Global construction loses billions in ‘mega-disrupter’ disputes

A new report has found that disputed costs averaged just under a third (33.2%) of capital expenditure on global construction projects. Image: Adobe Stock

The Seventh Annual CRUX Insight Report, Changing the Narrative, reveals the scale of disruption and financial damage done to engineering and construction projects globally.

The report looked at 2,002 projects across 107 countries with a total value of approximately US$2.2 trillion and found that disputed costs averaged US$83.1 million – just under a third (33.2%) of capital expenditure.

The average time overrun added almost 16 months or two-thirds (66.5%) to a typical schedule while the total value of sums in dispute on the projects analysed was $84.44 billion.

Five ‘mega-disrupters’ each affected 40-50% of the projects worldwide.

Construction’s five ‘mega-disrupters’

Contract: Conflicts over the formation or terms of a contract – from administrative shortcomings to spurious claims and tender errors – affected 43.2% of projects worldwide, rising to 51.9% in the Middle East and 68.0% in Africa.

Behaviours: Half of all projects worldwide (49.7%) had claims and disputes related to individual and team behaviours that permeate every aspect of the construction process. Causes heavily influenced by behaviours peaked at 67.3% in the Middle East, and hovered around 60% in Africa, Asia and Oceania. The averages for Europe and the Americas were closer to 40%.

Speed to build: Affecting 47.6% of all projects worldwide, this design-centric cluster (covering late, incomplete or incorrect design as well as late subcontractor/supplier appointments and unrealistic targets) is driven in large part by the twin imperatives to ‘speed the build’ and save on up-front time and costs.

Skills: Just under half of all projects (49.7%) worldwide had claims and disputes largely attributable to gaps in skillsets and experience. Ageing workforces, lack of investment in human capital, and failure to attract young talent are contributory factors. The effects are particularly noticeable in Europe (57.8%) and the Americas (51.5%), which suffered from higher levels of poor workmanship.

Environment: Exceptionally adverse weather was to blame for a relatively small proportion of claims and disputes, peaking at 13.3% in the Americas. But other factors with a strong environmental element (such as unforeseen ground conditions) pushed the total to 41.3% worldwide. More projects were impacted in Africa (56.0%), the Middle East (49.0%) and Asia (48.4%).

“It is our firm belief that risks on infrastructure and capital projects can be mitigated more effectively,” says Renny Borhan, Partner and CEO of HKA.

“HKA’s CRUX Insight not only lays bare the primary drivers of disputed costs and time overruns, it also explores the interrelated contributory factors and forces embedded within the industry. In this year’s report, our experts outline actionable steps to break this recurring cycle of claims and disputes that imposes such a heavy burden on projects and stakeholders.”

CRUX is the research programme of HKA, the global consultancy specialising in risk mitigation, dispute resolution, expert witness and litigation services.