A Quick Look At The Global Construction Disputes Report 2018

22 November 2018 | By Victor Clarke

For the last eight years Arcadis, one the leading global asset design & consultancy firms, has produced the Global Construction Disputes Report, which looks at trends across the world in terms of the nature and scale of Construction Disputes.

Whilst each region, and indeed each country within a region, will be different and have their own unique behaviours and trends, we thought it would be a useful exercise to look at the recent 2018 report to see what we can learn from these global trends in relation to the Irish Construction Sector.

GLOBAL CONSTRUCTION DISPUTES REPORT 2018 - Does The Construction Industry Learn From Its Mistakes?
To view a copy of this report, please download it here.

Human Behaviour And Construction Disputes
The 2018 report focuses on human behaviours and the need to focus on new ways to avoid disputes at their onset and not wait until either the middle or the end of a project when the dispute may have escalated and emotions may be running high. As with any project, there is always an initial desire to get started on the project in the hope that the sooner work begins the sooner the project will be finished and the company can move on to the next project. The trouble with this approach, however, is that if adequate provisions haven’t been made with a comprehensive (and appropriate) contract a dispute could in fact tie you to a project for much longer than was originally planned.

Whilst potentially counter-intuitive, it is therefore always advisable to take proper advice and negotiate a solid contract from the beginning and before work begins.

This only serves to highlight the importance of the human element in construction projects and the need to hold back and not rush into a project without adequate protections in place. It is also important that there are robust Project Management processes in place and that everyone involved (e.g. the client, architect, main contractor, sub-contractors, etc) knows their role and not just those involved in drafting and agreeing the contract.

Key Findings
At a global level, whilst the number of construction disputes in 2017 remained at relatively the same levels as 2016, the value and time it took to resolve these disputes increased to an average of US$43.4m and 14.8 months respectively. The main reasons reported for disputes arising included:

  1. poor contract administration;
  2. poorly drafted or incomplete/ unsubstantiated claims; and
  3. employer/ contractor/ sub contractor failure to understand and/ or comply with contractual obligations.

This points to a clear need to bring in experienced industry advisors from the outset with contract and specification reviews considered one of the most effective ways to avoid claims arising in the first place. Once a dispute has occurred, however, a willingness to compromise was seen in the report as one of the most important factors in the early resolution of those disputes.

Unfortunately, the report does not drill down enough to expose trends within the Irish Construction industry, however, the findings from both the UK and Continental Europe do help to shine a light on important considerations for the local construction sector.

Trends In Construction Dispute In The United Kingdom
In 2011, the United Kingdom had one of the lowest average values of dispute, however, over the last number of years this has risen to $34.4m in 2016 and has remained at this level for 2017. The UK does have one of the shortest lengths of time for a dispute to be resolved at an average of 10 months versus 14.8 months globally (and 18.1 months in Continental Europe).

Top 3 Reasons for Construction Disputes in UK

  1. failure to properly administer contacts
  2. employer/ contractor/ sub contractor failure to understand and/ or comply with contractual obligations
  3. failure to serve appropriate notice under contract

Most Popular Forms of Dispute Resolution

  1. Adjudication (contract or ad hoc)
  2. Party to Party Negotiation
  3. Mediation

The uncertainties of Brexit, the collapse of Carillion, severe skills shortages and a potential loss of even more skilled workforce as a result of Brexit, could impact upon construction companies ability to deliver current and future projects on time. This has the potential to lead to an increase in the number of disputes in the short to medium term.

Adjudication appears to be the most common form of dispute resolution in the UK, presumably due to the appeal of early cash although the results can be quite unpredictable. Party to party negotiation and mediation have grown in popularity in recent years and allow clients to avoid Court and relationships to be preserved.

Construction Dispute Trends In Continental Europe
The average value of disputes in Continental Europe has risen for the first time in two years to $29.5m but this is still well below the global average of $43.4m. A key trend in the European market however is the length of time it takes for disputes to be resolved. In 2017 the average time taken to resolve a dispute in Continental Europe was 18 months versus the global average of 14.4 months. A key factor in this length of time is the fact that arbitration is not a well used method of dispute resolution in Europe.

Top 3 Reasons for Construction Disputes in Continental Europe

  1. employer/ contractor/ sub contractor failure to understand and/ or comply with contractual obligations
  2. failure to properly administer contacts
  3. poorly drafted or incomplete and unsubstantiated claims

Most Popular Forms of Dispute Resolution

  1. Party to Party Negotiation
  2. Expert Determination
  3. Arbitration

Implications For The Irish Construction Sector
The Irish Construction sector has been recovering well since the global recession of 2008 when output from the sector halfed from €38.6bn in 2008 to €18bn in 2009. Whilst it may be the case that the sector has been buoyant in recent years, pressures such the rising cost of materials, labour shortages and uncertainties over the knock on effect of Brexit could point towards a possible rise in construction disputes in the short to medium term.

The good news is that Public sector contribution to the sector seems positive with the launch of “Project Ireland 2040” in February of this year indicating a planned increase in investment across the country. Key highlights from this important government strategy include:

  • €116bn for instrastructure investment;
  • 550,000 new homes;
  • €2bn to redevelop 5 major towns;
  • €5bn for the Dublin Metro; and
  • 2nd runway at Dublin Airport.

The sectors approach to Procurement and fixed lump sum contracts, however, will continue to put pressure on contractors, especially as costs continue to rise and the shortages in skilled labour persist.

All those involved in the Construction Sector should take some time to understand current trends as outlined in the Global Construction Disputes Report 2018 - Does The Construction Industry Learn From Its Mistakes? and strive to find ways to resolve disputes at their inception rather than waiting for the dispute to be formalised and go before arbitration, mediation or Court.

Disputes, whether you are in the right or the wrong, cost time and money. From the cost of the arbitration or legal proceedings to the cost of having to demolish and rebuild something or even retain staff whilst a site is closed, the cost of a dispute can soon mount up. They also add to the already high-levels of stress in a company and just as importantly they can stop you from getting finished and moving on to the next project where you could already be in dispute for being late before you have even opened the site!

Construction projects can be complex and require a number of key advisors at certain stages. At Clarke Jeffers we have many years of experience and acted for all sizes of construction company along the length and breadth of Ireland. If you would like to discuss avoiding potential disputes before they arise on your new construction project or perhaps have a complex dispute with a current project, please get in touch to Book An Appointment to discuss the options available to you so that you can make informed decisions for the future. You may also wish to download a copy of our guide, Preventing Your Construction Project From Ending In Dispute.

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