Spurious construction claims rising due to COVID-19 - HKA

The astonishing toll of overrunning costs and schedules on major construction and engineering projects worldwide has been laid bare in an analysis of claims and disputes published by HKA, the construction and engineering industry specialists in consulting, expert, and advisory services.

The CRUX Insight 2020 is the product of investigations into more than 1,100 projects across 88 countries by HKA. The report finds that design conflicts are eclipsing scope change as the main disruptors of major projects, while also revealing the vast sums of money and time being lost, as well as the patterns of root causes.

The HKA consultants also warn that they are seeing a surge in spurious claims, conflated with the impacts of COVID-19, and that the pandemic will be detrimental for the industry, and potentially lethal for already weakened contractors, if corrective actions are not taken.

Simon Moon, HKA Chief Operating Officer, says: “The wealth of data captured in this year’s CRUX Insight report is unparalleled. Our findings are also timely for the industry, as we confront an unprecedented global challenge. 

“The pandemic is afflicting all industries and territories. Already mired in project overruns and cost escalations, construction faces rising uncertainty and further impacts from COVID. Now is the time to learn the lessons and re-set the industry by tackling the root causes with practicable measures that will result in more mature designs, robust schedules and effective governance of major projects.” 

The report highlights that through the 2018-2020 CRUX dataset, the dominant cause of claims and disputes was change in scope, which in turn is closely linked with design failures. A notable development in the latest analysis is how these design-centric problems – incorrect, incomplete, and late design information – have risen up the rankings, it adds.

Together, these two causes form a nexus that disrupts more projects than any other factor, across all four regions covered in the report. With the increasing complexity of projects, and incorporation of new technologies and materials, these risks are looming larger, it adds.

The same trend is also triggering failures in how sub-contractors, the supply chain and related interfaces are managed. This is the next most prominent cause of claims and disputes in the 2020 rankings, and is rising or remains high across regions, the report warns.

Unforeseen physical conditions and deficiencies in workmanship are the other most common contributory factors to project under-performance, it continues.

Toby Hunt, Partner and Chief Business Development Officer, says: “In these turbulent times, the industry should use the CRUX research programme to alert stakeholders not just to the underlying causes of claims and disputes, but also to the positive, practical actions they can take to avoid, or at least minimise, the massive disruption, costs and delays they bring. 

“CRUX can inform better decisions by employers, contractors and the wider supply chain who heed the lessons in this year’s report. All stakeholders can benefit from using CRUX – and its interactive dashboard* – to benchmark their performance by region. A deeper dive into our unmatched dataset allows you to gauge risks by sector, target market, contract form, and answer other crucial questions.” 

The HKA Partner adds: “Just as the ongoing cost of failing to anticipate and mitigate these known risks is colossal, the opportunity for the industry and those who act on CRUX’s findings is immense.”

On a more positive note, the report concludes that failures in management or administration of contracts, and also clashes over their interpretation, have fallen out of the top three causes of claims and disputes, a development that is at least partly attributable to investment by some international contractors and state agencies in their in-house capabilities, training and organisational change programmes.

Major engineering and construction projects wherever they are in the world are prey to common pitfalls, but some particular priorities emerge from CRUX Insight’s regional analysis. 

Americas

Fast-track construction is squeezing the design phase, and the pace of build often outstrips capability to control and manage. More investment in up-front planning, design and coordination is imperative, along with smarter procurement and more balanced risk allocation. 

Asia Pacific

Urbanisation and a demand shift are increasing the complexity of projects. Contractors have to harness multi-disciplinary expertise while meeting tight budgets and timescales. Reconciling these conflicting pressures requires investment in supply chain management; more clearly defined responsibilities and delegation; and development of in-house staff. 

Europe

The design problems driving claims and disputes often stem from failed coordination rather than poor component design. Lump-sum design contracts and time pressures are compounding factors. Through Early contractor involvement (ECI), employers can lead the concerted action needed to clarify requirements, enhance design maturity, leverage supply chain capabilities and ensure buildability. 

Middle East & Africa

Late approvals are triggering claims and disputes as oil projects are paused for reappraisal, and compliance checks on new technologies and sustainable materials take longer. These delays could be curbed if contractors took a more proactive approach to requests, review points are fixed in contracts, and client organisations simplify internal processes and upskill staff. 

Global perspective & COVID effects

The conclusion of the CRUX Insight report provides a global perspective, drawing together the main themes of the regional analysis, and it also considers the ramifications of the pandemic for the industry. Better record-keeping to prove the cause and effect of COVID-related restrictions and events is an urgent priority. The report also cites evidence of a shift towards less adversarial routes to resolving disputes, and foresees this trend continuing in the post-COVID era.

CRUX 2020 facts and figures

• 1,185 projects with a combined CAPEX worth more than £1.39 trillion analysed
• Cumulative value of sums in dispute exceeded £37.6 billion
• On average, claimed values reached almost 56% of projects’ planned capital cost 
• Extensions of time claimed together would amount to 593 years
• Resultant delays would typically extend original schedules by more than 71 percent
• While changes in scope are still most often to blame, design-related problems are now entrenched near the top of the rankings
• The other most often recurring causes are poor management of third parties, inadequate contract management, and deficiencies in workmanship