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Claims and disputes: Counting the cost of global headwinds on the world’s major capital projects

Global headwinds threaten further damaging overruns in cost and delivery of construction projects globally. What can be done to build resilience and avoid costly conflicts?

Kay Pitman, WBEF Manager
24 November 2022

Analysis of nearly 1,602 construction and engineering projects across 100 countries with a combined CapEx of more than US$2.13 trillion reveals how global headwinds threaten further damaging overruns in costs and delivery of major construction projects.

The fifth annual CRUX Insight report, developed through HKA’s integrated research programme, highlights the impact that skills shortages and supply constraints connected to the war in Ukraine are continuing to have on project performance. The pandemic also continues to negatively impact upon capital projects: delays in granting approvals, accessing sites, issuing design information, and delivery of materials have all moved up the CRUX Insight ranking over the last 12 months. Across all projects globally, change in scope was the leading cause of claims and disputes, followed by conflicting contract interpretations and delayed design information. While the scale of these impacts cannot be underestimated, expert analysis of these claims and disputes outlines the actions that can pre-empt or mitigate these recurrent conflicts. 

Renny Borhan, CEO of HKA, says: “This new CRUX Insight report reveals the impacts in additional costs and time claimed for the completion of major capital projects, as well as the underlying causes. Based on first-hand investigations by our expert consultants around the world, it quantifies the huge toll on the global economy, our industry and project stakeholders.”

Toby Hunt, Partner, CRUX Sponsor, comments: “In 2022 we are still seeing a long COVID legacy of uncertainty, and that economic and logistical overhang has been compounded by the war in Ukraine, resurgent inflation, further supply shocks, and a slowdown in the global economic recovery.”

The report reveals the astonishing scale of impact that claims and disputes are having on costs and project delivery at global and regional levels. Dysfunctional design processes, skills shortages and supply chain disruption are all exercising a high cost on project performance. Total claims analysed exceeded $80 billion in value, while the cumulative overruns total a staggering 840 years.

Building our understanding of factors that can lead to disputes will help minimise unnecessary cost and delay to infrastructure and capital projects.

Many of the causes underlying claims and disputes around the world are common, but there are also specific challenges and cultural differences impacting upon the causes of claims and disputes in different regions, which the report highlights in detail. On average, costs claimed in disputes amounted to $98.7 million per project and more than a third of their capital expenditure (35.1% of CAPEX). Out of all the world regions, costs in contention are the highest in Europe (amounting to 38.3% of CAPEX). Claimed time extensions average 16.5 months – equivalent to 68.6% of the original planned project duration, with project in the Middle East prone to the worst delays (83.1% of schedule duration).

Despite these global headwinds, many regions boast buoyant markets and strong project pipelines which, if combined with great collaboration and more equitable arrangements for sharing risk, could lay the groundwork for more effective project delivery.

“Our unique analysis of the multiple reasons for distress on capital projects can help project promoters and the construction and engineering industry better understand where problems on projects can arise, and ultimately help them achieve better project outcomes.” says Renny Borham.

“Amid acute skills shortages and these uncertainties, there are actions project teams can take to tackle the root causes of the most common claims and disputes”, explains Toby Hunt. “CRUX Insight shares world-class intelligence to help promoters, contractors and the wider industry navigate the complexities of major projects and avoid the unnecessary consequences in lost time and money.”

The CRUX Insight report provides an authoritative analysis of the various causes of distress on capital projects, based upon a comprehensive global dataset on the causes, extent and cost of claims and disputes in construction and engineering. For industry leaders wishing to improve the planning and delivery of capital projects and infrastructure, this report and its associated dashboard are essential resources.

“Building our understanding of factors that can lead to disputes will help minimise unnecessary cost and delay to infrastructure and capital projects.” Comments Ann Gray, RICS President-Elect. “I welcome the CRUX Insight Report’s contribution to this important area of work, and I look forward to seeing its findings applied to help deliver the liveable and resilient built assets that communities need for the future.”