In its Global Construction Disputes Report dated August 2018 ARCADIS ask the question
“…does the construction industry learn from its mistakes…?” A good question, but is there a good answer?
ARCADIS found that in 2017 across the construction spectrum globally;
- The average amount of money in dispute per project was USD 43.4m
- Resolution of disputes is taking on average almost 15 months.
These circumstances are driving up significantly the cost of projects. ARCADIS also advise that the top three causes of dispute in 2017 were;
- Failure to properly administer the contract
- Poorly drafted or incomplete / unsubstantiated claims
- Employer / contractor / subcontractor failing to understand and / or comply with its contractual obligations.
These three reported top causes of dispute are closely linked. The contract cannot be administered properly or claims drafted if contractual obligations are not well understood or complied with. But what can we really learn from the ARCADIS Report? Are these the root causes of dispute? Or are there more fundamental underlying issues?
While improving learning in these areas may help, I believe that the real problem is one of mind-set and behaviour amongst contracting parties. There is a need to face up to the reality, implications and requirements of the typical commitments being made, such as;
- Project delivery to high quality and standards
- Very short time schedules
- Highly competitive prices
- Tight margins
- Compliance with strict safety and environmental regulations.
However much we all learn, I believe these dispute statistics will remain unchanged unless there is a fundamental shift in mind-set. Achieving successful project delivery for all stakeholders under such arduous conditions and avoiding disputes requires a high degree of collaboration between the contracting parties at all levels. However, most contracts are adversarial in nature. These contracts separate the interests of the parties in a way that encourages disputes and largely ignores the need for collaboration.
According to one school of thought (to which I subscribe) the conventional contracting models, processes and practices that revolve around competitive bidding, award to lowest bidder and transfer of maximum risk down the supply chain are not fit for purpose. In this context and from my role as chair of the European Construction Institute (ECI) I observe that;
- Fundamental change is necessary to the way contracting is undertaken
- Change is already taking place but it will take time to evolve before alternative contracting models, processes and practices are in common use.
However, for the foreseeable future industry is stuck with adversarial contracts. Therefore owners, contractors and the supply chain need to survive and – as much as possible – thrive in what is a hostile commercial contracting environment and a breeding ground for disputes.
So where should we focus our learning to drive successful project delivery and avoid disputes?
Engineering and construction is a “people industry” – people deliver projects. Disputes are also caused by people – so let’s start with the “people issue”. These are often referred to as the “soft issues” but in reality, it is people and the need to create productive work relationships between them that are the really hard issues. Building effective relationships to create collaborative work environments in the context of an adversarial contracting environment is extremely challenging, yet essential for successful project delivery and the avoidance of costly disputes.
Coaching Project Leaders to find wise solutions
After decades of dealing with claims, disputes and contracts, in Kingsfield we have turned our attention to helping project teams face up to and deal effectively with today’s project challenges, long before they fester and turn into disputes.
Our approach is to support and focus our clients by coaching project leaders and their teams strategically in finding wise solutions to the commercial and contractual challenges they face in order to satisfy expectations for project results.
John Fotherby – Executive Chairman Kingsfield Consulting