The Average Cost of Construction Disputes Spiked Sharply in 2022

If you’ve worked long enough in construction, chances are you’ve encountered all kinds of project delays. When things go wrong, these delays and frustrations can lead to costly disputes. And the bad news is that the stakes of those disputes continue to rise.

According to a recent survey of the North American construction industry, the average cost of construction disputes rose by a whopping 42% from 2021 to 2022. This sharp increase means that the stakes for construction disputes are at record-high levels. More than ever, construction companies and developers need to avoid these disputes. Or, if the disputes are unavoidable, they need to know how to resolve them effectively.

Some Things Never Change. Some Things Do.

The survey did more than point out the sharp increase in the value of construction disputes. It also explored the leading causes of those disputes. Unsurprisingly, the three leading causes were things we’ve seen time and again in the construction industry:

Poorly drafted or incomplete contracts

Failures to comply with contractual obligations

Claims that do not fully substantiate the claimed values

However, these causes are broad enough that they disguise several newer factors. The survey’s authors also recognized this fact. They pointed out that these problems owed partly to changes in the industry:

The rising importance of Environmental, Societal and Governance (ESG) requirements

Inflation

Supply chain issues and delays

Unpredictable weather patterns

Indeed, supply chain delays and inflation played a big role in most disputes. They survey’s authors noted that the persistence of supply chain delays may prompt an industry-wide shift away from just-in-time models. Construction companies may start reworking their contracts.

Effective Dispute Resolution

No one starts a project with plans to get into a dispute. However, the reality is that construction disputes are common. At least, they are more common than either construction companies or developers would like. Just as it would be foolish for a business owner to dismiss the idea of a prenup out of hand prior to marriage, it’s foolish to ignore the possibility that your construction project could run into trouble.

Accordingly, the survey highlighted the industry’s growing emphasis on risk management. Among other things, good risk management can lead to the development of better contracts. Contracts with clear and realistic expectations. Workable deadlines. Actionable plans for dispute resolution.

But what happens when you get to the dispute? They survey noted that the average dispute takes 13 months to resolve. It also noted that some pre-baked dispute resolution processes often backfired. For example, mandatory, non-binding resolution efforts, such as mediation or arbitration, often extended dispute durations.

However, the survey did note three things that helped expedite dispute resolution:

Parties willing to compromise

Accurate and timely schedules and reviews by third parties or staff

Greater transparency and detail to support claimed damages

In short, the survey found that you’re more likely to settle your dispute quickly outside of court if you’re not trying to completely batter the other side. And that you want to present as much useful and accurate information in support of your argument as possible. Naturally, that means having the information. Yet it also means understanding your contractual responsibilities and the other side’s expectations.

Start from a Strong Foundation

Ultimately, the survey reinforces the need for construction companies and developers to consider the possibility of disputes before they launch into a project. You wouldn’t work on framing a building, wiring it, plumbing it or adding all the decorative touches before you first ensure the foundation is solid. Similarly, you don’t want to start your dispute resolution by leaping into the project through a fifth-story window. You want a plan that you know is solid.

The skyrocketing values for construction disputes highlight the importance of getting things right. The survey highlights the increased focus on risk management. If you’re doing everything right, that means managing your risks in disputes, as well as in the project itself.