2021 Global Construction Disputes Report - The road to early resolution - Arcadis
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2021 Global Construction Disputes Report The road to early resolution
The road to
early resolution
From 2019 to 2020 the average value of disputes increased
significantly across the globe, while the average length of
disputes continued to drop. Consensus was that the overall
number of disputes remained relatively the same.
This year’s report focuses on the best way to combat
construction project issues: preparation. With the right
tools in place, organizations can prevent issues from
becoming full-blown construction disputes. Effective claims
resolution must start at the beginning of each project and
proceed through to completion, and our simplified roadmap
can guide you through the process.
Contents
Introduction....................................................................................................4
Guest foreword..............................................................................................5
The road to early resolution ......................................................................6
Overall findings..............................................................................................8
North America.............................................................................................12
United Kingdom......................................................................................... 16
Continental Europe................................................................................... 20
Middle East................................................................................................... 24
Methodology............................................................................................... 28
Contacts........................................................................................................ 28
2 3
Introduction
Welcome to the eleventh annual Arcadis
Global Construction Disputes Report, which Guest Forward
reveals key themes and insights into the King’s College London Early identification of
global construction disputes market. Any
dispute is case specific, so to endeavor to Professor Renato Nazzini FCIArb
risks, proper training
group causes and develop averages can risk Director, Centre of Construction Law and Dispute Resolution of the project team
omitting critical information related to the King’s College London and robust document
overall nature of the dispute. However, given management,
our range and depth of experience over the
past year, both globally and regionally, we
retention and analysis
are confident that our findings reflect the processes are key to
market trends. avoiding disputes.
Our research indicates there is a strong emphasis Over the past 11 years of gathering insights and The year 2020 has been, by all standards, surprisingly, given the global COVID-19 other adjudicative dispute resolution
on increasing construction activity across the globe capturing dispute trends, one of the leading causes an exceptional year for the construction pandemic, third-party or force majeure methods such as statutory or contractual
to jumpstart economies in the wake of COVID-19. of disputes still revolves around the parties’ failure industry and for dispute resolution all over events is a new entry in the top three adjudication, will always be needed,
Bigger and more complex projects requiring to understand their contractual obligations related the world. This makes the 2021 Arcadis causes of disputes. While we have not yet early dispute resolution remains by far
coordination among multiple stakeholders will to dispute resolution. Considering the impact of the Global Construction Disputes Report even seen many COVID-19-related arbitrations, the best outcome for the parties. The
require sophisticated delivery methods and rapidly pandemic on the construction industry in 2020, it more interesting and timely than usual. it is noteworthy that 60% of respondents road to early dispute resolution that
changing technology. In addition, the industry will is not surprising that force majeure and third-party said that COVID-19 has had some impact the Arcadis team puts forward in the
have to overcome shortages of labor and materials impacts landed in the top three causes of disputes. I would highlight two issues arising from on their projects. This is certainly an area Report ought to be considered very
that is being experienced globally. the Report that are of particular interest. to monitor in future years. In arbitration, seriously, and implemented, by parties to
Some projects were significantly impacted by we have tested this year new and effective construction projects all over the world.
Roy Cooper, PE This year’s report reveals the average value of COVID-19, while others were not. The public The first concerns the causes of disputes. ways of conducting the proceedings Early identification of risks, proper training
Head of disputes increased significantly while the average infrastructure sector experienced less impacts while In 2020, the main cause of disputes was virtually, often, although not always, with of the project team and robust document
Contract Solutions, length of disputes continued to drop. The report also others such as the buildings sector experienced the owner/contractor/subcontractor material cost and time savings. Arbitration management, retention and analysis
North America reveals the following: more. However, we have found that over the last year, failing to understand and/or comply as a dispute resolution tool is better processes are key to avoiding disputes in
regardless of the impacts, owners have proactively with its obligations under the contract. placed than ever to deliver fair and just the first place, resolving them as soon as
• The trends in the value and length of disputes evaluated their contract language related to force This is, in a way, good news as a failure outcomes in an efficient way whenever a possible if they arise, and, if early dispute
differ from region to region. majeure events and their dispute resolution processes to properly understand the contract dispute cannot be solved by other means. resolution fails, making adjudicative
• All regions have seen an increase in the “mega to provide a roadmap for success. has an easy cure: adequate training dispute resolution – be it adjudication,
disputes” related to bigger capital programs and and effective advice before and during This leads me to the second issue. arbitration or litigation – much more
private projects If you have any feedback or insight that you wish to contract performance. Furthermore, not While it is true that arbitration, and efficient and effective.
share, please contact one of our regional leaders.
• Proper administration of the contract was a theme
across the globe for the successful and early
resolution of disputes.
• Most disputes were settled through party-to-party
negotiation, and a willingness to compromise
played a key role in early resolution.
• More than 60% of survey respondents
encountered project impacts due to COVID-19.
4 5
The road to
early resolution
On construction projects, disputes are often
unavoidable. However, there are time-tested
techniques that can guide project participants
down the road to mitigation and early resolution.
In the 2020 Global Construction Disputes Report we discussed No matter what the future holds for the construction industry
the uncertain outcome of the global pandemic. As the pandemic
played out, many projects continued and did not see significant
and the global economy, there will continue to be issues that
arise on construction projects. The best way to combat these
Our research
impacts. Other projects were stopped while some were canceled issues is to be prepared before they happen, with tools in place indicates
before they began. Stakeholders that proactively addressed and guidelines to follow that can help prevent an issue from
potential impacts from COVID-19 achieved better outcomes. becoming a full-blown construction dispute. Effective claims infrastructure
Our research indicates infrastructure projects were less affected
than building projects. At the time of this report, there continues
resolution starts at the beginning of each project and must
proceed through completion. projects were less
to be uncertainty in the construction industry.
