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The 2020 edition of Arcadis’ Global Construction Disputes Report represents ten straight years of compiling industry trends, but this year’s report is different from previous editions. Published in the midst of the industry facing never-before-seen challenges posed by COVID-19, many experts are considering what creative solutions are needed to successfully navigate construction disputes.
When the contract solutions team got together to strategize the theme for our tenth annual construction disputes report, we began reflecting on our decade-long journey polling the industry. We analyzed changes, trends and more to identify opportunities for success in the decade to come.
Our conversations kept coming back to collaboration. Year after year, our surveys tell us problems arise when parties fail to communicate at the start of a project, and the best pathways to resolution involve parties working in tandem to end disputes quickly and fairly.
Mind you, this year’s survey closed prior to COVID-19 upending the construction industry, and we were writing the report as the pandemic unfolded. But as we speculated what COVID-19 might mean for construction disputes, we found that the extra layer of complexity and unprecedented challenges only strengthen the value of collaboration.
Collaboration (or a lack thereof) already played a big role
Consistent with previous years, human factors and misunderstanding of contractual obligations continue to be a primary cause of disputes in this year’s results. Conversely, the most common form of alternative dispute resolution was party-to-party negotiation, and the most important mitigation/early resolution factor was a willingness to compromise.
As the industry becomes more sophisticated, clear communication and team-first attitudes could help sustain the positive momentum seen this past year. Globally, the average value of disputes dipped from $33 million in 2018 to $30.7 million in 2019. Average length of disputes decreased as well, from 17 months to 15 months.
But frankly, as the financial impacts of COVID-19 set in, our team expects to handle more disputes in 2020. The industry is facing an uncertain economy, and the effects will be felt differently across the world. Markets where private owners can take advantage of low interest rates might grow, while companies in other regions might be forced to tighten their budgets. Either scenario could present unique hurdles to operational excellence.
Mega disputes are on the rise
Although the overall average value of disputes decreased, every region surveyed saw a rise in mega disputes related to larger capital programs and private projects. According to Engineering News-Record, the construction industry witnessed record growth in megaprojects in 2019, and the highest value dispute our team handled last year was worth $1.5 billion.
The changing ways of working and potential shutdowns (plus subsequent reboots) around megaprojects could contribute to an increase in mega disputes. Our survey results indicate that many owners, knowing that larger programs can produce more complex disputes, are making significant investments in claims avoidance techniques such as risk management workshops and extensive training to their project management staff.
Don’t lose sight of proven techniques
We can’t predict the full impact COVID-19 will have on construction. Still, it will be prudent to remember what works best when trying to avoid, mitigate and resolve construction disputes. It all comes back to relationships built on collaboration and communication.
The critical necessity of project participants to take on challenges together is reflected through our entire report. Our mantra is that bad relationships doom construction projects more often than bad soil, weather, equipment or design. A willingness to compromise, set emotions aside and concentrate on what makes good business sense will be key to successful dispute resolution in a post-COVID-19 world.
Download the tenth anniversary edition of our Global Construction Disputes Report for more survey results and insights around collaboration’s role in achieving project excellence.