HKA, a global risk and disputes consulting firm, yesterday released “Forewarned is Forearmed,” its sixth annual CRUX Insight Report, which examines construction claims and disputes across regions.
The report analyzed 1,800 projects in 106 countries with a combined capital expenditure value (Capex) of $2.247 trillion.
HKA says that as capital projects are pressured by inflation and higher financing costs, curbing the significant losses from often-controllable causes is a good way to relieve pressure.
The 2023 CRUX report found disputed costs amounted to more than a third of project Capex (33.6%) on average. Claims for extension of time (EOT) typically prolonged schedules by over two-thirds (67.1%).
Inaccurate, incomplete, and late designs affected 44.8% of projects, followed by scope change (38.8%). Affecting approximately one-fifth of projects were “clashes over contract interpretation” (19.8%), poor management or administration of contracts (19.5%), and subcontractor and supplier interfaces (19.4%).
“Modern megaprojects are increasingly complex, but the cruel conundrum for the global construction and engineering industry is that these most common causes of claims and disputes are highly predictable and largely within the control of the contracting parties,” said Renny Borhan, partner and CEO. “The purpose of CRUX is to better inform all stakeholders so they can apply these lessons, raise the standard of risk management, and achieve better outcomes.”
Regions displayed a different mix of issues responsible for disrupting major projects. In Europe, incorrect design was the top issue, disrupting nearly one-third of projects (32.3%), while in the Americas it was the second-most prevalent issue, at 20.4%.
The Middle East and Africa faced the worst prolongation of schedules (82% or higher) followed by 63.6% for Asia. The largest megaprojects were located in Asia, where Capex averaged $5.32 billion.
In terms of claims and disputes, the global leading cause was change in scope, followed by conflicting contract interpretations and delayed design information.
Nearly one-in-five projects (18.8%) globally were affected by conflicts over unforeseen physical conditions – with this being the second most common project pitfall in the Americas.
Deficient workmanship was a much more significant issue in Europe and the Americas than in other regions, at 23.2% and 20.3% of projects respectively.
In terms of industry differences, buildings and transportation infrastructure projects had claims for longer time extensions than other sectors, averaging 76.7% and 70% of planned duration, respectively. Delays tended to be least severe in the industrial and manufacturing markets.
Sourced from Consulting.us