EC HARRIS | GLOBAL CONSTRUCTION DISPUTES 2012: MOVING IN THE RIGHT DIRECTION

GLOBAL CONSTRUCTION
DISPUTES: MOVING IN THE
RIGHT DIRECTION
EC HARRIS | GLOBAL CONSTRUCTION DISPUTES 2012: MOVING IN THE RIGHT DIRECTION

Over the past twelve months the demand for construction work
across the globe has continued to defy on-going turbulence within
the marketplace. For struggling economies in the Eurozone or
North America construction is widely seen as a conduit through
which to help kick-start a sluggish economy. In developing markets
across Asia and the Middle East, investment in major infrastructure
and property development programmes has been identified as key
in order to both sustain growth and deal with wider social issues
Mike Allen such as urbanisation and the growing demands of a burgeoning
Group Head of Contract Solutions, EC Harris
middle-class demographic.

With construction so intrinsically tied There were a number of key questions

to the overall health of the world’s we wanted to try and answer in the
economy, it is fundamentally important course of the study. Had progress
that the capital invested in these been made in helping to tackle some
schemes helps to deliver value and of the issues we identified in 2011?
outputs that support growth. There Were there certain solutions that
are many case-studies across the globe were increasingly making a difference
that demonstrate the return that in helping to resolve disputes? Which
construction projects can help to regions were taking the lead in
deliver, however on too many occasions proactively trying to deal with issues
these schemes become embroiled before they reached the formal
in disputes that ultimately costs the dispute stage?
industry millions of dollars each year.
In the pages that follow we provide
These disputes are also extremely an overview of the key findings from
disruptive from a business operation this year’s report, share our views
perspective as resolving these on what this means for clients within
differences often ties up key personnel each region and offer some expert
for significant periods of time. insight on how the industry should
Furthermore, trying to make a provision look to deal with future disputes to
against potential claims can result in help ensure they are resolved in the
inaccurate or incomplete management most efficient and appropriate manner
information (MI) and lead to issues possible.
around contingent liability, as well as
creating a headache in the boardroom
related to informed decision making.
Methodology
In our second annual ‘Global This research was conducted by the
EC Harris Contract Solutions and
Construction Disputes’ report we
ARCADIS Construction Claims Consulting
set out to analyse how things have teams and is based on construction
changed since our first report twelve disputes handled by the teams during 2011.
months ago.

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Executive Summary The US market saw the biggest drop with the average value
falling from $US64.5 million in 2010 to just US$10.5 million
The results from this year’s study indicate that progress in 2011, whilst the Middle East saw the most dramatic
has been made in the past twelve months, with the average increase with a number of high-profile disputes causing the
value of the construction disputes reviewed in our survey average to more than double from US$56.25 million in 2010
decreasing by 8% from US$35.1 million in 2010 to to US$115 million in 2011. Unsurprisingly, the highest value
US$32.2 million in 2011. However, whilst this figure may dispute that EC Harris handled during 2011 was for a
be decreasing, the findings also revealed that the time project in the Middle East that was worth $350 million.
required to resolve these disputes was rising, with the
global average increasing by 16% from 9.1 months in 2010 From a time perspective disputes in the US took the longest
to 10.6 months in 2011. to resolve at 14.4 months whilst the UK was the speediest
market with disputes lasting just 8.7 months on average.
Whilst the global averages offer a useful gauge against These disparities between each region comes as no real
which to measure the overall direction of travel within the surprise as the length and value of disputes is dependent
sector, a more specific picture emerges if we examine this on the size, complexity and volume of construction projects
year’s results on a regional basis. Whilst dispute values fell undertaken as well as the preference and available methods
in both Asia and the US, in the Middle East, Europe and the of dispute resolution, all of which inevitably varies in
UK the average cost of disputes all went up, showing an each region.
increase over the past twelve months.

Standing of Global Construction Disputes Data 2011

Region Dispute value (US$ millions) Length of dispute (months)
2011 2010 2011 2010
UK 10.2 7.5 8.7 6.75
Europe 35.1 33.3 11.7 10
Middle East 112.5 56.25 9 8.25
Asia 53.1 64.5 12.4 11.4
US 10.5 64.5 14.4 11.4
Global average 32.2 35.1 10.6 9.1

In terms of what was causing these disputes, the issues most

typically identified were a failure to properly administer the
contract, ambiguities in the contract documents, a failure
to make interim awards on extensions of time and to give
associated compensation, incomplete design information or
employer requirements and conflicting party interests.

