Construction

Contract disputes cost the Middle East $112m in 2011 – EC Harris

Disputes doubled in value and took longer to resolve when compared to last year, despite the rest of the world seeing costs decline by $3.1m on average

Contractual disputes in the construction industry rose in value from a total of $56.25m in 2010 to $112.5m last year, despite the rest of the world seeing costs decline by an average of $3.1m.

Along with the UK and Europe, the Middle East bucked global trends that saw average disputes drop in value from $35.1m to $32.2m.

The highest value dispute handled by EC Harris during 2011 was for US$350m on a project in the Middle East.

“The Middle East saw a flood of major disputes last year,” commented David Dale, Middle East head of contract solutions, for research authors EC Harris.

“Disputes are still costing the industry time and money.  Focusing on avoiding the dispute from the outset through better mitigation and contract design is always the better option,”  Dale added.

Disputes in the Middle East took almost a month longer to resolve, compared to 2010. Disputes in the US took the longest to resolve at 14.4months, however it also witnessed the most dramatic drop in the value of disputes, from $US64.5m in 2010 to US$10.5m in 2011, due to a “generally depressed construction market” and better risk management.

Dispute causes ranged from poorly administered contracts, to incomplete information and unrealistic risk transfer (see below). The performance of the project manager or engineer was also looked at in the report, with their conduct often being at the heart of how the dispute crystallised.

Top five causes of disputes

  1. A failure to properly administer the contract
  2. Incomplete design information or Employer requirements
  3. Employer imposed change
  4. Failure to make interim awards on extensions of time and associated compensation
  5. Unrealistic risk transfer from Employers to Contractors

 

Region

Dispute value (US$ millions)

Length of dispute

(months)

2011

2010

2011

2010

UK

10.2

7.5

8.7

6.75

Europe

35.1

33.3

11.7

10

Middle East

112.5

56.25

9

8.25

Asia

53.1

64.5

12.4

11.4

US

10.5

64.5

14.4

11.4

Global average

32.2

35.1

10.6

9.1

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