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

Mike Allen
Group Head of Contract Solutions, EC Harris
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
such as urbanisation and the growing demands of a burgeoning
middle-class demographic.

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

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

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

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
disputes in the Middle East construction industry
increased significantly in 2011 rising by 104% to
$112.5 million compared to $56.25 million twelve
months ago. Whilst this is a huge rise, it reflects the
flood of high-profile disputes that took place within
the Middle East construction market in the past year.
Furthermore, the reluctance of many contractors
and clients across the Gulf region to negotiate means
that disputes are often resolved in a more formal
environment which typically leads to higher overall
costs for all parties involved.
There are several reasons why the number of disputes
across the region is on the rise however, timing is a
major factor. Many large construction programmes are
now nearing completion which is when most claims
typically formalise as parties tend to crystallise their
respective positions towards the end of the project, and
also cannot proceed to arbitration until Substantial
Completion has been achieved. The greater level of
liquidity within the market, with some key developers
declaring profit, has also contributed to this rise, as
claimants appear to be more confident that employers have
sufficient funds to discharge any awards that may be found
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,
appointing bodies and associated judiciary. This results
in having a greater level of confidence in referring and
enforcing awards in the region. Therefore it appears that a
combination of these factors has contributed to the volume
increase discussed above.
Once these disputes have reached the formal disputes
stage a stronger desire to do business begins to manifest
itself and there is a real focus on trying to resolve things
as quickly as possible. This year’s study showed that
construction disputes in the Middle East lasted on average
4
nine months which is a slight increase on the 2010 figures
(8.25months) but shorter than all other markets except the
UK and markedly below the global average of 10.6 months.
The report found that a failure to properly administer
the contract was the most common cause of dispute in
the Middle East whilst arbitration was the most common
method employed to try and resolve disputes, closely
followed by party to party negotiation and adjudication.
This preference for adjudication is understandable as the
number of parties involved in construction projects across
the Gulf, means that a strong and independent voice is
required at the centre to ensure that all views are taken into
account. When all parties, from client to sub-contractor,
get an opportunity to share their views in a structured
environment it often negates the need to proceed to a
more formal environment to resolve these differences.
In recent years Dubai has emerged as a hub for international
arbitration, due in no small part to government endorsement
and its adoption of the New York Convention. With a
vibrant international construction market across the Gulf
region and multi-cultural contracting relationships,
the option of using arbitration as a method of dispute
resolution will always hold appeal as it allows parties from
different jurisdictions to opt for a neutral country to host
and resolve their dispute.
The top five causes of disputes in Middle East
construction projects during 2011 were:
1. A failure to properly administer the contract
2. Incomplete design information or employer
requirements
3. Employer imposed change
4. Failure to make interim awards on extensions of
time and to give associated compensation
5. Unrealistic risk transfer from employers to
contractors.
Asia
During 2011 the average value of disputes in Asia’s
construction industry fell by 18% to $53.1 million
compared with $64.5 million in 2010. Given the volume
of construction that is taking place across the region
this is a positive development and bodes well for all of
the future work that is planned in both established and
developing markets across Asia.
There is no single reason to explain this drop however there
are strong indications that across Asia, parties are beginning
to take a more proactive approach when it comes to resolving
their disputes. This move to tackle differences at a much
earlier stage through structured negotiation and mediation
helps to lower the overall cost of a dispute as it significantly
reduces the amount of resource that needs to be allocated
in helping to deal with these issues.
Whilst the value of construction disputes in Asia may
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
than most regions took to resolve disputes with only the
US taking more time (14.4months). This may be partly
attributed to the fact that it takes time for large and
complex disputes to be heard in arbitration with issues
of availability of the leading Arbitrators and Counsel, as
well as the time that it can take to assemble the evidence
for complex cases.
Fortunately, a consensus is now beginning to emerge on
the need to address these issues more quickly. In Singapore
the Security of Payment Act has already delivered measurable
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
consideration, it seems fair to assume that in next year’s
report the length of time taken to resolve disputes in 2012
should be lower than in previous years.
In 2011 the most common cause of a construction dispute
in Asia was a failure to make interim awards on extensions
of time and to give associated compensation followed by an
unrealistic level of risk transfer from employers to contractors.
When it came to resolving these disputes, mediation was
the most common method employed although interestingly,
the approach taken varied on a location basis. This year’s
figures indicated an increase in the use of the Security of
