Time and money: Counting the cost of conflict in the construction industry

A review of nearly 1,200 construction and engineering projects across 88 countries has revealed that eye-watering sums of money and time are still being lost to avoidable disputes. The third annual CRUX Insight report from HKA also reveals a new trend in causation, with design conflicts sharply increasing in prevalence. Experts, observing a surge in spurious claims conflated with the impacts of the COVID-19 outbreak, warn that already weakened contractors could struggle to survive under such intense pressure. But the picture may not be so bleak as it first appears. Industry analysts are keen to emphasise the opportunity for renewal at this apparent inflection point – potentially under the steam of a post-pandemic infrastructure funding boom.

Simon Moon, Chief Operating Officer with HKA, says: “These findings are incredibly timely, as we confront an unprecedented global crisis whilst targeting much needed future investment. The pandemic is afflicting all sectors and territories, and construction is far from immune. The industry is already mired in project overruns and cost escalations, and faces a real struggle if it doesn’t change. On the reverse, if it does, the scale of the opportunity is huge.”

The challenge is underscored by a set of headline figures that should prompt a period of widespread reflection. Across the 1,185 analysed projects, extensions of time total a scarcely conceivable six centuries. Delays typically extend original schedules by more than 71%. The cumulative value of sums in dispute exceeds US$48.6 billion, with the average claimed value accounting for over half of planned capital costs.

Changes in scope remain the most common cause of project delay and dispute, but design-related problems are now firmly entrenched near the top of the rankings. Other recurring points of contention include poor management of third parties, inadequate contract management, and deficiencies in workmanship. In sum, the report paints a picture of a fractious industry, crucially under-skilled and stubbornly resistant to the spirit of innovation that characterises the modern age. It is a reputation that senior leaders within the profession have struggled, quite often in vain, to shake off.

The web of causes is as universal as it is perennial. The report aggregates data from the Americas, Asia Pacific, Europe, and the Middle East and Africa to tell a truly global story. It is, in effect, a story of pandemic profligacy. With projects only set to become more complex, involving the deployment of an ever-wider array of technologies and materials, the risks seem unlikely to recede.

“Now is the time to learn the necessary lessons,” says Simon Moon. “We can reset the industry by tackling these recurring causes with practicable measures that result in more mature designs, robust schedules and effective governance frameworks.”

There is some evidence that this is already happening. Failures in the management or administration of contracts have reduced, as have clashes over interpretation. This can be at least partly attributed to measures taken by leading international contractors and state agencies to boost in-house capabilities, training and organisational change programmes. Industry figures agree that this represents a small but significant step in the right direction.

“We’re committed to exploring means of avoiding disputes and have long believed that prevention is better than cure,” says Martin Burns, Head of Alternative Dispute Resolution Research and Development at RICS. “Of course, people being people, it’s not always going to be possible to stop disputes happening. But we’re working with governments, professional institutions and various industry bodies globally to develop a pan-industry approach to change the way conflict is managed and resolved. We’ve witnessed a definite change of attitude. There is a growing appetite among employers and suppliers for greater collaboration in managing risk and dealing with emerging conflict situations earlier and more amicably. At this stage, I think we can call it a movement. RICS, as a key player in the pan-industry Conflict Avoidance Coalition, which is behind the Conflict Avoidance Pledge, is at the forefront.”

Quite whether the movement has reached critical mass remains to be seen. But the CRUX report represents the most comprehensive available dataset on the cause, extent and cost of disputes within the construction universe. If industry leaders genuinely want to reduce the financial, social and reputational costs of disputes, it is essential reading.

“The ongoing cost of failing to anticipate and mitigate these known risks is colossal,” says Toby Hunt, HKA’s Chief Business Development Officer. “But the opportunity for the industry and those who act on the report’s findings is equally immense.”

• DOWNLOAD THE FULL CRUX INSIGHT 2020 REPORT FROM HKA