EC Harris reports fall in value of disputes
By Chris Sleight30 May 2012
Consultant said the average value of disputes in the construction industry was down to US$ 32.2 million last year, compared to US$ 35.1 million in 2010 - a fall of -8.3%. However, the company's Global Construction Disputes report also said that disputes lasted longer - an average of 10.6 months in 2011, up from 9.1 months in 2010 - a +16.5% increase.
In terms of regions, the US saw the sharpest fall in the value of disputes last year, with a drop from US$ 64.5 million in 2010, to US$ 10.5 million. Asia was also down from US$ 64.5 million to US$ 53.1 million. However, the Middle East bucked the trend, with the average value of disputes doubling to US$ 112.5 million in 2011, from US$ 56.25 million in 2010. There were marginal rises in the UK and the rest of Europe.
Mike Allen, global head of contract solutions at EC Harris said, "The Middle East saw a flood of major disputes last year. Over the past few years we have seen a reluctance to settle in the Gulf region, but this has been replaced by a stronger desire to do business and resolve disputes as the economies strengthen. On the whole, however, disputes are still costing the industry time and money. Focusing on avoiding the dispute from the outset through better mitigation and contract design is always the better option."
Despite the fall in their average value, disputes still took longer to resolve in the US than anywhere else. EC Harris found the average length of a dispute was 14.4 months in the US last year, up from 11.4 months in 2010. In fact there were rises in the time taken to resolve disputes in every region of the world the consultant looked at. At 8.7 months, the process was quickest in the UK, but this still represented a rise from 6.75 months in 2010.
The research, which was conducted by EC Harris's Contract Solutions team, found that a failure to properly administer the contract was the most common cause of a construction dispute. This was followed by ambiguities in the contract document, a failure to make interim awards on extensions of time and associated compensation, incomplete design information or client requirements and conflicting party interests.
The performance of the project manager or engineer was also looked at in the report, with their conduct being at the heart of how the dispute crystallised in 52% of cases. EC Harris said the most likely problem with the project manager or engineer was that they were too partial to the client's interests, followed by a lack of understanding of the procedural aspects of the contract.