The construction industry provides millions of people with jobs, contributes to infrastructure development, and is literally building the future. At the same time, it’s the industry with the greatest number of disputes, causing project delays and tremendous financial losses.
Year by year, the average value of contract disputes and length of resolutions varies. For example, according to the findings of Arcadis, a global design and consultancy firm, although the length and value of disputes decreased from 2019 to 2020, the overall number of construction disputes grew. This happened due to the rise in claims related to delays, disruptions, and escalated project costs caused by the pandemic. Although there are a million and one reasons for disputes, most of them are related to insufficient planning and contractual obligations. In this blog, we’re looking at the main reasons for disputes and how to avoid them.
Incomplete or Incorrect Design
Another annual report conducted by an international consultancy firm, CRUX, found that globally, the primary cause of claims and disputes is the change in scope as a project increases in scale and complexity. Another widely used term for this is ‘scope creep.’ This is true for Middle East, Africa, and the Asia Pacific regions, where numerous mega construction projects are now underway, but in Europe and North & South America, design deficiencies are the primary drivers of claims and disputes. A design deficiency is basically an inadequately designed, inaccurate, or incomplete plan. Deficiencies are a common pain point for owners, designers, and all project parties, which almost always result in substandard or extra work from the contractors, leading to lawsuits down the line.
Why do these deficiencies arise in the first place? Design problems are more likely to occur due to tight timelines imposed upon third parties engaged in design. The result is often late or incomplete design and clashes related to design implementation between parties. Expert advice on how to avoid these kind of disputes may sound curious in our fast-track era, but you should slow down a project planning phase to help identify and resolve issues early. You should always keep in mind that each project is unique in its risks, requirements, and the combination of financing, workforce, working conditions, etc.
Given the rising uncertainty associated with COVID-19, there will be advantages to planning projects in a more detailed way in the early stages of their lifecycle, ensuring that all parties are aware of their roles, responsibilities, and the risks they own. Including photo documentation at this stage to capture existing conditions and then weekly or bi-weekly progress or site monitoring will also result in fewer disputes and will allow faster issue resolution. When you are able to view current and past site conditions from an online platform the entire project team can greatly expedite the resolution of any changes.
Inadequate Contract Management
Another common cause for disputes in North America is the contractor or subcontractor failing to understand and comply with its contractual obligation. A clear understanding of the contract documents is a must for all parties involved in a project if you want to avoid costly delays that come hand-in-hand with disputes.
When it comes to high-complexity projects, where multiple parties are involved, delivering projects on time and on budget depends on well-organized management, collaboration, and communication between parties across the supply chain. Regular communication is critical to ensure that everyone understands their contractual duties.
But first things first, what considerations or common inclusions are typical within construction contracts? A detailed construction contract expressing the results of negotiation between several stakeholders in a given project can include up to ten documents, all of which lay out rules and responsibilities and define risks regarding different aspects of the project. For example, a Construction Contract Agreement, a Scope or Statement of Work (SOW), Construction Schedule, General Conditions, etc.
All these documents are supported by additional reports, records, bills, drawings, etc. A great tool to back up your contracts and agreements, update schedules, and keep all stakeholders on the same page is photo documentation as this turns situations from grey to black and white. Leveraging photo documentation will support the clear communication required to avoid issues and disputes before they arise. Check out this White Paper to see how 360 Photo works, or contact us now to learn more!