We have created the following simplified roadmap for effective
affected by COVID-19
According to the Institute of International Finance, $24 trillion claims resolution. These best practices are not all-inclusive but than building
in extra borrowing took place in 2020. This borrowing may include the high-level steps that our survey respondents have
help construction around the globe slowly pick up as the world identified as some of the most effective dispute avoidance, projects.
cautiously begins to reopen post-pandemic. mitigation and resolution techniques.
Pre-design Design Construction Post-construction
Preparing the project team – Effective claims resolution Proper contract delivery – While choosing the proper form Schedule management – Most disputes involve an element of Dispute resolution – The steps listed in the previous phases will
begins with the project team being prepared. Training on topics of project delivery will not eliminate disputes, it is important delay, acceleration or disruption. Proper schedule management aid in the timely resolution of disputes. Proper preparedness
such as documentation, knowing your contract, and change to establish a contract that is best-suited for the project. This by all project participants has proven to be one of the most and an understanding of the issues and associated damages will
management are crucial. includes proper standard contract language as well as provisions effective ways to mitigate and resolve disputes. bring focus to the heart of the dispute.
that address the dispute resolution process.
Risk management – Our survey indicated that a well-thought- Documentation – Proper documentation from the beginning Litigation – If a dispute proceeds to litigation, it is crucial that
out risk management plan is one of the most effective ways to Minimizing errors and omissions – Globally, this is listed as a phases of the project, especially during construction, is vital for all parties involved have an objective and non-emotional
avoid and mitigate disputes. top cause of disputes in our report every year. Proper design cost-effective and expeditious resolution of disputes. perspective of their position. Outside counsel and effective
management, reviews and budgets are all essential to avoidance, experts can help participants understand the strengths and
mitigation or resolution. weaknesses of their positions and the associated financial risks.
6 7
The global average
Overall findings
Average dispute value value of disputes
increased to
60
50
$54.26
$54.26
$43.4
million (US)
40 100
US$ millions
$32.5 $33 80
$30.7
30
US$ millions
60
20 40
20
10
0
North United Continential Middle
0 America Kingdom Europe East
Global average
2016 2017 2018 2019 2020
The global average
length of disputes
dropped to
Average dispute length
20 13.4
17 months
15 14.8 15
13.9 13.4
Months
20
The overall volume of disputes stayed
relatively the same in 2020 as in 2019,
The value of a dispute is the requested
amount for the additional work or event
Among regions 10
while the average value of disputes which is being claimed. The length of a surveyed, the buildings 15
Months
increased significantly. The time dispute is the period between when it
taken to resolve disputes decreased becomes formalized under the contract (education, healthcare, 5 10
slightly, continuing the downward
trend from 2019.
and the time of settlement or the
conclusion of the hearing. retail/commercial, 5
We define a dispute as a situation where
government) sector 0 0
Global average North United Continential Middle
two parties typically differ in the assertion saw the most disputes, America Kingdom Europe East
of a contractual right, resulting in a
decision being given under the contract, the same as 2019. 2016 2017 2018 2019 2020
which in turn becomes a formal dispute.
8 9
Owner/contractor/subcontractor failing to understand
and/or comply with its contractual obligations has
become the number one cause of construction disputes.
2020 Rank 2019 Rank Overall dispute cause
1 3 Owner/contractor/subcontractor failing to understand
and/or comply with its contractual obligations
2 * Owner-directed changes
3 * Third-party or force majeure events
Contractor/subcontractor failing to understand and/or comply with its contractual
obligation became the top cause of construction disputes for 2020, moving up from the
third highest cause in 2019. The impacts of COVID-19 on the industry notably impacted
the most common dispute causes, with third-party or force majeure events moving into
The highest value the top three.
dispute handled by Overall, our Contract Solutions team handled approximately the same number of
disputes in 2020 as in 2019, and we expect this to continue in 2021.
our team was worth
Most common methods of alternative
$4 billion (US)
2020 Rank 2019 Rank dispute resolution
1 1 Party-to-party negotiation
2 2 Mediation
3 * Adjudication (contract or ad hoc)
The most popular methods for resolving disputes:
Most important factors in the mitigation/early
2020 Rank 2019 Rank resolution of disputes
1 1 Owner/contractor willingness to compromise
2 2 Accurate and timely schedules and reviews by project
staff or third parties
3 3 Contractor transparency of cost data in support of
claimed damages
2020 Rank 2019 Rank Most effective claims avoidance techniques
1 1 Risk management
2 2 Contract and specification reviews
3 3 Third-party schedule reviews
Two-way tie * Constructability reviews
* New ranking in 2020
10 11
North America
Over the past year, the value of disputes in Construction over the past year in North value jumping nearly $20 million in a year.
Over the past
North America more than doubled from
$18.8 million to $37.9 million. The average
America declined, however we are
beginning to see a rise in construction
Consistent with findings over the last year, the value of
two years, the market in North America
time taken to resolve construction volume. According to the Associated that saw the most disputes for 2020 was disputes in North
disputes for North America decreased Builders and Contractors Backlog the buildings sector. This sector includes
from 17.6 months in 2019 to 14.2 months Indicator, the backlog of construction education, healthcare, retail/commercial America rose from
in 2020. The duration to resolve disputes
has remained between 14 and 18 months
projects started at 8.2 months in
February, dropped to 7.2 in November,
and government.