When it came to dispute resolution, this year’s study found

that arbitration had actually become less popular as a means
of settlement with party-to-party negotiation the most
common method of resolution in 2011, closely followed by
mediation. Arbitration was the third most popular, with
adjudication and litigation completing the top five most
common methods deployed.

Overall it is promising to see the average value of disputes

decrease whilst the shift to settle issues without the need
for formal dispute resolution is certainly a positive one.
However, disputes are still costing the industry unnecessary
time and money and greater focus is still required to help
avoid the dispute from the very outset through better
contract document design, production and administration,
as well as improvements in the level and standard of
relevant design information.

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EC HARRIS | GLOBAL CONSTRUCTION DISPUTES 2012: MOVING IN THE RIGHT DIRECTION

Middle East

In contrast to the global trend the average value of nine months which is a slight increase on the 2010 figures
disputes in the Middle East construction industry (8.25months) but shorter than all other markets except the
increased significantly in 2011 rising by 104% to UK and markedly below the global average of 10.6 months.
$112.5 million compared to $56.25 million twelve The report found that a failure to properly administer
months ago. Whilst this is a huge rise, it reflects the the contract was the most common cause of dispute in
flood of high-profile disputes that took place within the Middle East whilst arbitration was the most common
the Middle East construction market in the past year. method employed to try and resolve disputes, closely
followed by party to party negotiation and adjudication.
Furthermore, the reluctance of many contractors
and clients across the Gulf region to negotiate means This preference for adjudication is understandable as the
that disputes are often resolved in a more formal number of parties involved in construction projects across
environment which typically leads to higher overall the Gulf, means that a strong and independent voice is
required at the centre to ensure that all views are taken into
costs for all parties involved.
account. When all parties, from client to sub-contractor,
There are several reasons why the number of disputes get an opportunity to share their views in a structured
across the region is on the rise however, timing is a environment it often negates the need to proceed to a
major factor. Many large construction programmes are more formal environment to resolve these differences.
now nearing completion which is when most claims
In recent years Dubai has emerged as a hub for international
typically formalise as parties tend to crystallise their
arbitration, due in no small part to government endorsement
respective positions towards the end of the project, and
and its adoption of the New York Convention. With a
also cannot proceed to arbitration until Substantial
vibrant international construction market across the Gulf
Completion has been achieved. The greater level of
region and multi-cultural contracting relationships,
liquidity within the market, with some key developers
the option of using arbitration as a method of dispute
declaring profit, has also contributed to this rise, as
resolution will always hold appeal as it allows parties from
claimants appear to be more confident that employers have
different jurisdictions to opt for a neutral country to host
sufficient funds to discharge any awards that may be found
and resolve their dispute.
in their favour.

Finally, as the dispute boards and arbitration centres

establish themselves across the region, a greater level of
maturity and reliability cascades into the various panels, The top five causes of disputes in Middle East
construction projects during 2011 were:
appointing bodies and associated judiciary. This results
in having a greater level of confidence in referring and 1. A failure to properly administer the contract
enforcing awards in the region. Therefore it appears that a
2. Incomplete design information or employer
combination of these factors has contributed to the volume requirements
increase discussed above.
3. Employer imposed change
Once these disputes have reached the formal disputes 4. Failure to make interim awards on extensions of
stage a stronger desire to do business begins to manifest time and to give associated compensation
itself and there is a real focus on trying to resolve things 5. Unrealistic risk transfer from employers to
as quickly as possible. This year’s study showed that contractors.
construction disputes in the Middle East lasted on average

