Average value of construction sector disputes soars in the Middle East

15 August 2018 Authored by Consultancy-me.com

The average length of disputes in the Middle East construction industry is falling according to an analysis from global engineering, design and project management consultancy Arcadis, although the average value of those disputes has risen.

In its 2018 analysis of disputes within the global construction industry, Arcadis, a multinational design and consultancy for built and natural assets with office throughout the GCC along with Jordan and Turkey, has tracked an ongoing downward trend in the length of resolution for disputes in the region. Despite this, the average value of the disputes has rocketed.

Globally, both the average length and value of disputes within the construction industry has grown, with the length of disputes stretching from 13.9 months to 14.8 months to resolve, and the average value jumping from $32.5 million in 2016 to $43.4 million last year – an average long skewed by the Middle East’s contribution which is commonly up to three times greater or more than elsewhere.Global comparison for length and value of construction disputesWith a near 40 percent year-on-year increase in the value of construction disputes in the Middle East, from a three-year low of $56 million in 2016 to a near-record $91 million last year – the highest figure since the $112 million recorded in 2011 – the region then is a primary factor in the global rise in average dispute values.

According to the Arcadis report, the high value of disputes in the Middle East is chiefly a reflection of the scale of the projects being delivered in the region – with, naturally, larger projects typically carrying a higher dispute value. Further, the firm says, while the number of disputes remained steady, the higher value figure was “due to a small number of high-value disputes and a flow of ‘mid value’ final account claims.”

On the flip-side, the average 13.5 month length of local disputes in 2017 is the lowest since 2011, when the average resolution time was just nine months. “Over the last year, the average length of time needed to resolve a dispute in the Middle East fell to just 13.5 months. This trend towards swifter resolution was also observed last year, and reflects the industry’s focus on trying to improve liquidity across the wider supply chain,” the report stated.Construction dispute average length and value in Middle EastDelving deeper, the report analyses the nature of the disputes, finding that issues around contract administration continues to be a prominent concern in the Middle East, although the cause has dropped from the foremost spark of disputes to the second spot – superseded by ‘failure to make interim awards on extensions of time and compensation’, with ‘owner directed charges’ in third.

The results don’t come as a surprise according to the firm, with a lack of liquidity due to comparatively low oil prices seeing firms take a tougher approach to contract entitlements. Rob Nelson-Williams, head of contract solutions for Arcadis Middle East, concludes; “Over the next 12 to 18 months, major regional construction related events loom ever closer. As pressure increases to meet fixed deadlines, the need to make smart decisions around contract and procurement strategies will be even more important.”

Recently, the Dutch origin consultancy was selected to build a tunnel under the Suez Canal, following an earlier successful project by Arcadis on the Suez expansion. 

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