$18.8 million to
$37.9
over the last five years. In fact, although and rose back up to 8.2 months in
our survey respondents expected the February of 2021.
volume of construction disputes to
increase in 2020, they stayed the same. At As in 2019, many of our survey
the time of this publication, the full extent respondents for North America continue million
of COVID-19’s impact on the construction to work on larger disputes than ever
industry is still uncertain. before, as evidenced by the average
2020 Rank 2019 Rank Most common dispute causes Tied as the second cause for disputes in
North America for 2020 were errors and/
1 1 Owner/contractor/subcontractor failing to understand or omissions in the contract documents
and/or comply with its contractual obligations and owner-directed changes. This is
2 3 Owner-directed changes consistent with the 2019 report, which
Two-way tie 2 Errors and/or omissions in the contract document has these causes ranked second and third.
Prior to 2019, these two causes did not
3 * Third-party or force majeure events show up in the top three. With an increase
Average dispute value Average dispute length in mega-projects of greater complexity
* New ranking in 2020
and multiple stakeholders involved, there
is more potential for design coordination
40 $37.9 20 issues as well as errors and omissions
$34.3 17.7 17.6 Dispute causes identified as a force majeure event. These
to occur. In addition, with alternative
35 16.2 15.6 owners viewed the pandemic as force
$29.6 15.2 project delivery methods, designs are
15 14.2 The most common cause for disputes majeure, meaning that in most cases a
30 13.7 13.5 not fully developed prior to the start
$25 in North America remained the same contractor would be entitled to a non-
of construction. Therefore, if a project
US$ millions
25
$21 as 2019, with owner/contractor/ compensable time extension. On the
experiences a design change, there is a
Months
$19 $18.8 10 other hand, many contractors viewed it as
20 subcontractor failing to understand greater potential for the design change
$16.3 an owner-directed change where, in the
and/or comply with its contractual to negatively affect the work which has
15 face of a force majeure event, the owner
obligations topping the list. In some already begun.
10 5 way, whether through a dispute or not, directed continued performance.. For an
every project was affected. In preparation owner-directed change, the contractor
5 New to the list this year, and as a result
for this report, we interviewed industry would be entitled to a time extension
of the significant events over the past
0 0
leaders and found that many contracts as well as its damages. In many cases,
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 year, third-party or force majeure events
did not address the impacts of a global contractors have given notice to the
is listed as the third cause. This cause
NA - Dispute value NA - Dispute length pandemic. Owners took a look back owner to reserve their rights as these
is closely related to owner/contractor/
at their contracts and recognized the differences of opinion have not been
subcontractor failing to understand
potential for potential ambiguity.. For fully resolved.
and/or comply with its contractual
some contracts, a pandemic was not obligations.
12 13
Most common methods of alternative
Guest Commentary
2020 Rank 2019 Rank dispute resolution
1 2 Party-to-party negotiation
2
3
1
*
Mediation
Arbitration
North America
* New ranking in 2020 Neal J. Sweeney
Partner, Jones Walker LLP
Resolution techniques Over the past year, COVID-19 forced
the rapid advancement of technology
For North America in 2020, the results and required project participants to
show that the greatest effort was spent adapt quickly to a new way of doing
on avoidance and the most common business. Prior to the pandemic, building
form of early resolution was settlement information modeling and other
prior to proceedings. The majority sophisticated modeling techniques
of survey respondents said the most had changed the design process. More
recently, technology in the field has The Report shows that disputes are personnel’s real-time efforts with solid
effective claims avoidance technique is
risk management, followed closely by changed as well with the utilization getting bigger, but time to resolution is
shorter. The dollar values may reflect
project management and detailed
administration makes it easier to reach
Project personnel
of drones and virtual site visits. These
contract and specification reviews and
properly following the requirements advancements allow project participants the consolidation of scopes of work reasonable resolutions sooner and must recognize the
into “mega projects,” or may suggest prepares parties when formal resolution
of the contract as it relates to contract
administration and dispute resolution.
to access the construction information
accurately and in an efficient manner greater success in resolving disputes or trial is unavoidable. Project personnel importance of their
on a project level so that only larger, must recognize the importance of their
The results demonstrate the importance to assist in the equitable resolution
of disputes. intractable disputes go to the lengthier efforts early along the “Roadmap”; they efforts early along
of owners providing well-thought-out
contracts that address dispute resolution.
formal dispute process. Perhaps the
shorter duration reflects that parties are
cannot kick disputes down the road
into post-construction for lawyers and
the “Roadmap”;
Major industry players understand that
It is equally important that the project
participants fulfill their obligations under issues on construction projects are better at preparing for disputes during the consultants to resolve. Such an approach they cannot kick
project, leading to more efficient formal courts disaster on the project and later in
the contract. Following this process unavoidable and it is essential that their
teams are prepared. To effectively prepare dispute resolution. litigation or arbitration. disputes down the
provides a roadmap that results in the
early resolution of disputes. their teams in the future, organizations
North America’s construction industry Formal contract notice and road into post-
should emphasize and require their
Solutions looking forward
employees to be trained on topics such as is getting more deliberate about
contract terms, project administration
documentation requirements must
involve more than just “checking the box.”
construction.
schedule management, documentation,
tracking of costs and knowing your policies and project-level dispute Parties should use these procedures to
As part of our survey, we asked contract, to name a few. Effective training resolution procedures. These procedures carefully document the facts surrounding
respondents to explain their top response is not limited to technical topics but cause parties to responsibly identify, the issue without emotion, inflammatory mitigate the scope of the dispute and
to the common cause of contract also addresses soft skills such as verbal confront and deal with disputes sooner. accusations or personal attacks. Such streamline resolution.
