Analysis

Predictable, avoidable – but omnipresent

A regional and sector analysis of claims and dispute causation, HKA’s Sixth Annual CRUX Insight Report – titled: ‘Forewarned is Forearmed’ – shows that lessons remain unlearned, as disputed costs and overruns are ongoing on a massive scale…

The latest edition of the CRUX Insight Report has now come to market – and it features a raft of extremely sobering comments and conclusions on the current state of the Construction market, factoring in data from six global regions and no less than 106 different countries.

But first things first. CRUX is of course the ongoing research programme of HKA, the global consultancy specialising in risk mitigation, dispute resolution, and expert witness and litigation services. Hands-on investigations by its extensive team of consultants (which are up-to-date here as of August 2023) largely focus on high-profile, multi-year mega-projects and produce extremely detailed reportage of the factors principally driving claims and disputes.

In this sixth edition, the major projects analysed had a combined capital expenditure value (CAPEX) of $2.247 trillion. Worryingly, CRUX found in summary that, on average, disputed costs amounted to more than a third of project CAPEX (33.6%). Claims for extensions of time (EOT) also reflected extreme project distress, typically prolonging planned schedules by more than two-thirds (67.1%). To summarise some of the key features of this year’s Report –

• Over 1,800 projects across 106 countries were analysed, with a total value of $2.247 trillion
• Disputed costs averaged $100 million – more than a third (33.6%) of capital expenditure
• Time extensions would add almost 16 months, or two-thirds (67.1%), to a typical schedule
• A ‘triple design whammy’ distressed more projects (44.8%) than change in scope (38.8%)
• Middle East and Africa faced the longest schedule overruns (82% and above)
• Scope change stymied more projects offshore, both oil and gas (53.6%) and wind (45.0%)
• There is new evidence of a pandemic ‘design dividend’ and under-performing EPC contracts
• Clashes over contract interpretation – on less than a fifth of projects (19.8%) – was the other ‘top five’ factor.
• Similar proportions of projects suffered from poor management or administration of contracts (19.5%), or of subcontractors and supplier interfaces (19.4%).

The moral of the story is, that as infrastructure and capital projects around the world are hit hard by higher financing costs and inflation, by using better collaborative and contractual models, promoters and contractors can relieve the pressure by curbing the significant losses of money and time routinely incurred across market sectors internationally. Currently, these disputed costs and overruns are ongoing on a massive and unprecedented scale.

For those in quest of the detail, and potentially in a position to amend or re-calibrate the more disturbing industry trends, the Sixth Annual CRUX Insight Report was published on 12th October 2023.

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