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Legal Notes: Canadian construction disputes put in global perspective

John Bleasby
Legal Notes: Canadian construction disputes put in global perspective

The sixth annual CRUX Insight Report, published by global risk mitigation and dispute resolution consultancy HKA, offers comprehensive insight into construction disputes around the world over the past six years.

The report covers a dataset of more than 1,800 projects in 106 countries, broken down into regions: Africa, the Americas, Asia, Europe, the Middle East and Oceania.

In the Americas, 581 projects in 19 countries, averaging a $693 million capital expenditure value (CAPEX), were considered.

The world of construction has endured a tumultuous period over the past six years, notably project delays, material shortages and cost increases associated with the COVID-19 pandemic.

Ironically, HKA suggests the resultant delays due to the pandemic allowed more time to “review and mature” and improve constructability.

“The global shockwaves unleashed by the pandemic gave contractors, financiers and other players in major capital and infrastructure projects good reason to pause and scan the far horizon intently.”

What were the major sources of project disputes over this six-year period?

“Globally, scope change again topped the global ranking but was not pre-eminent in all regions,” the report says.

However, in the Americas, scope change was, in fact, the top cause of claims and disputes on 28.3 per cent of all projects. Design errors, often closely entwined with changing scope, impacted another one-fifth of projects, along with deficiencies in workmanship.

Interestingly, Canada does not appear to suffer the same overall level of project disputes as the U.S., according to the HKA analysis.

Disputed sums averaged 22 per cent of project CAPEX in Canada, compared with 34.4 per cent in the U.S. In terms of schedule adjustments, the additional time sought by contractors averaged 53.4 per cent of planned programs in Canada versus 60.3 per cent in the U.S.

Most of the causes behind the proliferation of scope amendments were related to late changes by project owners.

“Our analysis also makes it increasingly evident how design failures drive project distress directly,” HKA says. “It is becoming more common that projects go to tender with incomplete front-end engineering designs, causing disputes to arise during detailed design development. Not freezing the design can cause changes to keep coming from the client and its design team.”

This is particularly so in Canada, HKA observes.

“Our analysis shows that design shortcomings generally were a more significant problem in Canada, where close to 42 per cent of projects experienced one or more types of design-centric failure, more than six percentage points higher than in the U.S.”

Developer clients have financial obligations and predetermined goals to meet for completion. Therefore, they often exert pressure on contractors to work faster and to shorten schedules, HKA says. This can result in a failure of contractors to communicate the full extent of the implications for fear of souring relations. Schedules and costs can escalate. That, in turn, contributes to workmanship deficiencies, which can also trigger claims and disputes.

Even so, looking back over the past six years and the impact of COVID-19 on disputes, HKA notes a post-pandemic drop in alleged design failure rates of 12 per cent globally, and 18 per cent in Europe.

Design-build contracts have their own set of problems. HKA observes common disputes between owners and general contractors on infrastructure projects have expanded, resulting in general contractors pursuing their designer partners for relief.

“Having failed to recover costs from the client, it is becoming more common for a general contractor to allege design errors and omissions, even though these may result from price restrictions imposed by the contractor that would not apply were the designer working directly for the owner.

“Construction’s cruel conundrum is that the level of design maturity is more controllable than many other triggers for claims and disputes,” HKA concludes. “While allowing for site-specific quirks and contingencies where necessary, designs can be largely complete and construction-ready.”

It leads to HKA’s overall view regarding construction disputes: “Forewarned is forearmed.”

John Bleasby is a Coldwater, Ont.-based freelance writer. Send comments and Legal Notes column ideas to editor@dailycommercialnews.com.

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