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Wednesday 25 October 2023

Controllable causes of claims and disputes hold key to relieving intense pressures on construction

Sixth Annual CRUX Insight Report, Forewarned is Forearmed, quantifies the damage done to engineering and construction projects worldwide, and the recurrent causes, which are often predictable and avoidable

Some key findings from the latest CRUX analysis:

  • Over 1,800 projects across 106 countries analysed with a total value of $2.247 trillion
  • Disputed costs averaged $100 million – more than a third (33.6%) of capital expenditure
  • Time extensions would add almost 16 months, or two-thirds (67.1%), to a typical schedule
  • A ‘triple design whammy’ distressed more projects (44.8%) than change in scope (38.8%)
  • Middle East and Africa faced the longest schedule overruns (82% and above)
  • Scope change stymied more projects offshore, both oil and gas (53.6%) and wind (45.0%)
  • New evidence of a pandemic ‘design dividend’ and under-performing EPC contracts

As infrastructure and capital projects around the world are hit hard by higher financing costs and inflation, promoters and contractors can relieve the pressure by curbing the significant losses of money and time routinely incurred across market sectors and the world.

The massive scale of these disputed costs and overruns, and their often-controllable causes, are revealed in the Sixth Annual CRUX Insight Report, Forewarned is Forearmed, and its analysis of 1,800 projects in 106 countries.

CRUX is the ongoing research programme of HKA, the global consultancy specialising in risk mitigation, dispute resolution, expert witness and litigation services. Hands-on investigations by its consultants – on these mainly multi-year megaprojects up to August this year – underpin the report’s analysis of the factors driving claims and disputes.

The major projects analysed had a combined capital expenditure value (CAPEX) of $2.247 trillion. CRUX found that disputed costs amounted to more than a third of project CAPEX (33.6%), on average. Claims for extensions of time (EOT) also reflected extreme project distress, typically prolonging planned schedules by more than two-thirds (67.1%).

Renny Borhan, Partner and CEO of HKA comments: “Modern megaprojects are increasingly complex, but the cruel conundrum for the global construction and engineering industry is that these most common causes of claims and disputes are highly predictable and largely within the control of the contracting parties. The purpose of CRUX is to better inform all stakeholders so they can apply these lessons, raise the standard of risk management, and achieve better outcomes.”

Under the theme Forewarned is Forearmed, this year’s CRUX Insight surveys emerging risks – from political to environmental – as well as sharing insights into the most common lapses in the planning and execution of capital projects in regions and sectors.

Significant regional variations

Deficiencies in design and workmanship loomed larger in Europe and the Americas. Incorrect design topped the European ranking, disrupting close to one in three projects (32.3%), and ranked second in the Americas, where more than one in five projects were affected (20.4%).

Defective work was most common on Europe’s buildings, especially residential schemes (38.3%). Within North America, design failures overall were more prevalent in Canada (41.8%); yet cost and schedule overruns tended to be higher south of the border.

The Middle East and Africa faced the worst prolongation of schedules (82% and above).

Scope change and design failures stymied more than half of Middle Eastern projects. Africa’s most persistent problems involved restrictions on access and cashflow, with spurious claims also disproportionate compared to the rest of the world.

CRUX’s largest megaprojects were in Asia (where CAPEX averaged $5.32 billion), still much higher than next-in-line Oceania ($2.94 billion).

Time extensions neared two-thirds of schedules (63.6%) in Asia – the only region where client-side management failures rose post-pandemic (from 29.7% to 43.3%). Change in scope – project enemy number one in Oceania – impacted 53.5% of projects, but risks may shift with the end of Australia’s construction boom as investment tilts toward energy projects.

Sectoral anomalies and other insights

CRUX Sponsor, Toby Hunt, HKA Partner, adds:The tougher economic context has intensified the uncertainty and risks facing infrastructure and capital projects. It is essential that the construction and engineering industry delves into the root causes of the most prevalent claims and disputes, and applies the lessons to future projects. Our growing dataset, CRUX Insight, and the interactive dashboard help employers, contractors and the wider industry do just that. The high cost of capital and the losses sustained through avoidable disputes make the case for proactive risk management all the more compelling.”

Links to the Report and CRUX Interactive Dashboard:

The Sixth Annual CRUX Insight report can be downloaded at: https://www.hka.com/

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: https://www.hka.com/crux-interactive-dashboard/

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