disputes. The common theme was and written communication, leadership The unprecedented challenges of documentation are great exhibits at trial,
timeliness. Respondents discussed the and empathy. COVID-19 appear to have enhanced but they also enhance the prospects of Disputes are part of the business.
importance of timely documentation real-time efforts by project personnel early resolution. Following the roadmap for effectively
of field changes, project delays and Regardless of the issues facing a to anticipate, mitigate and quickly dealing with disputes will reduce their
potential claim issues. They also discussed construction project, the relationships resolve disputes through greater In-person or virtual meeting requirements scope and intensity. When early resolution
the importance of having thorough between project participants and coordination, documentation and can enhance preparedness and introduce is not possible, the roadmap prepares
design documents that are completed willingness to compromise continue to be information exchange. objective perspectives. Including dispute parties for efficient formal dispute
expeditiously. Finally, the importance of key factors in whether a dispute advances review boards or neutrals can motivate resolution at reduced costs, and increases
following contract notice requirements to litigation. Collaboration will always My experience over five decades of parties to assess and articulate their success at trial.
and the dispute resolution administrative be an essential key to the success of any handling major construction disputes positions. Even if the neutral’s efforts
process in the contract was reiterated as construction project. confirms that combining project fail, parties gain insights that may
being vital for project success.
14 15
United Kingdom
In 2020 the United Kingdom saw the While the value of disputes rose during
75%
average dispute value increase to $38.6 2020, the UK continues to be the global
million (approx. £27.7 million), an increase leader in resolving disputes in a timely
of 117% from 2019. This is the highest manner. The average length of time to of survey respondants
average dispute value ever recorded for
the UK region from our survey. The global
resolve disputes remained constant with
the previous year at less than 10 months.
encountered disputes
trend, according to our survey data, that or claims specific
“mega disputes” are increasing within all
regions may go some way to explaining to COVID-19.
the increase seen during 2020.
2020 Rank 2019 Rank Most common dispute causes It is interesting that third-party or force
majeure events did not feature more
1 2 Owner/contractor/subcontractor failing to understand highly in the most common causes of
and/or comply with its contractual obligations disputes for 2020. It appears claimants
2 * Errors and/or omissions in the contract document have been hesitant to rely upon force
3 1 Failure to make interim awards on extensions of time majeure provisions due to the legal
Average dispute value Average dispute length and compensation uncertainty surrounding the effects of the
COVID-19 pandemic.
* New ranking in 2020
40 $38.6 15
This in itself causes difficulties. Multiple
35
$34 $34
12
12.8 Dispute causes and the supply chain alike in how to
respondents cited uncertainty around
12 complete performance obligations while
10.7 which party is liable for the time and cost
30 $27.9 $27 10 10 During 2020, owner/contractor/ ensuring compliance.
$25 9.8 9.8 risk arising from COVID-19 events as a
25 9 subcontractor failing to understand contributor to disputes. This aligns with
US$ millions
7.9 The overall impact typically led to
Months
and/or comply with its contractual the number one cause of disputes in the
20 $17.8 $17.8 obligations became the top ranked increased programs of work and
UK and supports the views expressed in
6 cause of disputes. This replaced last associated costs. This is supported in the
15 previous reports that contract obligations
year’s number one cause, failure to make responses from our survey participants,
ostensibly drafted in plain English may not
10 interim awards on extensions of time 75% of whom stated they had
3 be as easily understood by practitioners
and compensation, which dropped to encountered disputes or claims specific
5 as the lawyers drafting them.
third in the same period. to COVID-19 impacts, with the largest
0 proportion of these being for delay and
0
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020
There is potential that the uncertainty in
The change in the UK’s top dispute cause disruption.
the party liable for time and cost arising
UK - Dispute value UK - Dispute length
for 2020 appears to be attributed to from COVID-19 impacts will lead to
the impact of the COVID-19 pandemic. In addition to physically constraining
further disputes as parties seek to settle
While the UK government allowed projects, COVID-19 stifled the
accounts. Our survey participants, 60% of
construction projects to continue during global economy, with many industry
whom anticipate the number of disputes
the various lockdown periods, many stakeholders reporting a reduction in
within the UK increasing in 2021, appear
live sites either shut down completely construction outputs. The effect of this
to support this view. We envisage that
or were significantly impacted by is felt most keenly within the buildings
this year’s number one cause of dispute
imposed COVID-19 secure rules and sector, which more than half of our
in the UK may feature highly in the
measures. This presented significant respondents noted as the sector most
results for 2021.
challenges to employers, contractors affected by disputes.
16 17
2020 Rank 2019 Rank
Most common methods of alternative
dispute resolution
Solutions looking forward
While some commentators predict the UK
Guest Commentary
1
2
1
2
Adjudication (contract or ad hoc)
Party-to-party negotiation
construction market will not return to pre- United Kingdom
COVID-19 output levels until 2022, early
3 3 Arbitration 2021 UK government gross domestic
product figures suggest construction Alexandra Clough
is leading the region’s post-pandemic Partner, Bryan Cave Leighton Paisner LLP
economic recovery. UK mega projects,
including HS2 and Thames Tideaway
Resolution techniques jointly launched Chartered Institute of
Tunnel, continue at a pace and are a
Arbitrators’ Business Arbitration Scheme
and the Joint Contracts Tribunal Dispute welcome contribution to the recovery.
