While larger, more complex projects continue to be susceptible to global price and supply stresses, clients see increasing benefits from early support from external advisors and proactive conflict management.
CMS will shortly be publishing its annual International Construction Survey report which compiles and analyses feedback from senior members of the global construction industry, supplemented by interviews with leading in-house figures tasked with ensuring the success of major projects.
The publication of the Survey is timely given the upcoming FIDIC Contract Users’ Conference’s (CUC) focus on sharing insights into best practices in both project execution and dispute management and resolution on construction projects.
A critical finding from the Survey is that 84% of respondents identified the highest conflict risk factor on construction projects is “time and cost”. This reflects an increasing trend since 2020, when the figure was 76%, and then 80% in 2021. At the other end of the scale, “quality” as a perceived risk factor, dropped down from 11% in 2021 to 8% in 2022.
The construction industry’s view that time and cost are seen as the largest sources of disputes aligns with one of the FIDIC CUC’s overarching themes: the correlation between the expanding size and complexity of projects around the world, a rise in the number of stakeholders, and the diversity of risks across any one project. Essentially, larger, more complex projects involve more parties and more ways the project could go wrong.
CMS’s latest annual Survey reveals how contracts are adapting to increasing time and cost risks. As construction contracts are now more commonly providing for early warning notices and all-party collaboration to mitigate impacting events, our respondents report this influencing how their project teams approach the project from the outset. This includes building into their teams dedicated project management, claims and legal specialists from the outset of a project to identify particularly risky or sensitive areas and put in place strategies to manage those risks during project delivery. 59% of Survey respondents said they made such early conscious efforts “always” or “often”; an increase from 51% in 2021.
A Senior Counsel at a Texas-based engineering and construction firm noted the importance of understanding local law factors in getting ahead of potential issues: “A lot of our projects are international, so we might need international advice as to how a principle operates in a certain jurisdiction. Also, if it’s not a jurisdiction or a dispute resolution mechanism that we’re used to, that might be a point too.”
The Survey results showed not only that the industry is increasingly consulting with external advisors in the early stages of a project, but also a greater appreciation that resolving issues during the course of a project, rather than addressing them as the project comes to a close, leads both to lower overall legal spend and more successful projects. A sizeable 81% in the 2022 Survey ‘always’ or ‘often’ resolve issues separately, compared with 74% in 2021. As to the cost of such support, 88% believe that spending a small amount on legal advice during the course of a project avoids a larger legal bill later, compared to 76% in 2021.
There were contrary views, however. An in-house legal advisor at a Japanese construction firm said, “From the legal department’s point of view that is partially true, but then it doesn’t make sense to the business guys who always say during the implementation period they need to maintain the relationship with the customer. So, the disputes should be resolved after completion.”
A shift in perspective may well lead to positive changes. Certainly, we are observing an increasing appreciation from the business teams on a project that dealing with stress points and issues as they arise actually preserves and secures relationships between stakeholders. The Texas-based Counsel observed: “I’ve definitely seen that there is a willingness to engage in those difficult conversations, and even do it with a framework for a dispute, rather than waiting to the very end of a project. I think some of these projects are just so big, the numbers are so big, that leaving it to the end is just more difficult financially to do now.”
The infrastructure and energy markets are going through a period of remarkable change but also growth. Demand for social infrastructure and new renewable energy projects is providing many opportunities but at the cost of further straining already tight supply chains and raw materials resources. CMS’s annual International Construction Survey report shows that contractors and owners alike are recognising that optimum project management involves anticipating and addressing the increasingly broad spectrum of project risks with early involvement of legal support and resolving conflicts as they arise. Allowing claims to build up unresolved during a project risks building up an insurmountable hurdle to successful project conclusion.
IG will bring further details when the CMS International Construction Survey is published later this year.