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Construction Disputes Take Longer, Cost Less

Engineering professionals
Across the globe, it is taking more time to resolve construction disputes as building activity increases, but the amounts of money involved in the settlements are on the decline. Associated Press

A new report finds that the average time to resolve a dispute has increased but the amount of money that changes hands has declined.

August 20, 2013—The amount of time that it takes to resolve a dispute on a construction project is continuing to grow across the globe, climbing to an average of 12.8 months in 2012 compared to 10.6 months in 2011, according to a new report released recently. However, the average amount of money involved in such disputes has decreased, from $32.2 million in 2011 to $31.7 million in 2012.

The report, “Global Construction Disputes: A Longer Resolution,” was developed from an analysis of databases from ARCADIS, based in Amsterdam, and its subsidiary, E.C. Harris, of London. Both firms provide project management services as well as contract dispute resolution services. This is the third year the firms have prepared the report.

“What this annual report does is monitor certain trends in claims,” says Joe Seibold, P.E., M.ASCE, an executive vice president of ARCADIS US, which is based in Highlands Ranch, Colorado. Seibold says the report tries to answer a number of questions: “What is the asking price as presented by the contractor, which is an indicator of the size of the dispute? Having now filed the claim, how long does it take to resolve that dispute?” He says that by analyzing data on a project-by-project basis, the report’s authors have unearthed trends in the causes of disputes as well as the expectations of each party in the dispute. The analysis also reveals common performance and contractual problems that can be avoided.

The report reveals that the average dollar amount involved in disputes in the United States dropped dramatically from $64.5 million in 2012 to $10.5 million in 2011 and $9 million in 2012. Dispute times in the United States averaged 11.4 months in 2012, jumped to 14.4 months in 2011, and settled back down to 11.9 months in 2012.

“In the U.S., the claims are smaller and are being resolved more quickly,” Seibold notes. “We are hopefully emerging out of a deep recession and certain regions are just appearing to come out. For a long while, there were a lot of regions where there wasn’t a whole lot of work available and contractors were focused on successfully completing the work they had.”

Seibold says the recent, prolonged recession presented an anomaly compared with his 40 years of experience in the industry. “The past three years aren’t your typical past three years,” he says. Because there was greater fear and uncertainty about an economic recovery, firms were focused strongly on maintaining profitable relationships and less inclined to submit claims. “I think that was a very profound difference in this recession that changed people’s behaviors,” Seibold says.

A more amicable dispute-resolution atmosphere in the United States was also driven by the fact that contractors were submitting bids for projects that were well below engineers’ cost estimates—sometimes by as much as 40 percent. This provided owners with a sizeable budget cushion with which to dispatch such disputes.

“It was a windfall for an owner, and they are smart,” Seibold says. “If there were disputes on those projects, I think with the benefit of that contingency they were able to resolve those disputes. It will be interesting—as the U.S. market heats up—if we will return to our old behaviors. The early indications, at least from my perspective, are they appear to be returning.”

The report also reveals large regional variations within the construction industry. The active markets in Asia and the Middle East report larger average dispute awards and longer resolution times. Dispute resolutions in the Middle East averaged $65 million in 2012, compared with $39.7 million in Asia, and, as mentioned above, just $9 million in the United States.

Resolution time was greater in the Middle East, where the average climbed dramatically from 9 months in 2011 to 14.6 months in 2012. Asia had the second-longest resolution time at 14.3 months, up from 12.4 months in 2011.

This trend is partially explained by the robust economic factors driving the markets, which can lead to a more confrontational approach to disputes, Seibold says. The multinational nature of the companies involved in many large projects in the Middle East and Asia contribute to these trends, too, he adds. Different cultures have different business practices and expectations of dispute resolution.

“Make no mistake—how business is done differs from culture to culture,” Seibold says. “And, because the global reach of parties involved can be quite distant, in many cases responsibility [for even] simple decisions is diffused. The ultimate responsibility for the resolution of these disputes has got to go all the way to the top, and the top can be all the way on the other side of the world.”

Seibold says the report reveals that the industry understands that such disputes are inevitable, but is also actively working to minimize them and solve them as quickly as possible.

“We see confirmation that the industry—owners, contractors, designers, everybody who is playing in the sandbox—they are all intent on finding a better way,” he says. “Everyone recognizes that if you are at the end of a project and you are now wrestling and at odds over a big dispute, there are no winners. There is a lot of time and money that goes into resolving a dispute. Typically the resolution doesn’t make anybody happy.”

Seibold says that such alternative project delivery (APD) methods as design/build and public-private partnerships, as well as such time-saving technological innovations as building information modeling (BIM), are tools that have the potential to limit disputes, but only when used properly.

“Today, a large part of my claims practice involves projects that use some form of APD,” he says. “You might say, ‘Wait a minute. I thought the use of APD was supposed to reduce the likelihood and occurrence of claims.’ Well, it can. But a good plan, poorly executed, will yield disappointing results.” If expectations and responsibilities not clearly established or performed, an ADP can still lead to claims.

And while BIM is a “terrific tool,” Seibold says that it can’t function as the only collaborative element in an otherwise compartmentalized project. “Implicit in the effective use of BIM is the need to change the paradigm,” he adds. “If the project delivery management plan is not collaborative in its nature or culture, and they have a collaborative tool, chances are the tool won’t be as effective as it could be because the project participants will thwart the ability of that tool to be successful.”



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