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Covid-19 fuels international construction disputes

3 Dec 21 The causes and costs of construction disputes around the world have been set out in the latest research by consultant HKA, with Covid-19 adding to more normal pressures.

HKA, which specialises in risk mitigation and dispute resolution, has now published the latest edition of its research programme, Crux Insight. The report contains data from around the world, laying out the most common causes for construction disputes and costs claims around the world for major construction, engineering and infrastructure projects. The costs run to billions and there are lengthy time delays.

Crux Insight 2021 distils intelligence on more than 1,400 projects across 94 countries to identify the primary causes of overruns approaching half of projects’ capital value and three quarters of their scheduled programmes.

The 1,401 projects had a combined capital expenditure of US$2 trillion and experienced total claims of US$73 billion, with US$100 million of average disputed costs per project. The research estimated the the value of claims as 46.3% of planned cost. The average time extension claimed was 17 months.

The dominant drivers of claims and disputes were found to be: changes in scope, conflicting interpretation of contracts, design failures, and mismanagement of subcontractors.

Covid-19 has caused additional disruption, restricting access to sites and labour, constricting cashflow, and exposing the limitations of contract provisions on force majeure and changes in law.

This has intensified claim and dispute risks even as the industry rebounds and governments across the world embark on ambitious infrastructure and development plans.

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Beyond Covid, Crux Insight reports that skills shortages, supply chain disruption, cost inflation, increased market volatility, and the climate crisis are increasing the potential for conflict on projects.

Over a third of projects (35.6%) were hindered by skills and experience gaps, and associated workmanship deficiencies

Late delivery of materials and equipment impacted one in nine projects (11.3%) - even before the report’s August 2021 cut-off and ongoing global materials shortages.

A tenth of projects (10.3%) were affected by exceptionally adverse weather. Like other global uncertainties, the climate emergency requires recalibration of capital project delivery risks.

 “Capital projects are haemorrhaging billions of dollars each year to recurrent, predictable and often avoidable claims and disputes,” said Renny Borhan, CEO of HKA. “Crux Insight 2021 not only diagnoses these failings and quantifies the impacts, but also identifies corrective actions to stem these losses. Project stakeholders and the industry can learn lessons from Crux to operate more effectively amid this heightened uncertainty.”

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