Gerry Brannigan is a partner and forensic technical services growth development lead at consultancy HKA
High capital costs and inflation are squeezing construction. Given the gloomy economic outlook for 2024 and beyond, the industry is braced for recession.
“Learning lessons from distressed projects should be a starting point for all the industry to reset”
However, not all forces battering construction and engineering projects are beyond the control of employers and contractors. Many of the causes of conflict on capital and infrastructure jobs across the globe are recurrent, avoidable and predictable. But their burden is real and heavy: an analysis of 491 projects in the UK and Europe over the past six years has shown that conflicts on such projects led to cost claims that averaged 36.2 per cent of original contract values. Meanwhile, time extensions typically prolong schedules by more than 60 per cent. Curbing this heavy toll of claims and disputes could significantly improve not only project outcomes but also the viability of all parties involved.
So what is behind these colossal losses? Design issues are causing the construction industry the most grief. In the UK, incorrect design is the leading reason for claims and disputes, afflicting almost a third of projects. Globally, the three types of design failure – incorrect, incomplete and late design information – combine into a triple whammy that far outweighs the leading cause: change of scope (itself closely entangled with design).
The high incidence of design-centric failures doesn’t stem from just one factor. The design market is under intense commercial pressure. The demands of sustainability, energy performance and new safety regulations are an additional burden – and are potential distractions. Computer modelling and simulation tools are phenomenal and potentially transformative. But design engineers less well versed in the fundamentals of building and engineering are more likely to miss mistakes that manifest later on site.
Savings can be made by offshoring design work. But sufficient time must still be allowed to coordinate the design inputs of multiple designers, subcontractors and suppliers on complex projects – and to dovetail updates as scope changes. Fee structures don’t always allow for collaboration with the contractor to simplify the design on site. Contractors are sometimes left to price evidently flawed designs with a view to claiming for variations from day one.
Design defects are inordinately disruptive and expensive to remedy on site. Most could be preempted with a different risk profile. Employers seek to transfer risk as quickly as possible to contractors. But putting more resources up front into developing and testing designs would save time and money overall, as well as deliver a better end product.
Poor workmanship is another cause of conflict that looms. A contracting environment of low bids and tight margins prioritises output over quality. Devoting more resources to quality inspection may increase control over defects but cannot compensate for skill shortages. Technician training is not as robust as before. Many sites lack a full complement of capable operatives.
When considering how to reduce the costs and overruns caused by disputes and conflicts, a micro approach can be useful. For example, in the UK, inadequate skill or experience is a top-10 cause of disputes – but not in the rest of the world. In fact, projects affected by skill gaps suffered considerably longer time extensions when scheduled to complete after Brexit compared with their predecessors. Looser immigration rules offer only short-term relief from worker shortages exacerbated by Brexodus. This is a systemic problem requiring strategic solutions.
The move to prefabrication may be faltering, though it promises higher productivity and quality control, as well as greater stability for a transient workforce. Again, time and investment are required to make designs fit for manufacturing. Industry efforts to sell construction careers to a new generation may take 10-15 years to bear fruit. Meanwhile, job losses and bankruptcies in the supply chain risk adding to the industry’s knowledge deficit, which grew in the wave of retirements post-Covid.
Financial pressures and flat demand will scupper some companies weakened by the successive shocks of the pandemic, supply chain chaos, energy crisis, rampant inflation and interest rate spike. But the industry could mitigate risks on future projects more effectively.
Avoid repeating mistakes
Learning lessons from distressed projects should be a starting point for all the industry to reset.
Mutual understanding between an experienced client, contractor and designer is the key to successful outcomes. Where one falls short, the pressure on the other partners gives rise to problems and disputes.
Even one dispute caused by ignoring a design consultant’s advice will dwarf their fee. Involving the contractor in the design process can improve materials selection and constructability.
Collaboration, improved training at all levels, and, most fundamentally, employers giving more time (and money) to design to get the scope right, will significantly curtail variations and disputes.
Tough economic times reinforce the case for balancing risks and returns to avoid needless loss of time and money.