Payment Act in Singapore, a rise in the use of mediation in
Hong Kong, and a general increase in the use of arbitration
in mainland China and South Korea. There has also been
an increase in cross-border arbitration between Hong Kong
and China however in mainland China dispute resolution is
largely locally and regionally driven and is likely to remain
so on a short to medium term basis.
The top five causes of disputes in Asian
construction projects during 2011 were:
1. Failure to make interim awards on extensions of
time and to give associated compensation
2. Unrealistic risk transfer from employers to contractors
3. Conflicting party interests
4. An unrealistic contract completion date being
defined at tender stage
5. Incomplete design information or employer
requirements.
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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
industry rose to £6.5million during 2011, up from
£4.6million in 2010. This represents a significant rise
although in this instance this may be due to the size of
the disputes EC Harris’ Contract Solutions team worked
on over the past twelve months rather than reflect the
evolution of the UK industry as a whole.
This year’s study also found that construction disputes
in the UK were proving more time-consuming than before
with the average length of each dispute increasing from
6.75 months in 2010 to 8.7 months in 2011. However,
despite this increase, disputes in the UK were still resolved
more quickly than any other region in the world. This
increase could be due to a growing reluctance from parties’
to refer their disputes to the adjudication process largely
because of inconsistent results that have been obtained
from these proceedings over the past twelve months.
Furthermore, when matters are referred to adjudication
it regularly exceeds the statutory period of 28 days for
a decision.
The results from this year’s study showed that in the UK
a failure to properly administer the contract was the most
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
to administer the contract selected. Another unfortunate,
but all too frequent, occurrence is the shaping of a project
around the contract, rather than the contract being
developed around the project characteristics. This failure
also stems from clients being advised to adopt contracts
such as NEC3 without fully appreciating the level of
administration and involvement required to effectively
gain the benefits of using such a contract form.
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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contract, and in many occasions it was because the
authority was unwilling or unable to spend more public
money than had been allocated within the initial budget.
When it came to dispute resolution, party-to-party
negotiation was the most common method employed
followed by adjudication and then mediation. This supports
the view that parties are increasingly trying to begin
negotiating directly with the other party before resorting
to third party resolution. Whilst adjudication also features
prominently when it comes to resolving disputes, there is a
perception that over the past twelve months, parties have
become increasingly frustrated by the process although it
does help to speed up decisions and confidentiality is
maintained throughout.
Although it didn’t specifically feature within the survey
this is also an emerging trend within the UK construction
market of parties pursuing resolution of disputes by
litigation. It is also likely that the recent changes to the
Construction Act, allowing disputes based on oral contracts
to be referred, will see a rise in the number of disputes
being referred in 2012, albeit the likelihood is that parties
will exercise a degree of caution before referring where
doubt surrounds the contract terms.
The top five causes of disputes in UK construction
projects during 2011 were:
1. A failure to properly administer the contract
2. Conflicting party interests
3. Unrealistic risk transfer from employers to
contractors
4. Employer imposed change
5. Ambiguities in the contract document.
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
evolving, many of the same old problems continue to
create tension and ultimately prevent projects from
moving forward. Unsurprisingly, contract issues are once
again responsible for many of these disputes with incorrect
selection and failure to administer these contracts the two
most common issues.
When it comes to multi-million dollar projects having the
right procurement and contract strategies in place from
the outset is absolutely fundamental to the project’s future
success. In the best examples the contract is developed
based on the particular constraints and characteristics of
that project rather than trying to make the project fit around
a standard contract template. The allocation of risk between
each party, the way that constraints are incorporated and
also the pricing mechanism, all need to be adapted on an
individual project basis yet too often there is a trend within
the industry to try and impose a standard approach on
many projects.
The findings from this year’s report also suggest that there
is a second key issue at play – the documents may contain
inter-related time management and notification provisions,
however in too many cases these respective provisions are
not enforced. If all clauses within a contract are not
adhered to, this can affect the timely capture of relevant
data, but can also severely influence and affect the project
cash flow, sub-contractors and also the morale and
relationships between the parties and the engineer or
project manager.
Directly related to this is a failure to provide interim
extensions of time and to give associated compensation.
Often this issue is influenced by the quality and standard of
substantiation provided to support the application and the
level, experience and impartiality of the engineer or project
manager who is administering the contract. The report also
indicated that in many instances the engineer or project
manager lacks a sufficient level of authority to address an
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