UK respondents reported a positive
trend towards dispute mitigation in 2020. Adjudication Board (DAB) Rules. The
purpose of a DAB is to assist the parties During the early part of 2021 it was
Over 65% stated that the most common
in the avoidance of disputes while reported by the Office of National
form of early resolution resulted from
the project is ongoing. This process Statistics that new work orders and the
settlements reached prior to proceedings.
has popularity outside of the UK, in refurbishment and maintenance sector
To improve occurrences of mitigation/ It is hard to remember that, at the start factor in early resolution of disputes
particular some FIDIC forms. While these have contributed to the UK construction
early resolution of disputes, the survey
results recorded equal efforts would procedures are not new to the UK market, market’s growth, which the Financial
Times reported was the fastest pace of
of 2020, we had very little idea about
how the year would unfold. Those of us
was accurate and timely schedules and
reviews by project staff. This underlines
Good project
we wait to see whether there will be an
be well spent in accurate and timely
schedule reviews by project staff and increase in uptake. expansion in the industry in more than involved in the construction industry were how good project management can be management can
six years. worried about Brexit, lack of productivity, pivotal in either avoiding disputes in the
third parties and owner/contractor
willingness to compromise. A dominant feature of dispute resolution skills shortages, building safety and first place or nipping them in the bud. This be pivotal in either
was the case before COVID-19, and it is
in 2020, regardless of the forum adopted,
was the requirement to adapt to
The positive signs provide an opportunity
for project supply chains and stakeholders
infrastructure spend. By March 2020,
those issues had become background disappointing but perhaps not surprising avoiding disputes
In instances where early resolution could
not be achieved, adjudication (either limitations on international travel and to collaborate and avoid impacts of
potential dispute causes. We are aware
noise to the coronavirus pandemic. Like all
sectors, the UK construction industry was
that these underlying issues are still
resulting in the majority of disputes. It is
in the first place
social distancing regulations. This required
contract or ad hoc) remained the most
favored dispute resolution method in a shift away from the predominance of in- that some organizations may be waiting hit by considerable uncertainty. There was good to see, however, that the majority or nipping them
for the waters to be tested through the a debacle over whether construction sites of disputes get resolved before formal
2020. This continues our previously person hearings, forcing dispute resolvers
to identify new methods of testing the UK legal system on COVID-19-caused could remain open, followed by a period in proceedings. in the bud.
reported trend of early resolution which the only constant was change, with
evidence which is put to them. project delays and cost increases. We
techniques, i.e. mediation, conciliation, altered government guidance issued on a Looking forward, I expect that we will see
strongly discourage this approach and
etc. not being preferred at formal dispute near daily basis. ongoing claims in relation to external wall
The result of this has been a shift toward hope it does not lead to an opening of the On a positive note, the UK Government
stages. Parties appear to have continued systems following the Grenfell tragedy in
virtual hearings (where participants floodgates in litigious actions. appears committed to infrastructure
to look to adjudication to potentially Against this backdrop, it is not surprising 2017 and a resurgence of Brexit related
achieve faster and/or cheaper decisions attend remotely via video link) or the use spending as a way to boost the
of hybrid hearings with limited in-person The UK already leads the way in resolution that the average value of disputes in the issues, particularly in relation to supply COVID-19 recovery. Hopefully, the
than those which might otherwise UK increased significantly in 2020, and chains. COVID-19 claims that did not
attendance. A key difficulty arising from periods for construction disputes. For government’s Construction Playbook,
be provided through the courts or that nearly three quarters of respondents settle early are likely to have festered and
the necessity of virtual hearings is the this to continue we strongly advise the and what has been described as Project
arbitration. had encountered disputes or claims become entangled with other problems
inability of dispute resolvers to gauge the use of party-to-party negotiations and Speed will result in better delivery and
behaviors of those they are scrutinizing dispute avoidance techniques for the early specific to COVID-19. on the project, making them larger and fewer disputes.
The opportunity for the UK construction more complex claims, and therefore
within a live environment. resolution of potential dispute matters.
industry is to find a different dispute The most common cause of disputes harder to resolve. In the longer term,
Our expectation is the UK industry
avoidance method which is as successful in the UK was the parties failing to technology will inevitably impact on
That said, the industry has responded continues the positive progress it has
in the uptake as adjudication, but avoids understand or comply with their how projects are delivered and disputes
well to this challenge. It will be interesting made in the COVID-19 pandemic recovery
the time and costs associated with the contractual obligations. More than half are managed.
to see whether virtual hearings remain and uses this opportunity as a catalyst to
“mini-trial” adjudication process. of respondents thought that the project
and if/how the technology used in these embed further collaborative attitudes and
processes develops over the coming years. techniques in the approach to delivering manager or engineer was at the heart
One solution is to adopt dispute of a dispute crystallizing and nearly a
successful project outcomes.
avoidance protocols within contracts. An third thought that the most important
example introduced during 2021 is the
18 19Continental Europe
2020 Rank 2019 Rank Most common dispute causes “Next Generation EU” package,
worth €750 billion, which was set up
1 3 Owner’s failure to properly administer the contract to support, among other sectors, the
two-way tie * Owner-directed changes construction market.