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Asia

During 2011 the average value of disputes in Asia’s consideration, it seems fair to assume that in next year’s
construction industry fell by 18% to $53.1 million report the length of time taken to resolve disputes in 2012
compared with $64.5 million in 2010. Given the volume should be lower than in previous years.
of construction that is taking place across the region In 2011 the most common cause of a construction dispute
this is a positive development and bodes well for all of in Asia was a failure to make interim awards on extensions
the future work that is planned in both established and of time and to give associated compensation followed by an
unrealistic level of risk transfer from employers to contractors.
developing markets across Asia.
When it came to resolving these disputes, mediation was
There is no single reason to explain this drop however there the most common method employed although interestingly,
are strong indications that across Asia, parties are beginning the approach taken varied on a location basis. This year’s
to take a more proactive approach when it comes to resolving figures indicated an increase in the use of the Security of
their disputes. This move to tackle differences at a much Payment Act in Singapore, a rise in the use of mediation in
earlier stage through structured negotiation and mediation Hong Kong, and a general increase in the use of arbitration
helps to lower the overall cost of a dispute as it significantly in mainland China and South Korea. There has also been
reduces the amount of resource that needs to be allocated an increase in cross-border arbitration between Hong Kong
in helping to deal with these issues. and China however in mainland China dispute resolution is
largely locally and regionally driven and is likely to remain
Whilst the value of construction disputes in Asia may so on a short to medium term basis.
be decreasing, the length of time required to deal with them
has risen over the past twelve months. In 2010 the average
length of each dispute was 11.4 months however in 2011
this figure increased by 9% to 12.4 months. This was longer The top five causes of disputes in Asian
than most regions took to resolve disputes with only the construction projects during 2011 were:
US taking more time (14.4months). This may be partly
1. Failure to make interim awards on extensions of
attributed to the fact that it takes time for large and
time and to give associated compensation
complex disputes to be heard in arbitration with issues
of availability of the leading Arbitrators and Counsel, as 2. Unrealistic risk transfer from employers to contractors
well as the time that it can take to assemble the evidence 3. Conflicting party interests
for complex cases. 4. An unrealistic contract completion date being
defined at tender stage
Fortunately, a consensus is now beginning to emerge on
the need to address these issues more quickly. In Singapore 5. Incomplete design information or employer
the Security of Payment Act has already delivered measurable requirements.
improvements whilst the Arbitration Ordinance that was
introduced in Hong Kong last year is also beginning
to lead to faster methods of resolution, in addition to the
implementation of the DRA scheme and a wider use of
mediation. Also, collaborative relationship contracting is
gathering momentum in the region, with many employers
looking to procure in this way. Malaysia is another market
that is soon to adopt adjudication as a method of dispute
resolution and if we take all of this positive momentum into

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EC HARRIS | GLOBAL CONSTRUCTION DISPUTES 2012: MOVING IN THE RIGHT DIRECTION

UK

The average value of disputes in the British construction contract, and in many occasions it was because the
industry rose to £6.5million during 2011, up from authority was unwilling or unable to spend more public
£4.6million in 2010. This represents a significant rise money than had been allocated within the initial budget.
although in this instance this may be due to the size of When it came to dispute resolution, party-to-party
the disputes EC Harris’ Contract Solutions team worked negotiation was the most common method employed
on over the past twelve months rather than reflect the followed by adjudication and then mediation. This supports
evolution of the UK industry as a whole. the view that parties are increasingly trying to begin
negotiating directly with the other party before resorting
This year’s study also found that construction disputes to third party resolution. Whilst adjudication also features
in the UK were proving more time-consuming than before prominently when it comes to resolving disputes, there is a
with the average length of each dispute increasing from perception that over the past twelve months, parties have
6.75 months in 2010 to 8.7 months in 2011. However, become increasingly frustrated by the process although it
despite this increase, disputes in the UK were still resolved does help to speed up decisions and confidentiality is
more quickly than any other region in the world. This maintained throughout.
increase could be due to a growing reluctance from parties’
to refer their disputes to the adjudication process largely Although it didn’t specifically feature within the survey
because of inconsistent results that have been obtained this is also an emerging trend within the UK construction
from these proceedings over the past twelve months. market of parties pursuing resolution of disputes by
Furthermore, when matters are referred to adjudication litigation. It is also likely that the recent changes to the
it regularly exceeds the statutory period of 28 days for Construction Act, allowing disputes based on oral contracts
a decision. to be referred, will see a rise in the number of disputes
being referred in 2012, albeit the likelihood is that parties
The results from this year’s study showed that in the UK will exercise a degree of caution before referring where
a failure to properly administer the contract was the most doubt surrounds the contract terms.
common cause of a construction dispute. The failure to
administer contracts stems from clients being less willing
to spend money during the procurement phase such that
the choice of contract is often unfamiliar to those chosen The top five causes of disputes in UK construction
to administer the contract selected. Another unfortunate, projects during 2011 were:
but all too frequent, occurrence is the shaping of a project
1. A failure to properly administer the contract
around the contract, rather than the contract being
developed around the project characteristics. This failure 2. Conflicting party interests
also stems from clients being advised to adopt contracts 3. Unrealistic risk transfer from employers to
such as NEC3 without fully appreciating the level of contractors
administration and involvement required to effectively 4. Employer imposed change
gain the benefits of using such a contract form. 5. Ambiguities in the contract document.
The performance of the project manager or engineer was
also a recurring issue with differences arising because they
had insufficient understanding of the procedural aspects of
the contract or were deemed too partial to the employer’s
interests. This type of scenario was particularly common
when local authorities were one of the parties to the

