The highest value dispute was for $350 million, said EC Harris
Failure to administer construction contracts properly and employer-biased project managers were major contributors as the value of contract disputes doubled in the Middle East last year, according to a new report by EC Harris.
In its Global Construction Disputes report, EC Harris revealed that the average value of disputes doubled from $56.25 million in 2010 to $112.5 million in 2011. The region is now almost three times higher than the global average which fell from $35.1 million to $32.2 million on the back of increasing emphasis by both the public and private sector owners to avoid and mitigate disputes through risk management and early, field level, resolution of disputes.
Researchers at EC Harris’ Contract Solutions team said that a failure to properly administer the contract was the most common cause of a construction dispute in the Middle East.
EC Harris identified the performance of project managers or engineers as a crucial contributor to the causes of contracts entering into a dispute.
The most likely problem with the project manager or engineer was that they were too partial to the employer’s interests, followed by a lack of understanding of the procedural aspects of the contract, said EC Harris.
“Their conduct often being at the heart of how the dispute crystallised,’ said the analyst. “The most likely problem with the project manager or engineer was that they were too partial to the employer’s interests, followed by a lack of understanding of the procedural aspects of the contract.”
Settling disputes most commonly involved taking the case to arbitration before entering party to party negotiation and adjudication.
According to David Dale, the Middle East bucked global trends as companies sought to resolve disputes as the region recovered its confidence in an improving economic climate.
“The Middle East saw a flood of major disputes last year,” said Dale “Over the past few years we have seen a reluctance to settle in the Gulf region, but this has been replaced by a stronger desire to do business and resolve disputes as the economies strengthen. On the whole, however, 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.”
The top five causes of disputes in Middle East construction projects during 2011:
•A failure to properly administer the contract
•Incomplete design information or Employer requirements
•Employer imposed change
•Failure to make interim awards on extensions of time and associated compensation
•Unrealistic risk transfer from Employers to Contractors