Construction Project Disputes: How to Resolve Them…and How to Avoid Them – Part II

Construction Project Disputes EC Harris ReportEC Harris, a global built asset consultancy based in the U.K., has published its third annual report on construction disputes around the world – Global Construction Disputes: A Longer Resolution. The report reviews construction dispute costs, durations, causes, and methods of resolution across Asia, Mainland Europe, the Middle East, the U.K., and the U.S. for 2012, with comparisons to data for 2011 and 2010.

As indicated in the report’s subtitle, global construction project disputes are taking longer to resolve – an average of 12.8 months in 2012, up from 10.6 months in 2011 and 9.1 months in 2010. At the same time, their average costs are showing a modest but steady decline – from US$35.1 million in 2010 to $32.2 million in 2011 to $31.7 million in 2012. In 2012, the Middle East led in both categories, with an average dispute duration of 14.6 months and an average dispute cost of $65 million – most likely a reflection of the growing number, size and complexity of construction projects in the region.

Failure of Project Information and Process Management

The causes of construction disputes in 2012 ranked as follows:

1)    Incomplete and/or unsubstantiated claims

2)    Failure to understand and/or comply with the contractual obligations of the employer/contractor/subcontractor

3)    Failure to properly administer the contract

4)    Failure to make interim awards on extensions of time and compensation

5)    Errors and/or omissions in the contract document.

The first two causes were new in 2012.

Methods of construction dispute resolution remained unchanged from 2011 to 2012: 1) party-to-party negotiation; 2) mediation; 3) arbitration. While not as expensive and time-consuming as litigation, these methods have the potential to incur significant out-of-pocket and opportunity costs, while eroding profit margins and damaging professional reputations.

“A Common Platform and Information Sharing System”

We’ve blogged previously about managing conflict between independent yet interdependent companies in “Construction Project Disputes: How to Resolve Them…and How to Avoid Them.” The EC Harris report reminds us of its critical importance as construction projects continue to grow bigger and more complex, with larger project teams across many organizations in different geographies – and increasingly higher risk profiles.

In the context of this global industry environment, the report calls out the prevalence of joint ventures formed to serve long-term, multi-billion-dollar construction projects in the Middle East, Asia and other high-growth construction markets. EC Harris found that in 2012 differences between JV project partners and team members were likely to drive disputes in approximately one in five cases (19%).

One of the report’s recommendations to address this risk is: “The use and application of a common platform and information sharing system.”

Based on our experience with more than 15,000 construction projects worldwide, we’d apply this recommendation not only to joint ventures, but to all complex developments requiring information and process management between different companies.

Project Dispute Avoidance and Mitigation

EC Harris’s counsel on managing construction project risk around potential disputes between team members is familiar to Aconex clients:

“Prevention is better than cure…The size and complexity of many programmes of work mean that disputes are still likely to happen, but up front work can help avoid as many as possible.”

Aconex construction management software provides owners, contractors and their project teams with “a common platform and information sharing system.” All project stakeholders and users are registered on the Aconex platform, and all project information and processes flow through this single system.

Every document, communication and workflow – from bids and tenders, design reviews, and Requests for Information (RFIs) to Building Information Models (BIM), field inspections, and digital operation and maintenance (O&M) manuals – is processed through Aconex and captured in a permanent audit trail for full transparency and accountability.

“Should a dispute arise, recognising the problem and dealing with it quickly is key. Having the right expertise available to isolate and manage issues swiftly will mitigate the effects of the dispute, thus avoiding expensive and lengthy difficulties.”

The risk of project disputes can’t be eliminated, but it can be effectively mitigated with “bullet-proof” construction management software. Check out Aconex clients and projects for real-world examples.

Project Dispute Resolution

Construction project disputes are sensitive situations which can be exacerbated by public disclosure and scrutiny. For that reason, the following dispute resolution anecdote concerning a project managed on Aconex has been anonymized to maintain confidentiality for all parties. That said, it’s a true story.

“My firm was a subcontractor on a large, complex government project. The documentation provided by the main contractor and mechanical consultants had a large number of variations which accounted for a significant amount of my firm’s revenue for the project – approximately 20% of a $5-million contract. With government clients in particular, you need to be very precise with variations and other correspondence or you risk not getting paid in full for your work.

“Nearly half of the variations that we identified were disputed or needed further clarification by the main contractor, the consultants and the client. We were unable to resolve the disputes in a timely manner and were forced into mediation. The mediation process took 12 months, with the mediator coming back to us repeatedly for more information or an expansion of information provided previously.

“With Aconex – which the contractor had implemented on the project – we were able to easily search for, and find, every single thread of critical project correspondence and technical data required to support our claims. As a result, the mediator settled all of the claims in our favor, at 100%.”

Aconex – Neutrality, Independence and Fairness

“When a dispute does escalate and formal proceedings are needed, resolution will require an independent expert witness to provide advice and opinion about the matter. To aid this, both parties should ensure that they have captured comprehensive data about the project which can be made available for the resolution process.”

As the preceding anecdote demonstrates, “comprehensive data about the project” is recorded on the Aconex platform in an audit trail that can’t be deleted and is easily searchable with metadata.

With Aconex, not only do both parties in a dispute have comprehensive project data. Also, the data and all of the processes associated with it – from initial capture through final approval, with names, dates and times – are available for dispute resolution proceedings in a single, neutral system that is independent of either party and fair to all parties.

See first-hand how you can avoid disputes and mitigate risk on your next construction project. Contact Aconex today for a demo.

Top Image: EC Harris

Tod Bottari
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Tod Bottari

Communications Director at Aconex
Tod Bottari is the Communications Director for Aconex, the world's leading collaborative construction management software.
Tod Bottari
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  • Construction project disputes are indeed very sensitive situations. In my experience every early attempt to mitigate any kind of escalation by any means is better than continuing with the escalation. Collecting data about a project should be part of an ongoing process however early and ongoing effort in communicating in a positive way whilst seemingly redundant is actually of utmost importance.

    Vic Vrsecky
    Bestbuild@bigpond.com.au

    • Tod Bottari

      We couldn’t agree more. Thanks for the comment.