You have probably heard the expression, “change is inevitable.” I think we would all agree that over the past three years, our personal and professional worlds have experienced changes like no other. Last year our Construction Disputes Report discussed the impacts to the construction market due to the ongoing effects of the COVID-19 pandemic, supply chain issues, material price escalation, labor shortages, and the war in Ukraine. These have continued and in December 2022 the construction industry also saw inflation rise to a staggering 7.5%. Despite such challenges, the construction market also continues to experience exciting and positive changes with the implementation of advanced technologies and iconic projects. There is certainly more change ahead of us.
I recently had the opportunity to participate in a podcast regarding the results of this year’s Construction Disputes Report. During our session, we discussed that even the most common construction projects look different today than they did just a few years ago. Consider one of the key amenities essential in nearly every type of vertical construction project including residential homes, university campus buildings and high rises: coffee. My colleague, who led our podcast, is a coffee connoisseur. A morning cup from a $45 brewer from a box store is unacceptable to him. He has a coffee machine that I compared to the Flux Capacitor from the DeLorean time machine in the 1985 film Back to the Future. It’s complex and requires a dedicated water and power source. My colleague also wants his state-of-the-art machine to have its very own station in his home. Hopefully, this example highlights my point.
The coffee maker example can be expanded to a much bigger picture illustrating how societal expectations are factoring into construction projects. President Biden’s Federal Sustainability Plan has a strategy for achieving a net-zero emissions building goal by 2045. The Federal Government has also set a goal to make half of all new vehicles sold in the U.S. in 2030 zero-emissions vehicles. The economy may be uncertain in 2023, but environmental, societal and governance (ESG) expectations will play a major role in every type of construction project in the future.
It is useful to look back before looking into the future. Our 2023 Construction Disputes Report provides a look back on the year before and allows us to evaluate trends and experiences in the industry, which helps us better prepare for the future. A significant number from this year’s survey was “42”. The average value of disputes in 2022 rose to $42.8 million compared to $30.1 million in 2021, a 42% increase. While there was an expectation that dispute values would increase in 2022, this was a surprising jump. What was not a surprise was the top three causes of disputes:
1. Errors and/or omissions in the contract documents
2. Owner/Contractor/Subcontractor failing to understand and/or comply with its contractual obligations
3. Poorly drafted or incomplete and unsubstantiated claims
These three causes routinely make the top three in our report—what was interesting was the commentary provided by our respondents. One word that was used over and over was “understand.” Respondents voiced that disputes occur consistently due to participants’ failure to understand contract requirements related to the design and execution of the work along with the provisions related to the preparation and submittal of claims.
As projects have grown larger and more complex, so have disputes. This would lead one to assume that the duration to resolve disputes would increase as well, however, on a positive note, the duration of 13.6 months to resolve disputes has been relatively consistent over the past 10 years. This points to the willingness of project participants to avoid formal proceedings and resolve disputes early.
Of course, the desire of all project participants is to avoid disputes altogether. Our respondents stated, as in years past, that risk management, contract and specification reviews, and constructability reviews are critical to limit potential exposure and liability for unanticipated cost increases. Embracing these techniques will be critical to avoiding disputes as projects continue to evolve.
Projects of every type will continue to grow in complexity as societal expectations increase. Project participants who anticipate and embrace change will be better positioned to avoid disputes and successfully deliver projects. Our guest commentator for this year’s report, John Cook, Esq., Partner at the law firm Fox Rothschild LLP, said it best: “The rapid changes in our industry place a premium on adaptation.”
For more on the state of North American construction disputes, download the full report. We’ll also be sharing insights like these at future events and webinars. Send me an email or connect with me on LinkedIn if you’d like updates on upcoming presentations.