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Mainland Europe

In 2011 the average value of disputes in the

European construction industry rose by 5% increasing
from $33.3 million in 2010 to $35.5 million in 2011.

The report also found that the length of time required to

tackle construction disputes in Europe had increased over
the past twelve months with the average figure rising to
11.7 months in 2011 compared to 10 months in 2010.

The research found that a failure to properly administer the

contract was the most common cause of a construction
dispute in Europe. When it came to dispute resolution,
party-to-party negotiation was the most common method
used in Europe, followed by litigation and then adjudication.

The top five causes of disputes in European

construction projects during 2011 were:

1. A failure to properly administer the contract

2. Incomplete design information or employer
requirements
3. Ambiguities in the contract document
4. Failure to make interim rewards on extensions of
time and to give associated compensation
5. Employer imposed change.

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EC HARRIS | GLOBAL CONSTRUCTION DISPUTES 2012: MOVING IN THE RIGHT DIRECTION

North America

The average value of disputes in the US construction This preference for party to party negotiation is
industry decreased significantly over the past twelve understandable as the drive within the US construction
months falling from $64.5 million in 2010 to $10.5 industry for early resolution saw a marked shift in emphasis
towards direct negotiation as a means of tackling issues
million in 2011. This dramatic fall is largely due to a
before they escalate into something more serious.
more generally depressed market over the last twelve All parties in the project are now focused on the primary
months whereby the volume of construction taking objective of early dispute resolution and claims avoidance.
place has not been at a comparable level to previous
years. There has also been an increasing emphasis
from both public and private sector owners to avoid
The top five causes of disputes in US construction
and mitigate disputes through both risk management projects during 2011 were:
and early, field level, resolution of disputes.
1. Ambiguities in the contract document
Interestingly, despite the fact that the volume and value 2. Incomplete design information or employer
of disputes dropped compared with the 2010 figures, the requirements
length of time required to solve disputes increased, rising 3. Conflicting party interests
from 11.4 months in 2010 to 14.4 months on average in
4. Failure to make interim awards on extensions of
2011. This was longer than anywhere else across the globe time and to give associated compensation
and significantly higher than the global average of 10.6
5. A failure to properly administer the contract.
months. However, in some respects this statistic is slightly
misleading and disguises the progress that has been made
in the North America market in avoiding and resolving
construction disputes.

Today, most capital programmes have their own risk and

dispute management teams in place who have been very
successful at resolving differences at the project level before
they escalated. Therefore, the apparent challenge to a
quicker resolution of disputes in the US market may
be explained by the fact that the results of the survey are
probably referring to the more complex disputes that needed
to go through formal proceedings and which, by their very
nature, inevitably required additional time to resolve.

When it came to the most common causes of construction

disputes in the US, this year’s results indicated that
ambiguities in the contract document were the most typical
problem although there were also issues around incomplete
design information or employer requirements. Interestingly,
party to party negotiation was the most common method
used to resolve disputes in the US, followed by mediation
and arbitration.