2 * Errors and/or omissions in the contract document
Let’s hope that the 2020 trend to settle
3 * Differing site conditions disputes swiftly will be confirmed in 2021,
* New ranking in 2020 as it will be a key factor in helping the
construction industry to recover from the
pandemic, as the massive investments in
Continental Europe’s average value of The conjunction of these events has European public authorities have Most common methods of alternative environmental, energy and public sectors
disputes rose significantly in 2020 to $54.5 slowed the activity in an unprecedented maintained the activity of most 2020 Rank 2019 Rank dispute resolution are necessary but not sufficient.
million, likely due to COVID-19’s additional manner. It has generated widely spread- construction sites throughout the 1 3 Party-to-party negotiation
impact on disputes. The average duration over costs that companies have strived pandemic outbreak and set the frame
2 * Dispute adjudication board/dispute review board The notable rise in disputes’ average
to resolve disputes was 14 months, to compensate for through amicable for dispute prevention and resolution.
value (from $24.5 million in 2019 to $54.4
continuing a declining trend since 2018. settlement with their clients, since it is This has contributed to a quick recovery 3 * Mediation million in 2020) is quite concerning and
the most efficient and rapid manner to of the construction sector and a Two-way tie * Adjudication (contract or ad hoc) must be carefully monitored in 2021. It
After a fairly good year in 2019 that saw recover the cash flow. It is therefore not limited number of disputes, confirming
* New ranking in 2020 is likely that the increase is due to the
a slight increase in construction activity a surprise that this method of dispute that the willingness of the parties to
additional COVID-19 financial impacts
in Continental Europe, 2020 was marked resolution is again ranked as the most compromise and negotiate remains the
in 2020 and hopefully will decrease to a
by several events that have impacted common this year, together with dispute most appropriate way to resolve, if not
more normal level in the coming years.
construction companies and are likely to review boards and adjudication. avoid, disputes.
continue through 2021: Brexit, COVID-19, Dispute causes Resolution techniques
Construction projects can be particularly
low oil prices and an increase in the price
The leading causes of disputes observed Amid COVID-19, many companies have complex and subject to many unexpected
of raw materials.
in 2020 for Continental Europe were mobilized contract “SWAT teams” to events. In this context of economic
owner’s failure to properly administer manage consequences with a common crisis and long-lasting uncertainty
the contract, owner-directed changes, goal of fast settlement and limited impact regarding COVID-19 effects, construction
errors and/or omissions in he contract on construction projects. Settlements, professionals in Continental Europe
document, and differing site conditions. not surprisingly, are reached mainly should rely on best practices and
Average dispute value Average dispute length through negotiations, consecrating fundamentals of dispute avoidance
Many projects faced usual changes party-to-party negotiation as the main and resolution.
and events together with direct and dispute resolution method. As numerous
indirect COVID-19 impacts, which have COVID-19 claims were (and sometimes Parties should not forget the importance
60 20 complexified assessment and, in some are still) unsettled using negotiations, it is of having a clear and realistic
$54.4 20
18.5 schedule as well as project controls to
18 18.1 cases, slowed down the settlement not surprising that third-party assistance
50 process. When construction projects in settling quickly rising disputes, such contemporaneously and fairly manage
15.6 the consequences of changes and events.
$41 15 14.1 14 make changes, the changes must be as a dispute board, mediation or
40 $38.3 carefully managed to avoid becoming adjudication, are ranked right after.
US$ millions
grounds for disputes. This includes Proper contract administration of
$29.5
Months
30 $27.5 proper contract administration and The need for cash flow preservation standard forms of contracts will enable
$25 $24.5 10
management, especially when changes in the uncertain context clearly made timely notification, early warnings and
20
$19 6.5 occur during major events like the swift resolution a top priority. The claims substantiation, allowing the
COVID-19 impacts experienced in 2020. fast agreements observed in 2020, parties to reach contemporaneous
5
especially regarding COVID-19 impacts, interim agreement and preventing the
10
It is worrying that owner’s failure to are consistent with the decrease of the crystallization of disputes.
0 0 properly administer the contract dispute resolution average duration to 14
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 is especially pointed out. It could be months (versus 15.6 months in 2019). Whenever practicable, parties should
explained by Continental Europe’s lack consider the help of a DAB or other
Europe - Dispute value independent and impartial third
Europe - Dispute length of experience in preventing and resolving Solutions looking forward parties to help solve their disputes in
disputes using a contract’s mechanism,
such as those found in standard forms a timely manner rather than engaging
The uncertainty still surrounding in everlasting negotiations with
of contract (e.g. FIDIC, NEC), rather than COVID-19 will probably affect the
trying to reach an agreement. counterproductive effects on the proper
construction industry in 2021, despite achievement of project objectives.
the European Union’s ambitious
20 21Guest Commentary
Continental Europe
Bruno Hardy
Senior Associate,
Liedekerke Wolters Waelbroeck Kirkpatrick
Spotlight on construction disputes: The year 2020 has without surprise been related to changing circumstances (or
marked by the COVID-19 pandemic, with
almost 90% of the respondents having
hardship) will continue to draw the
attention of contract drafters.
The COVID-19
Czech Republic
encountered disputes or claims specific pandemic may have
to COVID-19. The survey’s findings that party-to-party
negotiations remains the first method for given a foretaste of
Before the pandemic, the industry had dispute resolution reflect consistency with
already started preparing for the impact past trends, but also the predominant problems with the
of increasingly unpredictable (natural)
events such as unexpected disruptions
trend in addressing the impacts of the
COVID-19 pandemic over the year 2020.
supply chain and
Our Contract Solutions team in the Czech
Republic works primarily with major
average value of disputes was CZK 100-
500 million ($5 -$25 million, respectively).
construction projects in the Czech
Republic. We are aware that numerous
to the supply chain, unavailability of raw The changing work conditions imposed raw materials which
materials, and impact of extreme weather by the COVID-19 pandemic have called
construction companies working on
public sector projects, with infrastructure
The disputes lasted, on average, more
than two years due to the complexity
European countries are more engaged
and developed in this respect; however,
conditions. The COVID-19 pandemic for quick solutions in 2020. However, both are likely to become
the sharp increase in value of the claims
dominating the region. These projects are of projects and the length of the claims’ continued efforts from experts
may have given a foretaste of problems
that are likely to become more frequent over the period – from $24.5 million to more frequent in
financed by governmental and municipal preparation and processing, which in the working in the region could help
funds, thus creating the highest volume Czech Republic takes more than a year. improve and develop the positive trend
in the future. $54 million – and the long-lasting effects
of the sanitary crisis will put a strain
the future.
of investments and the largest number of across the region.
