Dive Brief:
- A report from consultancy firm Arcadis found that global economic conditions made for longer international construction industry legal battles in 2015 — up more than 13% from 2014 and 22% from 2013 to an average of 15.2 months, Building Design + Construction reported.
- Driving that increase was Asia, with a dispute settlement time of 19.5 months, up from 12 months in 2014. The value of construction disputes dropped all over the world except in the Middle East, which saw a 2014-to-2015 increase from $76.7 million to $82 million.
- Although North America construction disputes decreased in both time to settle (nearly a 17% drop) and total dollar value (nearly a 16% drop) last year, the cases that were not resolved in that timeframe usually took a long time because of the typically large number of documents involved and the complex nature of construction issues.
Dive Insight:
Arcadis found that the most common reason for construction disputes globally was "failure to properly administer a contract," followed by "poorly written draft" and "unsubstantiated claims," with "party-to-party" talks as the most common resolution method. In North America, errors and omissions in contracts were the primary cause of disputes.
In a surprising result, Arcadis also found that 25% of joint ventures across the globe end in some kind of dispute. Joint ventures have become an increasingly popular method amid rising dollar values of projects and increased risk. Experts told Construction Dive earlier this year that firms choose JVs for four main reasons: Risk allocation, bonding capacity, smoother entry into a new geographical area, and benefits of another company's expertise.
Construction contracts have garnered heightened scrutiny recently, as industry stakeholders are reexamining traditional contracting methods. During an RICS summit in April, Bruce McAra, chief executive at Turner and Townsend, said the construction contract process in general is in the midst of a change, as multiparty contracts gain traction in an industry that "requires collaboration."
In a separate report exploring project disputes, a 2015 Construction Financial Management Association study examined 107 resolved 2000-2015 construction disputes between construction companies and U.S. federal agencies and found that even though contractors won 50% of cases, their chances of winning shrunk when the disputes involved larger amounts of money. The study also found that the average damages involved in a dispute were 6.9% of the total contract value.