CRUX Insight Seventh Annual Report Press Release

Changing the Narrative Five “mega-disrupters” cause claims and disputes costing the global construction industry billions on capital projects

October 2024

Five “mega-disrupters” cause claims and disputes costing the global construction industry billions on capital projects

The Seventh Annual CRUX Insight Report, Changing the Narrative, reveals the scale of disruption and financial damage done to engineering and construction projects globally and the five “mega-disrupters” endemic to the industry that each affect almost half of all projects worldwide.

Key findings from the latest CRUX analysis include:

• 2,002 projects across 107 countries analysed with a total value of $2.254 trillion.
• Disputed costs averaged $83.1 million – just under a third (33.2%) of capital expenditure
• Time overruns would add almost 16 months or two-thirds (66.5%) to a typical schedule
• The total value of sums in dispute on the projects analysed was $84.44 billion, while the cumulative length of time extensions was close to a millennium (994 years).
• Five “mega-disrupters” – conflicts and disputes over contracts, behaviours, speed to build, skills and the environment – each affected 40-50% of the projects worldwide.

A Damaging Pattern

In the years following the global pandemic, heightened geo-political uncertainties and economic shocks have distorted the myriad pressures and challenges project stakeholders face. Yet the most prevalent causes of claims and disputes are recurrent, stemming from recurrent and deep-rooted, underlying failures – a damaging pattern the capital projects and infrastructure sector needs to break.

CRUX is the ongoing research programme of HKA, the global consultancy specialising in risk mitigation, dispute resolution, expert witness and litigation services. Data on a total of 2,002 projects has now been captured within this unique database, which draws on the first-hand investigations of HKA consultants.

The findings of the Seventh Annual CRUX Insight report, Changing the Narrative, cover projects in 107 countries, with a combined capital expenditure (CapEx) value of US$2.254 trillion. These projects faced overruns that would, collectively, approach a millennium (994 years) and total costs claimed in disputes of $84.44 billion.

On average globally, projects claimed extensions of time to prolong works by an additional two-thirds (66.5%) of their planned schedules, while disputed costs averaged very nearly a third of budgeted CapEx (33.2%).

This year’s report also includes the first intriguing results of a new econometric analysis. HKA’s in-house econometric modelling revealed some statistically significant predictors of claims and disputes. Economic growth, inflation and the World Bank’s index for ‘ease of doing business’ were shown to have strong relationships with the incidence of conflicts over cashflow and payments, force majeure, fraud, and various other claims.

‘Mega-Disrupters’

While CRUX demonstrates variations in the pattern of claims and disputes between regions and project types, the analysis also confirms that the same deep-rooted problems recur across the years, sectors and borders.

These mega-disrupters each affected 40-50% of the 2,002 projects worldwide in the CRUX analysis, with regional variations:

• Contract: Conflicts over the formation or terms of a contract – from administrative shortcomings to spurious claims and tender errors – affected 43.2% of projects worldwide, rising to 51.9% in the Middle East and 68.0% in Africa. While cost inflation may have eased, economic shocks continue to reverberate through long-term projects. Under financial pressure, contract administrators may resort to alternative ways of recovering costs, leading to clashes over the interpretation of clauses, alleged variations, and unsubstantiated claims.
  
• Behaviours: Half of all projects worldwide (49.7%) had claims and disputes related to individual and team behaviours that permeate every aspect of the construction process. Causes heavily influenced by behaviours peaked at 67.3% in the Middle East, and hovered around 60% in Africa, Asia and Oceania. The averages for Europe and the Americas were closer to 40%. Monetary pressures drive unreasonable behaviours, as do ingrained ways of working, especially in an unfamiliar context – whether a country, project type, or form of contract.
  
• Speed to build: Affecting 47.6% of all projects worldwide, this design-centric cluster (covering late, incomplete or incorrect design as well as late subcontractor/supplier appointments and unrealistic targets) is driven in large part by the twin imperatives to ‘speed the build’ and save on up-front time and costs. Rushing or overlapping design development with construction in the hope of achieving the earliest possible completion inevitably leads to more design changes, delays and disputes as projects progress.
  
• Skills: Just under half of all projects (49.7%) worldwide had claims and disputes largely attributable to gaps in skillsets and experience. Ageing workforces, lack of investment in human capital, and failure to attract young talent are contributory factors. The effects are evident from design offices to operational performance on site – and particularly noticeable in Europe (57.8%) and the Americas (51.5%), which suffered from higher levels of poor workmanship. In the UK, such defects were a factor in 26.0% of claims or disputes, compared to 14.8% worldwide.
  
• Environment: Exceptionally adverse weather was to blame for a relatively small proportion of claims and disputes, peaking at 13.3% in the Americas. But other factors with a strong environmental element (such as unforeseen ground conditions) pushed the total to 41.3% worldwide. More projects were impacted in Africa (56.0%), the Middle East (49.0%) and Asia (48.4%). Just as ominous for the industry, diverse environmental risks – from failure to design for resilience, and emerging contaminants, to concerns over corporate governance and biodiversity – are driving claims and litigation amid increasing scrutiny and regulation.

Changing the Narrative

“It is our firm belief that risks on infrastructure and capital projects can be mitigated more effectively. This is the purpose of our CRUX research and analysis.

HKA’s CRUX Insight not only lays bare the primary drivers of disputed costs and time overruns, it also explores the interrelated contributory factors and forces embedded within the industry. In this year’s report, our experts outline actionable steps to break this recurring cycle of claims and disputes that imposes such a heavy burden on projects and stakeholders. We invite you to engage with our findings and consider the remedies that will lead to more successful project outcomes.”.

Renny Borhan, Partner and CEO of HKA

CRUX Interactive dashboard

The CRUX database is searchable via an interactive dashboard, which can be used to gauge risks in various sectors and regions, benchmark causes, and help to identify areas for improvement.