Construction contract FIDIC 2017 notice of claim

How to Ensure you Avoid Costly and Time-Consuming Disputes on your Projects

We all want to avoid disputes on our construction projects. But it seems we fail to learn from lessons of the past. ARCADIS have just published their annual Global Construction Disputes Report 2019. It makes interesting, but, not altogether surprising reading.

This year, the top three reasons for disputes are:

  1. Owner/Contractor/Subcontractor failing to understand and/or comply with its contractual obligations;
  2. Errors and/or omissions in the contract document;
  3. Failure to properly administer the contract.

Some other interesting noteworthy observations are:

  1. Human factors and misunderstanding of contractual obligations continue to be a primary cause of disputes.
  2. With more project participants, it is essential for those involved to understand the contract, their role in the project and how to work with the team.
  3. ARCADIS suggest that ‘at least three building blocks are needed for successful dispute avoidance and resolution: (1) contractual mechanisms whereby risks are identified early and parties are obliged to consider how to address them; (2) appropriate training of staff on the specifics of the contract and ongoing specialist technical support, including legal support, throughout the execution of the contract; (3) a readily available contractual dispute avoidance mechanism in the form of a Dispute Avoidance Panel or a DAAB as under the 2017 FIDIC suite of contracts’.
  4. The average value of disputes is $33M.
  5. The average length of dispute is 17 months.

Take a moment to think what this damming report is telling us.

If the average value of a dispute is $33M, then the average project value where disputes occur must be several times that figure, so probably $1B plus. Given these huge project values, why is it that the industry fails to invest in appropriate training for project teams? Those who manage and administer projects often do not understand the obligations, rights and remedies contained in the contracts upon which the projects are based.

Yes! People and not companies, because ultimately, it is people who manage and administer the projects and make the decisions.

You may think that employing well qualified and experienced people on your project is expensive.  But let’s take a moment to consider the cost of employing incompetent people on our projects.

At a recent FIDIC conference it was reported that the cost of arbitration is between $150,000 and $200,000 per day. This could total as much as 10-15% of the project value. Given that average arbitration proceedings could be around 10 days, we have a cost of $2M just to settle the dispute. I would suggest that suitably competent, qualified and experienced professionals could be employed on the project for a small fraction of that amount. According to ARCADIS, this would prevent disputes occurring in the first place.

Let’s look at another major reason for disputes and the No. 1 reason in the Middle East, namely Poorly drafted or incomplete and unsubstantiated claims’. If any of the global top three occur, it will result in a claim. So ARCADIS are saying here that when we have a claim situation, we don’t even know how to go about claiming for our entitlement in the correct way. I would suggest that the reasons for this are the same as for the global top three, i.e. the lack of suitably qualified and experienced people on the project. In other words, we are making a bad situation worse.

So what is the solution?

I usually refrain from advertising on these blogs. But ARCADIS’ suggestion that the players provide ‘appropriate training of staff on the specifics of the contract’ means that I am going to make an exception.

Claims Class provides training to companies to help them avoid each and every one of the main reasons for disputes. If you are an individual, we can help you gain knowledge. Let us give you the skills you need to become a construction professional that is a valuable asset to your employer. Understand and manage contracts and claims in an appropriate manner to avoid disputes.

Check out our courses or get in touch to find our exactly how we can help you.