Main drivers of construction claims declining, finds HKA report

There has been a significant reduction in many of the underlying drivers of claims and disputes on construction projects since 2020, according to HKA’s eighth CRUX Insight Report.

The risk and dispute consultancy’s annual report examines the root causes of claims and disputes based on the cumulative data the firm gathers. This year’s edition draws on intelligence from over 2,200 projects in 114 countries worth a combined capital expenditure value of $2.433 trillion. A large proportion were megaprojects, with an average project capex of $1.25 billion.

The overall total of costs claimed stood at $95 billion, with sums in dispute averaging 33.4% of contract budgets, while time extensions sought by contractors were an average of 65.8% of planned schedules.

HKA says the common underlying causes of claims and disputes have generally declined in impact in the last five years. 

In the pre-2020 period, each of the three causes of design lateness, incompleteness, or inaccuracy impacted 20-23% of projects. Post-2020, lateness and incompleteness dropped down the ranking leaving only incorrect design as a top-three cause, at 15% of projects.

Change in scope remained the most common cause of conflict, affecting 28% of projects (but down from 36%).

Meanwhile, the proportion of projects disrupted by failures in contract management and administration was nearly halved to less than 9%.

Two factors bucked the generally positive global trends. The first is Covid-19, with the pandemic impacting 24% of projects due to complete after January 2020. Covid-19 was the second-ranked factor after scope change, and was more impactful on megaprojects, where it affected nearly 32%.

The second resilient factor was cashflow and payments disputes, which continued to affect over 14% of projects globally, and were more prominent factors in Africa and the Middle East. The fourth-ranked cause of disputes post-2020, payments could be an even larger factor as global economic conditions deteriorate.

Megaprojects were also much more susceptible to cashflow and payments disputes, at more than 25%.

“It is very encouraging to report our evidence that many types of disputes are afflicting a smaller proportion of projects in recent years – and the impact on outcomes, especially programs, may be easing,” said Renny Borhan, partner and CEO of HKA. “We cautiously welcome this progress, but as CRUX Insight makes clear, it is not universal. Some regions, sectors, and causal factors buck this apparently positive trend, and our analysis shows how many dispute drivers are magnified on megaprojects.”