Classic contractual provisions regarding on the parties’ abilities and willingness
complex contracts. The most common methods of resolving
the risk allocation of “normal” events may to negotiate. As the consequences of
disputes were party-to-party negotiation, An increasing number of clients and
no longer be adapted to the uncertainty the COVID-19 on the projects’ finances
In general, compared to 2019, the expert determination, and, in several contractors, especially our long-term
the sector will face, and what is “normal” accumulate, some contractors may decide
Czech Republic team resolved the same cases, a trial. The most common form of business partners, are aware of the
and “expected” may increasingly give to turn to third-party adjudication to
number of disputes in 2020, and expect an early settlement of disputes resolved importance and benefits of the claim
rise to disputes. When unpredictable resolve their COVID-19-related disputes.
the number of disputes in 2021 to was settlement prior to proceedings or manager’s involvement from the very
events are not adequately addressed
remain unchanged. The most common settlement following proceedings to trial. beginning of the project. However, the
in the contract, parties tend to resort As the world slowly comes out of the
causes of the disputes were differing site number of retrospective construction
to alternative provisions to find a basis pandemic, significant pressure will apply
conditions, influenced by the condition of Looking forward disputes projects still prevails. Promotion
for the resolution of their disputes. It throughout the supply chain. Stimulus
the underground and other unforeseen and provision of the ongoing claim
is therefore not surprising to see that, packages from the European Union may
factors, and owner-directed changes In general, the clients’ and contractors’ management, i.e. involving construction
in addition to “third-party or force provide some relief to the industry, but
caused by the length of the project and awareness and involvement in claims experts from the beginning of a
majeure events,” the top two causes of concerns are already mounting that
possible changes in its course. Different construction claim services are project through its entire duration, will
disputes for the year 2020 are “owner- the increase in demand will put further
third-party requirements or force majeure continuously improving and playing a ensure parties achieve effective solutions
directed changes” and “owner’s failure to pressure on the sector, especially on those
issues also played an important role. The more important role within complex for complex construction disputes.
administer the contract.” In Continental exposed to the volatility of raw materials,
Europe, where standard-form contracts which could well lead to new types
are not often used, contractual provisions of disputes.
22 23Middle East
2020 Rank 2019 Rank Most common dispute causes
1 * Owner/contractor/subcontractor failing to understand
and/or comply with its contractual obligations
2 3 Failure to make interim awards on extensions of time
and compensation
3 2 Owner’s failure to properly administer the contract
* New ranking in 2020
The average value of construction proportion of construction in the Middle resolution, a key topic of our previous Dispute causes Resolution methods
disputes in the Middle East was $86 East, could have contributed to a higher report. Another trend from last year that
million in 2020, a 38% increase from average value. Another key attribute could also have played a role, was that Owner/contractor/subcontractor failing The most common dispute resolution
2019. The number of reported disputes was a greater interest in litigation and past respondents noted they were less to understand and/or comply with its method in 2020 was party-to-party
increased as well. A few key factors arbitration funding. It was noted in likely to take a wait-and-see approach to contractual obligations was the most negotiation. Historically, the culture of
likely attributed to the rise, starting recent years that low liquidity in the resolution, especially when they believe common cause of dispute in 2020, having negotiation is prominent throughout the
with COVID-19. market made clients reluctant to pursue they have a strong case, or because not ranked in the top three in 2019. region. Seeing it continually rank first
disputes, even when they had strong they would prefer to resolve disputes to Last year’s top cause, poorly drafted or demonstrates that parties understand
COVID-19 created significant impacts entitlement in their case. Now, clients are maintain cashflow. incomplete and unsubstantiated claims, it is not worth tying up resources in
including restricted movement of labor, availing themselves to new funding and fell to fifth. litigation and arbitration whenever
additional health and safety measures, pursuing disputes. Most 2020 disputes came from building possible. Arbitration and mediation held
supply chain delays and challenges across projects (including education, healthcare, Rounding out the top three dispute the second and third spots, respectively,
the region, and suspension of projects Despite the increase in the average value retail, commercial and real estate causes were failure to make interim also showing a preference for alternative
in areas such as the Kingdom of Saudi of the disputes, survey respondents developments), replacing infrastructure awards on extensions of time and resolution methods over litigation. It
Arabia (KSA) and Kuwait. Secondly, reported the average time taken for atop the list. The change could be compensation and owner’s failure is common to see bespoke and heavily
Arabtec’s insolvency affected many resolution decreased from 17 months in because many building projects, such as to properly administer the contract. amended standard forms of contracts
contracted subcontractors and suppliers. 2019 to 15.5 months in 2020. It could be those related to Expo 2020, reached their It is concerning that owner’s failure throughout the region, so it is no surprise
Thirdly, the progression of KSA’s giga that project participants are embracing final target dates in 2020. to properly administer the contract that respondents identified fair and
projects, representing a significant collaboration to enable successful dispute continues to rank high year after year, appropriate risk balances in the contract
and a deeper dive into why revealed that as having the single largest impact in
some respondents believe the owner/ avoiding disputes they were involved in.
engineer are not taking responsibility
for their contractual obligations. It is likely that the top resolution methods
Average dispute value Average dispute length Respondents stated that almost 55% of will hold their places in 2021. However,
the time, the project manager (PM) or we have seen more parties using expert
20
20 the engineer’s conduct was at the heart determination in contracts, which offers
100
$91 of how the dispute crystallized. In these flexibility to tailor the process and
$86 17
$82 cases, respondents advised that the leverage experts to address specific
80 $76.6 15.1 15.2 15.5
15 13.9 most common causes were either a lack issues, as well as DABs. We expect these
13.7 13.5
$62 of authority that is limited by levels of alternatives to build momentum over the
authority issued by the employer (e.g. next 12 to 24 months and factor in next
US$ millions
60 $56 $56.7
Months
10 not allowed to issue variation orders year’s survey results.
