Scope creep has traditionally been the top driver of claims and disputes on capital projects in the Americas, but during the pandemic, the main culprit has been design problems exacerbated by “failings in the management of third parties, across increasingly complex supply chains,” according to HKA’s CRUX Insight 2020 report, “Engineering and Construction: A Regional Analysis of Causation—Lessons learned from claims and disputes.”
“Our experience is that design problems are more likely to occur as a result of increasingly tight timescales imposed upon third parties engaged in design,” the authors wrote. “The result is often late or incomplete design, as well as clashes related to design implementation between parties. These conflicts are a more dominant factor than poor designs by individual parties. In the COVID era, restrictions and delays associated with site access are triggering more claims.”
As uncertainty continues from the lingering pandemic, capital projects should be planned “far more rigorously” early on, clearly detailing—upfront—each party’s roles, responsibilities and risks, according to the report.
HKA is a London-based global consulting firm specializing in risk mitigation and dispute resolution, with offices in 17 countries, including the United States and Canada. The report details claims and disputes on capital projects per region, including those arising from 410 projects in the Americas over the 2018–2020 period, with an average claim value of $65.5 million on projects with an average capital expenditure value of $1.1 billion.
Projects have also become more prone to deficiencies in workmanship, made even worse by COVID-related cutbacks, lowering the overall skill level of the remaining workforce, according to the report.
“Where budgets cannot stretch to formal training, mentoring schemes must be used to train new or inexperienced staff to improve quality and support productivity,” the authors wrote. “Funds can then be focused on paying market pay rates to attract and retain the most essential workers in areas of high demand.”
Claims and disputes are increasingly being resolved through mitigation and arbitration rather than litigation, in large part because of the reduced costs of virtual hearings and testimony, HKA consultants found.
“In arbitration, the cost and time savings from virtual hearings seem to outweigh the downside of not being able to ‘read the room’ in a face-to-face setting, the courts are likely to lag in adopting the technology for litigation proceedings,” they wrote. “Adjudication also offers the advantage of a more rapid resolution.”
Globally, more than $48 billion was disputed between the parties involved in the 1,100-plus projects across 88 countries that HKA analyzed over the 2018–2020 period. The collective value of the contracts on these projects was more than $1.8 trillion, and “the delays projects faced were no less significant or contentious,” the report stated. Claimed extensions of time would typically push back project completion by 323 days—more than 70% of the originally scheduled project timeframe, on average.