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Commentary on most typical causes
of dispute
In 2010 the most common cause of a dispute within the
construction industry was a failure to properly administer
the contract and in 2011 this once again emerged as the
biggest issue. Indeed the top three reasons identified in
2010 remained unchanged in 2011 with ambiguities in the
contract document and a failure to make interim awards on
extensions of time and to give associated compensation,
occupying second and third place respectively.

However, this year saw two new issues come to the fore,
with the study revealing that incomplete design information
or employer requirements and conflicting party interests
were increasingly causing disputes within the industry
compared with the previous twelve months.

Overall the top five causes of disputes in

construction projects during 2011 were:

1. A failure to properly administer the contract

2. Ambiguities in the contract document
3. A failure to make interim awards on extensions of
time and to give associated compensation
4. Incomplete design information or employer
requirements
5. Conflicting party interests.

These findings indicate that whilst the market may be The findings from this year’s report also suggest that there
evolving, many of the same old problems continue to is a second key issue at play – the documents may contain
create tension and ultimately prevent projects from inter-related time management and notification provisions,
moving forward. Unsurprisingly, contract issues are once however in too many cases these respective provisions are
again responsible for many of these disputes with incorrect not enforced. If all clauses within a contract are not
selection and failure to administer these contracts the two adhered to, this can affect the timely capture of relevant
most common issues. data, but can also severely influence and affect the project
cash flow, sub-contractors and also the morale and
When it comes to multi-million dollar projects having the
relationships between the parties and the engineer or
right procurement and contract strategies in place from
project manager.
the outset is absolutely fundamental to the project’s future
success. In the best examples the contract is developed Directly related to this is a failure to provide interim
based on the particular constraints and characteristics of extensions of time and to give associated compensation.
that project rather than trying to make the project fit around Often this issue is influenced by the quality and standard of
a standard contract template. The allocation of risk between substantiation provided to support the application and the
each party, the way that constraints are incorporated and level, experience and impartiality of the engineer or project
also the pricing mechanism, all need to be adapted on an manager who is administering the contract. The report also
individual project basis yet too often there is a trend within indicated that in many instances the engineer or project
the industry to try and impose a standard approach on manager lacks a sufficient level of authority to address an
many projects. issue as and when it arises on a project.

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EC HARRIS | GLOBAL CONSTRUCTION DISPUTES 2012: MOVING IN THE RIGHT DIRECTION

Meeting the Future Challenge Mitigate Disputes:

■ Unfortunately, even on the most appropriately procured
With the global economy likely to remain subdued over
and managed projects, disputes can arise. In such a
the coming years, construction companies will be operating
scenario, how clients and contractors react will ultimately
in an increasingly challenging marketplace. In such an
determine whether the dispute ends up being a minor
environment, construction disputes are not just an
inconvenience or a more serious threat to the project’s
unwanted hassle but also something that could potentially
success and the long-term business relationship. A rapid
endanger a business’ existence or at the very least, have a
response is required to help mitigate the effects of the
lasting impact on future business relationships.
dispute, avoid delays and deal with issues in a timely
At the same time, the scale and complexity of some of the fashion so that the dispute doesn’t turn into a
infrastructure and building construction programmes that long-running conflict that prevents parties from their
are planned over the coming years means that large and delivery commitments. With speed of the essence here,
complex disputes will inevitably remain a feature of our having the right people available with knowledge of the
industry despite the best intentions of all parties involved region and access to best-in-class technology are all key
to try and avoid them. With such limited room for error in a as rapid deployment can help to isolate and manage
financially constrained climate, resolving these before they issues quickly.
reach the formal dispute stage is always the most welcome
outcome. Resolve Disputes:
■ If, despite everyone’s best intentions, a dispute does
Typically we find the approaches outlined below are escalate to the extent that more formal proceedings are
particularly relevant when it comes to reducing the risks required to try and resolve the issue, then an expert
associated with the construction and engineering delivery witness is often required to help provide independent
process and enabling clients to realise their project advice and opinion evidence. In this case, experts are
objectives. needed that can offer innovative approaches, relevant
expertise and evidence, professional integrity and
Avoid Disputes:
commercial acumen to both clients and law firms to
■ The first line of defence against construction disputes enable them to deliver the best possible outcome. This
is to prevent them happening in the first place. To help environment requires not only specialist training in
our clients avoid disputes, we identify the potential risks legal procedure, a full understanding of the role and
on their projects and then recommend the procurement duties of an expert, but also skilled writing and an
routes and contract structures that are most likely to ability to clearly identify and address issues and provide
enable a project to run smoothly. The scale of many of clear, persuasive and credible evidence. Ultimately this
today’s construction projects and programmes means evidence will be based on opinion and relevant data so
that the level of experience and technical expertise access to robust data management systems is also
required has never been greater. Our ability to bring crucial, as it enables the witness to present well
to bear the combined knowledge of quantity surveyors, considered, early findings that provides clients with an
building surveyors, project managers, architects, early indication of issues and likely opinions.
engineers and delay analysts is crucial in helping our
clients to avoid problems and to deal with them before
they spiral into more formal disputes.

