Disputes cost $100 million per capital construction project

Costs claimed in disputes in major capital and infrastructure construction projects amounted to $98.7 million per project, according to the Fifth Annual Crux Insight Report which revealed how global headwinds could cause further damaging cost overruns and delays in construction projects.

More than 1,600 projects across 100 countries valued at more than $2 trillion were analyzed up through July 2022 for the report. It was discovered that, on average, costs claimed in disputes amounted to $98.7 million per project, more than a third (35.1%) of their capital expenditure.

Deficient workmanship contributed to disputes and delays in North America at nearly the same rate as the most-common global causes: late design, incorrect design and/or incomplete design. (Graphic: HKA)

Total claims analyzed exceeded $80 billion in value, while the cumulative overruns total a staggering 840 years.

This year’s report highlights the damaging influence of factors such as dysfunctional design processes, skills shortages, and supply chain disruption on project performance:

• Design: A significant number of projects are dogged by design-centric failures – design information issued late (24.3%), incorrect design (23.8%) and/or incomplete design (23.2%).
• Workforce: 3% of projects were impacted by workmanship deficiencies, 15.3% by low levels of skill and/or experience, and 9.7% by a shortage of workers.
• Supplies: 5% of projects were disrupted by late delivery of materials and/or products.

Leading causes of claims

Across all projects globally, The Crux Insight report notes that the leading cause of claims and disputes was a change in scope, followed by conflicting contract interpretations and delayed design information.

The effects of the pandemic continue to manifest on projects. Delays in granting approvals, accessing sites, issuing design information, and delivery of materials have all ratcheted up in the Crux Insight ranking of causes.

Deficient workmanship was a far more significant cause of contention in Europe and the Americas than in other regions – on 23.2% and 20.3% of projects, respectively.

With project timelines and budgets already stretched, particularly in North America, acute skills shortages and rising labor and input costs increase the risk of overheating. Claimed costs already amount to more than a third (33.8%) of average project CAPEX in the region.

Many of the dominant causes of claims and disputes – notably, change in scope, unforeseen physical conditions, and deficiencies in design or workmanship – arise from short-sighted attempts to save time and money up front.

Even at their least severe, overruns averaged almost a year in the Americas (prolonging schedules by 58.2%, equivalent to 11.3 months).

Lingering Covid effects compounded by war

While various design-related failings rank highly in all regions, in Europe incorrect design is the prime culprit for distress on almost a third of projects.

Restricted or late access to sites and/or workforces was one of the top three triggers for claims and disputes in Africa, Asia, and Oceania (ranking first, second and third, respectively).

The report states that projects in the Middle East faced the worst delays (83.1% of schedule duration or 22.5 months, on average).

“In 2022 we are still seeing a long Covid legacy of uncertainty, and that economic and logistical overhang has been compounded by the war in Ukraine, resurgent inflation, further supply shocks, and a slowdown in the global economic recovery.” said Toby Hunt, partner and Crux sponsor. “All pose significant challenges for major capital projects even though many of the world’s construction markets remain buoyant and boast strong project pipelines.”