2022
Costs claimed in disputes in major capital projects amounted to US$98.7 million per project, according to the CRUX Insight Report which revealed how global headwinds could cause further damaging overruns in costs and delivery of construction projects.
Over 1,600 projects across 100 countries valued at more than US$2 trillion were analysed for the report. It was discovered that, on average, costs claimed in disputes amounted to US$98.7 million per project, more than a third of their capital expenditure (35.1% of CAPEX).
The analysis reveals that major capital projects are facing significant overruns in costs and delivery. The total claims analysed exceeded US$80 billion in value, while the cumulative overruns total a staggering 840 years.
This year’s report highlights the damaging influence of factors such as dysfunctional design processes, skills shortages, and supply chain disruption on project performance:
- Design: A significant number of projects are dogged by design-centric failures – design information issued late (24.3%), incorrect design (23.8%) and/or incomplete design (23.2%).
- Workforce: 3% of projects were impacted by workmanship deficiencies, 15.3% by low levels of skill and/or experience, and 9.7% by a shortage of workers.
- Supplies: 5% of projects were disrupted by late delivery of materials and/or products.
What is the leading cause of claims and disputes in construction?
Across all projects globally, The CRUX Insight report notes that the leading cause of claims and disputes was a change in scope, followed by conflicting contract interpretations and delayed design information.
Restricted or late access to sites and/or workforces was one of the top three triggers for claims and disputes in Africa, Asia, and Oceania (ranking first, second and third, respectively).
Deficient workmanship was a far more significant cause of contention in Europe and the Americas than in other regions – on 23.2% and 20.3% of projects, respectively.
While various design-related failings rank highly in all regions, in Europe incorrect design is the prime culprit for distress on almost a third of projects.
The report states that projects in the Middle East faced the worst delays (83.1% of schedule duration or 22.5 months, on average); even at their least severe, overruns averaged almost a year in the Americas (prolonging schedules by 58.2%, equivalent to 11.3 months).
Toby Hunt, Partner and CRUX Sponsor, commented, “In 2022 we are still seeing a long Covid legacy of uncertainty, and that economic and logistical overhang has been compounded by the war in Ukraine, resurgent inflation, further supply shocks, and a slowdown in the global economic recovery. All pose significant challenges for major capital projects even though many of the world’s construction markets remain buoyant and boast strong project pipelines.”