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Value of construction disputes in Asia fell in 2011
Jun 11, 2012
The average value of disputes in Asia's construction industry fell to US$53.1 million during 2011, down from US$64.5 million in 2010, according to this year's 'Global Construction Disputes' report from EC Harris. Whilst this reflected the wider global trend for dispute values to fall, the UK, Europe and the Middle East saw rises, with disputes in the Middle East more than doubling in value to US$112 m, compared to US$56.25 m in 2010. EC Harris found that construction disputes in Asia lasted, on average, 12.4 months in 2011, compared to 11.4 months in 2010. This was longer than most regions took to resolve their disputes, with only the US taking more time at 14.4 months. Disputes in the UK were resolved the quickest at 8.7 months, with the global average being 10.6 months. Globally the average value of construction disputes in 2011 fell to US$32.2 m from US$35.1 m in 2010. The US saw the most dramatic fall, from US$64.5 m in 2010 to US$10.5 m in 2011, largely due to a generally depressed construction market as well as an increasing emphasis from both public and private sector owners to avoid and mitigate disputes through risk management and early, field level, resolution of disputes. The highest value dispute handled by EC Harris during 2011 was US$350 m on a project in the Middle East. Mike Allen, Group Head of Contract Solutions at EC Harris said: "There is no single reason for the decrease in the dispute values in Asia, however there are some strong indications that parties are beginning to take a more proactive approach in resolving their differences or disputes through structured negotiation and mediation. Nevertheless, despite this drop, disputes are still costing the industry significant time and money. Focusing on avoiding the dispute from the very outset through appropriate contract administration and using dispute avoidance mechanisms is always the better option."
The top five causes of disputes in Asian construction projects during 2011 were: 1. Failure to make interim awards on extensions of time and associated compensation 2. Unrealistic risk transfer from employers to contractors 3. Conflicting party interests 4. An unrealistic contract completion date being defined at tender stage 5. Incomplete design information or Employer requirements
The performance of the project manager or engineer was also examined within the report, with their conduct often at the heart of how the dispute crystallised. The most typical problem with the project manager or engineer was that they were too partial to the employer's interests, or in many cases lacked sufficient authority to address issues due to the limited amount of control that the employer allowed them to exercise. When it came to dispute resolution, mediation was the most common method used in Asia, followed by party to party negotiation and litigation. Interestingly, the approach taken varied on a location basis with this year's figures showing an increase in the use of the Security of Payment Act (Adjudication) in Singapore, a rise in the use of mediation in Hong Kong, and a general increase in the use of arbitration in mainland China and South Korea.