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In 2015, construction disputes in the Middle East amounted to US$82mn, highest in the world, followed by Asia at US$67mn, according to a report by Arcadis
Global Construction Disputes: Don't get left behind report also revealed that in North America, the UK and Continental Europe, dispute values dipped to an average of US$25mn.
The value of disputes relating to major global construction projects have marginally reduced to, on average, US$46mn in 2015, the report stated.
Meanwhile, the length of time to resolve a construction dispute increased to an average of 15.5 months, impacting parties involved in a dispute and the overall construction industry.
Mike Allen, global leader of contract solutions at Arcadis, said, “The construction industry faced head winds, particularly with commodity and currency volatility. It is evident that the natural resources market is now operating against a very different economic backdrop. The business case assumptions that were likely used to endorse projects and programs have therefore changed, presenting a huge challenge to the project and entity risk profiles.”
In the Middle East, where a joint venture is in place, the proportion of disputes caused by a JV-related issue dropped in 2015, moving down almost 10 per cent to 32.3 per cent. The three most common methods of alternative dispute resolution that were used during 2015 in the region were: party to party negotiation; arbitration; mediation. In an economic environment impacted by the oil price, the market continues to see a restriction in decision-making within the industry.
This drives a lack of appropriate delegation to project management consultants and client representatives, thereby prolonging critical commercial decisions and generating cash flow issues related to instructed variations.
Although, Allen added, “There is a desire from all parties to better streamline formal dispute processes, reduce administrative burden and create a fairer contracting model. There is a noticeable shift in the use of mediation and adjudication instead of the traditionally contracted litigation/arbitration methods. All parties embrace the added value that an impartial professional judgement/recommendation brings to the settlement of disputes, which is not only cheaper and more expeditious, but also transfers decision-making to external agents, thereby assisting with state audit compliance.”
According to him, this shift in strategic procurement can only be beneficial to the continued growth of construction in the Middle East and maintain its attractiveness to international contractors and consultants.