$40.9 over a certain value) or being too partial
40
to the employer’s interests.
5
20
Most common methods of alternative
0 0 2020 Rank 2019 Rank dispute resolution
2013 2014 2015 2016 2017 2018 2019 2020 2013 2014 2015 2016 2017 2018 2019 2020 1 1 Party-to-party negotiation
ME - Dispute value ME - Dispute length 2 2 Arbitration
3 3 Mediation (contract or ad hoc)
24 25Risks across the
supply chain need Guest Commentary
to be monitored Middle East
and managed by
Euan Lloyd
all stakeholders,
Head of Construction & Infrastructure
and collaboration Al Tamimi & Company
between key
participants will
factor in early
resolution efforts.
Solutions looking forward in mindset from traditional aspects of The importance of adhering to the Our experience of construction disputes While the relationship between
contracting, may well improve cashflow
throughout all levels of the supply chain.
contract terms and the particular
provisions related to claims and variations
across the Middle East region in 2020
reflects the findings of Arcadis, including
stakeholders in the industry can be to
some degree adversarial, there has
COVID-19-related
Uncertainty surrounding COVID-19
will likely affect projects through 2021. cannot be overstated. Early warnings in terms of the value of construction been an uptick in disputes being settled claims have
Reverting to a standard template like and timely notifications, followed by related disputes. without resorting to formal dispute
Risks across the supply chain need
to be monitored and managed by all those from FIDIC or the New Engineering timely interim and final submissions of resolution. In our view, this pronounced seldom crystallized
trend towards commercial settlement
stakeholders, and collaboration between
key participants will factor in early
Contract (NEC) may make it easier for all
parties to understand and comply with
complete, substantiated claims, will be
essential to mapping early resolutions.
Throughout 2020, disputes typically
continued to emanate from perennial is motivated by the time and cost (in into prolonged
resolution efforts and reducing disputes contractual obligations and help deal
with the region’s top dispute cause. When
Additionally, engineers must remain
impartial and fulfill their roles as quasi-
issues such as unbalanced risk allocation
(which has forced contractors to claim
respect of which liquidity remains tight)
involved in litigating or arbitrating,
disputes — instead,
that stem from the continued uncertainty.
On a positive note, the recent removal using these standard forms, participants arbitrators to enable fair and reasonable in an effort to mitigate losses) and poor, together with the recognition that the employers have
must ensure that any subsequent outcomes, not to mention assistance with arguably biased, contract administration. outcome of litigation or arbitration can
of the blockade on Qatar paves the way
for dormant supply chains to reawaken, amendments do not inadvertently avoiding issues that can cause disputes. The denial of legitimate entitlements never been guaranteed. usually been
possibly reducing project costs and
creating healthy competition within the
create an imbalance of the shared risks.
Otherwise, the common understanding of
Where entitlement exists, collaboratively
identifying the gaps in the contractor’s
(together with the resultant hardship that
this brings) inevitably constitutes fertile In this regard, we have seen a clear receptive to
market. It could also reduce the number obligations may be jeopardized. claim, rather than outright rejection on
the basis of a minor unsubstantiated
ground for disputes. increase in top management (including
from global headquarters) playing
legitimate COVID-
of disputes arising from supply chain
restrictions. Stockpiling claims for the end of the element, may help to avoid escalation Although COVID-19 has clearly impacted an active and pragmatic role in the 19-related claims.
process should be avoided. Implementing into a dispute. the construction industry (particularly resolution of disputes. Additionally, expert
Fallout from the Arabtec insolvency a roadmap for early resolution of issues from a supply chain perspective), we determination, mediation as well as
could determine how the industry moves as they occur can prevent prolonged Early identification of issues via the have found that COVID-19-related claims “quasi” adjudications are on the rise. We
forward in the United Arab Emirates disputes. For the region to move away contractual mechanisms should not be have seldom crystallized into prolonged predict that this approach will continue. and its consequences can be effectively
(UAE). There are already signs of a move from the top dispute causes, project viewed as a means to damage commercial disputes — instead, employers have managed, and we are now seeing clear
away from traditional methods. Banks participants need appropriately relationships or hinder project delivery. On usually been receptive to legitimate While 2020 was unquestionably an green shoots of recovery in the industry
are more reluctant to issue unconditional experienced staff to administer their the contrary, such an approach supports COVID-19-related claims and have often extremely challenging year, a high across the Middle East region, with
bonds, and contractors are unwilling contracts and protect their interests. They early resolution and helps to prevent the reached settlements (sometimes on an degree of the pervasive sense of stakeholders increasingly looking forward
to accept poor payment structures or must be able to understand necessary escalation of matters into formal – and expedient and commercial basis) while pessimism related to uncertainty as to new opportunities.
late payments. Diverting from heavily obligations and how to implement them often expensive – disputes. the justified denial of opportunistic COVID-19 was very much unchartered
amended forms of contract to reduce in accordance with contract conditions. COVID-19-related claims have usually territory. However, it is becoming
the imbalance of risk, as well as a change been accepted. increasingly apparent that COVID-19
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