As first published in International Rail Journal, July 2021, Volume 61, Issue 7
Setting aside the significant downturn in passenger rail demand during the pandemic, global demand for transport is growing fast, with passenger and freight activity forecasted to more than double by 2050 in certain regions such as Europe, India and Asia. Such growth is a key indicator of both social and economic progress.
In a world becoming ever more urbanised, metros, underground and light passenger rail are continually developing their systems to address such needs. In addition, high-speed rail is serving as an alternative to short-distance air travel, whilst upgraded heavy passenger rail and freight rail are continuing to complement other transport modes to collectively provide efficient mobility. To meet this growing demand, new railroads, stations and depots, as well as the modernisation of existing infrastructure, are vital.
The use of rail in place of automotive transport and air travel should place less demand on finite energy resources, although it is acknowledged that increased demand for such transport developments will raise energy consumption and increase CO2 and greenhouse gases emissions. Addressing this issue will require continued innovation in technology such that lighter and greener rolling stock can be manufactured. These demands will inevitably increase the pressure on owners, operators, contractors, manufacturers, and a host of other suppliers within the rail sectors. The net result of such change arising as a result of new technologies being incorporated into designs, in commercial terms, is that it can regrettably lead to disputes and claims between parties.
To help raise awareness of the sources and means of addressing such disputes, HKA recently published its third annual CRUX report. CRUX draws upon an unprecedented bank of knowledge to provide valuable insights into the most common causes of disputes and commercial claims. The report looks at 1,185 engineering and construction projects from 88 countries where HKA experts have provided claims consulting and dispute resolution services on major capital projects across multiple sectors around the world.
In relation to rail and transit, rolling stock and manufacturing, and signalling and technology, a total of 82 projects were analysed with an average CAPEX of US$1.58bn. The five most common project issues were identified as:
- Incomplete design;
- Changes in scope;
- Late issue of design information;
- Incorrect design specification; and
- Late approval of design.
In view of the geographic coverage provided by CRUX, drawing on Expert input from our teams around the globe, we offer some insights into how such project issues are impacting and can be addressed by stakeholders in the rail industry.
A GLOBAL OVERVIEW INTO RAIL DISPUTES
Owners, operators, contractors and manufacturers alike are having to manage these challenging issues, and more, in the current landscape. This is resulting in a marked rise in contractual claims and disputes, with parties understandably looking to protect their own commercial interests.
Above all other issues, design problems drive the greatest number of claims and disputes in the rail sector. The root cause of such challenges, however, can often be traced back to failed coordination, rather than poor component design or incompetent designers, whilst pressure on time and the use of lump-sum design commissions also compound problems.
Through early contractor engagement, owners and operators can lead the concerted action needed to pre-empt these problems by:
- actively involving the contractor or manufacturer in the preliminary design; clarifying design requirements and ensuring design maturity before contract award;
- recognising the true capabilities of the supply chain, design teams and contract management; and
- resolving buildability issues ahead of production.
The design failures driving more disputes stem, in large part, from unrealistic project programmes tendered on immature designs. This is of particular pertinence where innovative new technologies, aimed at providing greener solutions, are adopted, as unforeseen challenges can arise during testing, giving rise to elongation of programme timescales. Competition drives prices down as contractors and manufacturers find themselves in a “race to the bottom,” offering value-engineered solutions that they cannot fully develop due to extremely tight programmes. As owners and operators set the timescale, and the open tender price is initially decisive, contractors and manufacturers seek additional time and costs through variation orders, themselves often lodged too late.
Owner and operators also seek the lowest design price despite the need for the supply chain to explore new innovative solutions, so design consultants operating on slim margins push design detail and associated risk down the supply chain to the contractors and manufacturers. Claims are effectively embedded in contracts at the point of signature when design is incomplete. Yet design represents only a small proportion of the overall capital cost of increasingly large and complex projects.
Owners and operators, contractors and manufacturers would gain from delivering projects on time, to specification and budget, if:
- more time were undertaken to mature design earlier, alongside more detailed early project planning;
- greater emphasis could be placed on engaging supply chain stakeholders earlier, pre-empting latent design issues; and
- design risk was apportioned to the party best equipped to address it.
While these changes would slow the design process, the overall project schedule should not be adversely affected if production proceeds in a more efficient and effective manner. This would also result in greater price and schedule certainty, fewer defects and less retro-fitment or rework, and a more acceptable risk profile for all parties involved.
Demand for new technologies and sustainable materials on projects is also leading to more late approvals as owner and operator design engineers and regulatory authorities struggle to check compliance. A lack of administrative capacity results in backlogs of the contractor and manufacturers requests. Late approvals could, however, be curbed if:
- contractors and manufacturers took a more proactive approach and submitted requests earlier;
- review points were set in contracts to specify acceptable timelines; and owner and
- operators simplify internal processes and train more administrative and technical staff.
In addition to attending to design issues, changes in scope clearly need to be addressed, which, it is contended, could be facilitated by enhanced supply chain engagement, better communication, and employee training, as follows:
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Carl Simms is a Director with HKA based in Europe. He is a claims management specialist with over 18 years’ experience in the rail, construction, and engineering industries. He has worked on a range of projects in the rail, rolling stock and signalling sector for a variety of clients providing support with contentious issues (dispute resolution and avoidance), drawing on skills in adjudication, arbitration and litigation, as well as, preparing and defending claims.
Sidney Scott is a Partner with HKA based in the Americas. He is a professional engineer with more than 33 years of progressively responsible experience in the engineering and construction industries. His experience includes design, contract and procurement advisory services, process improvement studies and performance audits, dispute resolution, integrity monitoring, contract and specification development, research and training.
Sid is recognized as a national expert in alternative project delivery, specifications, and procurement and contracting methods for the construction industry. He has advised owners and on best practices for the planning, management, and administration for some of the nation’s largest transportation projects. Sid has lectured, advised public owners and industry groups, presented at national conferences, and conducted workshops, and training programs on various topics.
Baoqiang Zheng is a Partner with HKA based in Asia. He is a professional consultant with over 20 years’ experience in contract, commercial claims and claims avoidance gained on major engineering and construction schemes around the world.
Baoqiang specialises in project planning and forensic delay analysis and has been directly involved in a variety of major international projects in the process of preparation and defence of claims, disputes and arbitration on behalf of contractors, subcontractors, clients and legal counsel, and has been appointed as delay expert in two arbitrations.
Baoqiang has worked on many major projects around the world, including power stations (including a solar park) in Italy, South Africa, Saudi Arabia, Oman, UAE, India, Indonesia, Niger and China; oil and gas projects (including LNG) in the UAE, Saudi Arabia, Iraq, Kazakhstan and Australia; rail projects (including heavy rail, light rail and rapid transit) in Denmark, the UAE, Saudi Arabia, Hong Kong and Ethiopia; defence and reclamation projects in the UK and the UAE; an airport project in Oman; roads and highways projects in the UK and Kazakhstan; a shipyard project in India; and commercial and residential buildings in the UK, the UAE, Saudi Arabia, Singapore and China.
If you require any further information, please contact Carl Simms (Europe) carlsimms@hka.com, Sidney Scott (Americas) sidscott@hka.com or Baoqiang Zheng (Asia) baoqiangzheng@hka.com
