A report released this week by HKA, a global consultancy in risk mitigation and dispute resolution, shows the scale of cash and time that was lost on construction and engineering projects in the past year.
The “CRUX Insight 2021” report draws data from 1,400 projects across 94 countries (representing an expenditure of $2 trillion) to pinpoint the causes of overruns. The report also examined the impact of COVID-19 on project completion.
"Capital projects are hemorrhaging billions of dollars each year to recurrent, predictable and often avoidable claims and disputes," said Renny Borhan, CEO of HKA. "CRUX Insight 2021 not only diagnoses these failings and quantifies the impacts, but also identifies corrective actions to stem these losses. Project stakeholders and the industry can learn lessons from CRUX to operate more effectively amid this heightened uncertainty."
THE IMPACT OF COVID-19
“COVID-19 has caused additional disruption, restricting access to sites and labor, constricting cash flow, and exposing the limitations of contract provisions on force majeure and changes in law,” the report stated.
While the report notes that the U.S. and Canada have fared better in bouncing back from the impacts of COVID-19, the legacy of the pandemic continues to be uncertain, with heightened risk from supply chain delays, cost inflation and skills shortages.
THE IMPACT OF EMPLOYEE SHORTAGES
When it comes to shortages in human resources, the CRUX report cited skills gaps and the retirement of more experienced employees who are not being replaced fast enough as causes for concern in addition to just general understaffing.
“Knowledge is not being passed down to more junior recruits. Anecdotal reports—such as a site losing crews during a basement concrete pour to an emergency project nearby offering better rates of pay—will become more common. Labor will migrate to states where remuneration is higher,” the report stated.
In addition, human resource shortages also manifest as weaker management of subcontractors.
THE STATS AT- A GLANCE
- 1,401 projects analyzed
- $2 trillion – combined capital expenditure
- $73 billion – total value of claims
- $100 million – the average disputed costs per project
- 46.3% – the value of claims as a proportion of planned cost
- 17 months – the average time extension claimed
- 71.4% – the typical prolongation for programs
- 750 years – the cumulative overruns faced by all projects
Top Causes of Claim or Disputes
- Change in scope
- Contract interpretation issues
- Contract management and/or administration failure
- Design information was issued late/Design was incomplete
- Design was incorrect
- Poor management of subcontractor/supplier and/or their interfaces
- Physical conditions were unforeseen
- Access to site/workface was restricted and/or late
- Workmanship deficiencies
To learn more, or to view the full report, click here.