Analysis

The colossal costs lost to construction claims and disputes

CRUX Insight calls for industry re-set to withstand COVID crunch, says HKA

The astonishing toll of overrunning costs and schedules on major construction and engineering projects worldwide is laid bare in an analysis of claims and disputes published by HKA.

CRUX Insight 2020 is the product of investigations into more than 1,100 projects across 88 countries by HKA, the construction and engineering industry’s leading specialists in consulting, expert and advisory services.

After examining 1,185 projects with a combined CAPEX worth more than US$1.8 trillion it was found that design conflicts are eclipsing scope change as the main disruptors of major projects.

The report also found that the cumulative value of sums in dispute exceeded US$48.6 billion with claimed values reaching, on average, almost 56% of the projects’ planned capital costs.

As well as ranking the causes of claims and disputes, HKA’s third annual CRUX Insight report provides a regional analysis with actionable advice to pre-empt these recurring problems – from its expert consultants in the Americas, Asia Pacific, Europe, and the Middle East & Africa.

The analysis reveals the eye-watering sums of money and time being lost, as well as the patterns of root causes. Already observing a surge in spurious claims conflated with the impacts of COVID-19, HKA consultants warn that the pandemic will be detrimental for the industry, and potentially lethal for already weakened contractors, without the corrective actions.

Simon Moon, HKA Chief Operating Officer, described the wealth of data captured in this year’s CRUX Insight report as “unparalleled”.

“Our findings are also timely for the industry, as we confront an unprecedented global challenge,” he added.

“The pandemic is afflicting all industries and territories. Already mired in project overruns and cost escalations, construction faces rising uncertainty and further impacts from COVID. Now is the time to learn the lessons and re-set the industry by tackling the root causes with practicable measures that will result in more mature designs, robust schedules and effective governance of major projects.”

CRUX 2020 facts and figures:

1,185 projects with a combined CAPEX worth more than US$1.8 trillion analysed
Cumulative value of sums in dispute exceeded US$48.6 billion
On average, claimed values reached almost 56% of projects’ planned capital costs
Extensions of time claimed together would amount to 593 years
Resultant delays would typically extend original schedules by more than 71%
While changes in scope are still most often to blame, design-related problems are now entrenched near the top of the rankings
The other most often recurring causes are: poor management of third parties, inadequate contract management, and deficiencies in workmanship.

The web of causes undermining projects is as universal as it is perennial. Through the 2018-2020 CRUX dataset, the dominant cause of claims and disputes is change in scope, which in turn is closely linked with design failures. A notable development in the latest analysis is how these design-centric problems – incorrect, incomplete and late design information – have risen up the ranking.

Together they form a nexus disrupting more projects than any other factor across all four regions. With the increasing complexity of projects, and incorporation of new technologies and materials, these risks are looming larger.

The same trend is also triggering failures in how sub-contractors, the supply chain and related interfaces are managed. This is the next most prominent cause of claims and disputes in the 2020 ranking, and it is rising or stubbornly high across regions.

Unforeseen physical conditions and deficiencies in workmanship are the other most common contributory factors to project under-performance.

On a more positive note, failures in the management or administration of contracts, and also clashes over their interpretation, have fallen out of the top three – a development at least partly attributable to investment by some international contractors and state agencies in their in-house capabilities, training and organisational change programmes.

Toby Hunt, Partner and Chief Business Development Officer, explained: “In these turbulent times, the industry should use the CRUX research programme to alert stakeholders not just to the underlying causes of claims and disputes, but also to the positive, practical actions they can take to avoid, or at least minimise, the massive disruption, costs and delays they bring.

“CRUX can inform better decisions by employers, contractors and the wider supply chain who heed the lessons in this year’s report. All stakeholders can benefit from using CRUX – and its interactive dashboard – to benchmark their performance by region. A deeper dive into our unmatched dataset allows you to gauge risks by sector, target market, contract form, and answer other crucial questions.”

The HKA Partner added: “Just as the ongoing cost of failing to anticipate and mitigate these known risks is colossal, the opportunity for the industry and those who act on CRUX’s findings is immense.”

You can download a copy of the 2020 CRUX Insight Report at: https://www.hka.com/2020-crux-insight/

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