Engineering & construction disputes
Battling the
Headwinds A regional analysis of claims and dispute causation
26th October 2022
Claims and disputes batter world’s major capital projects
Fifth Annual CRUX Insight Report reveals how global headwinds threaten further damaging overruns in costs and delivery of construction and engineering projects
Claims and disputes on 1,602 projects in 100 countries were investigated by expert consultants for the latest CRUX Insight report, published by HKA, the world’s leading risk mitigation and dispute resolution consultancy. The combined CAPEX of these projects amounted to more than US$2.13 trillion.
The analysis reveals that major capital projects are facing significant overruns in costs and delivery. Total claims analysed exceeded $80 billion in value, while the cumulative overruns total a staggering 840 years.
Fifth Annual CRUX Insight – Engineering & Construction
Battling the Headwinds
A REGIONAL ANALYSIS OF
CLAIMS AND DISPUTE CAUSATION
Fifth Annual CRUX Insight report key facts and figures
Headline statistics from this year’s report include:
- Over 1,600 projects across 100 countries valued at more than $2 trillion were analysed at first hand by expert consultants.
- 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).
- Projects faced even heavier losses in time. Claimed time extensions average 16.5 months – equivalent to 68.6% of the original planned project duration.
- Conflicts over contract interpretation, design failings and change in scope plague projects, with some notable variations in regions and industries.
- Projects in the Middle East are prone to the worst delays (83.1% of schedule duration), while contentious costs in Europe (at 38.3% of CAPEX) exceeded the global average.
1,602
projects analysed
$2.13tn
combined capital expenditure
6
global regions
100
different countries
$80.8bn
total value of claims
840 years
total extension of time claimed
Battling the headwinds
This year’s report, which distils the analysis of projects HKA have provided services on up to the end of July 2022, highlights the damaging influence of factors such as dysfunctional design processes, skills shortages and supply chain disruption on project performance:
- Design: A significant number of projects are dogged by design-centric failures – design information issued late (24.3%), incorrect design (23.8%) and/or incomplete design (23.2%).
- Workforce: 17.3% of projects were impacted by workmanship deficiencies, 15.3% by low levels of skill and/or experience, and 9.7% by a shortage of workers.
- Supplies: 10.5% of projects were disrupted by late delivery of materials and/or products.
As well as analysing the underlying causes, HKA proposes actions to pre-empt or mitigate these recurrent conflicts – and further insights to be gleaned via the CRUX Interactive Dashboard*.
“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.
Renny Borhan, Partner, Chief Executive Officer
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.”
Regional analysis and actions
Across all projects globally, the leading cause of claims and disputes was change in scope, followed by conflicting contract interpretations and delayed design information. Within the regional analysis of the dataset, notable variations emerge in both causes and effects:
- Restricted or late access to sites and/or workfaces was one of the top three triggers for claims and disputes in Africa, Asia and Oceania (ranking first, second and third, respectively).
- Nearly one in five projects (18.8%) worldwide are impacted by conflicts over unforeseen physical conditions on site. In the Americas, this is the second most common project pitfall.
- Deficient workmanship was a far more significant cause of contention in Europe and the Americas than in other regions – on 23.2% and 20.3% of projects, respectively.
- While various design-related failings rank highly in all regions, in Europe incorrect design is the prime culprit for distress on almost a third of projects (32.7%).
- Projects in the Middle East faced the worst delays (83.1% of schedule duration or 22.5 months, on average); even at their least severe, overruns averaged almost a year in the Americas (prolonging schedules by 58.2%, equivalent to 11.3 months).
- Contentious costs were lowest in Oceania, but still significant at over a quarter of CAPEX on average (26.2%).
About CRUX
CRUX is HKA’s integrated research programme. This draws on incomparable intelligence from investigations by experts providing claims consulting and dispute resolution services on major capital projects around the world. CRUX Insight is our annual publication analysing the root causes of claims and disputes. We are committed to sharing lessons with clients and more widely so our industry can effectively manage risks on complex projects.
*CRUX Interactive dashboard
The CRUX database is searchable via an interactive dashboard, which can be used to gauge risks in various sectors and regions, benchmark causes, and help to identify areas for improvement.
Industries unevenly impacted by claims and disputes
The CRUX dataset can also be analysed by sector, among various other parameters.
Buildings and Transportation Infrastructure projects faced claims for longer time extensions than other sectors, averaging 76.7% and 70.0% of planned duration, respectively. A serious concern for owners and the wider industry, the implications may be even more troubling for governments and state agencies promoting new infrastructure as a stimulus for economies emerging from the pandemic.
Delays tended to be least severe in the Industrial and Manufacturing markets, but sums in dispute were higher, proportionately. Claimed extensions of time would prolong schedules by 54.6% (11 months on average). Contentious costs, averaging 54.8% of CAPEX, were significantly higher than the all-sector average (35.1%).
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. All pose significant challenges for major capital projects even though many of the world’s construction markets remain buoyant and boast strong project pipelines.
Toby Hunt, Partner, CRUX Sponsor
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. 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.”
About HKA
HKA is a leading global consultancy in risk mitigation and dispute resolution, using our multi-disciplinary expertise to provide a comprehensive set of specialist services:
- Expert, Claims and Advisory services for the capital projects and infrastructure sector
- Forensic Accounting and Commercial Damages services for all types of contracts, including commercial and investment treaty disputes
- Consulting services to support companies working on US Federal Government contracts
HKA brings a proud record of excellent service and high achievement to bear on today’s challenges. As trusted independent consultants, experts and advisers, we help clients manage disputes, risk and uncertainty on complex contracts and challenging projects.
We work with government agencies, local authorities, contractors, legal firms, and other professional service providers, as well as owners and operators, financial institutions and insurers. Clients have access to leaders and problem-solvers who decode complexity through collaborative working and innovative thinking, making the best possible outcomes a reality for our clients, every time.
HKA has in excess of 1,000 consultants, experts and advisors in more than 40 offices across 18 countries – with the skills and experience that are essential to get to the heart of even the most complex issues. Our people have vast first-hand experience spanning all major industries and the world’s most complex megaprojects, as well as an international track record of achieving successful outcomes.
HKA’s global portfolio includes some of the world’s largest and most prestigious commissions across a wide range of industries including buildings, industrial and manufacturing, power and utilities, resources, transportation infrastructure, technology, financial services, government contracts and non-profit.
For more information about HKA, connect with us on LinkedIn, Twitter (@HKAGlobal) and Facebook.