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Mediation:
■ Mediation is a private, confidential, voluntary and About us
non-binding dispute resolution process in which a neutral
third party facilitates all stakeholders to help arrive at a About EC Harris:
negotiated compromise without recourse to the courts. EC Harris is a leading global built asset consultancy.
The process leads to a negotiated settlement which is As an ARCADIS company, we have access to
recorded in a binding and enforceable written agreement approximately 21,000 professionals worldwide
between the parties. This approach allows parties to operating in over 70 countries, 300 offices and
remain in control of the process and its outcomes and generating in excess of €2.4 billion in revenue.
can be an effective way to protect or repair commercial Working across a wide range of market sectors, we
relationships. Mediation is an innovative approach as it help our clients make the most from the money they
is the only method of dispute resolution that can include spend on their built assets.
forward-looking obligations or commitments whereby
For more information visit www.echarris.com
the aim is to not only resolve immediate differences
but also protect the long-term relationship of all parties
involved. Internationally, mediation has a success rate of About Contract Solutions:
70-75%. EC Harris’s specialist Contract Solutions team helps
clients avoid, mitigate and resolve disputes. The team
There are a number of solutions that parties should is based around the globe and encompasses one of
consider as they strive to manage disputes in the most the industry’s largest pool of procurement, contract,
efficient and appropriate manner possible, however in risk management and also quantum, delay, project
most cases applying the right skills at the right time and management, engineering defects and building
focusing on delivering what is in accordance with the surveying experts. The Contract Solutions team
contract, goes a long way to reducing the nature and extent provides procurement, contract and dispute avoidance
of any dispute. An early involvement by independent and management strategies, management expertise as
specialist consultants, who are wholly focused on business well as dispute resolution and expert witness services.
outcomes, can also significantly help in achieving the This is delivered through a blend of technical expertise,
desired outcome. commercialism, sector insight and the use of live
project data, combined with a multi disciplined and
professional focus.

Please visit: www.echarris.com/contractsolutions

About ARCADIS:
ARCADIS is an international company providing
consultancy, design, engineering and management
services in infrastructure, water, environment and
buildings. We enhance mobility, sustainability and
quality of life by creating balance in the built and
natural environment. ARCADIS develops, designs,
implements, maintains and operates projects for
companies and governments. With 21,000 people
and €2.4 billion in revenues, the company has an
extensive international network supported by strong
local market positions. ARCADIS supports
UN-HABITAT with knowledge and expertise to
improve the quality of life in rapidly growing cities
around the world.

Please visit: www.arcadis.com

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EC HARRIS | GLOBAL CONSTRUCTION DISPUTES 2012: MOVING IN THE RIGHT DIRECTION

For more information, please contact:

Mike Allen
Group Head of Contract Solutions
EC Harris
t +852 2263 7301
e mike.allen@echarris.com

David Dale
Head of Contract Solutions
EC Harris - Middle East
t +971 4 423 3921
e mike.allen@echarris.com

Gary Kitt
Head of Contract Solutions
EC Harris - UK and Europe
t +44 (0)20 7812 2310
e gary.kitt@echarris.com

Joe Seibold
Executive Vice President
ARCADIS US
t +1 213 486 9884
e joe.seibold@arcadis-us.com

www.echarris.com/contract_solutions

AN ARCADIS company