Invest in nothing happening: how to avoid disputes

How do you mitigate the risks of dispute on major construction projects? Despite the host of mature contracts and ‘practitioner interventions’ from risk, project management and commercial management professionals and the like, avoiding dispute is no mean feat.

Knowing the risks and their likely causes in advance is valuable, as it allows you to ask the right questions during the design and procurement and plan interventions during construction.

Identify the risks

So what are those major issues and how do you ensure your project is not caught out by them? The HKA CRUX Insight 2020 report showed that across a global sample of building projects with a capital value of £200bn, the risk of dispute crystallises at almost 38% of planned project value, equating to a premium of £16.2bn. The report confirms that the most common causes of disputes in global buildings projects are change in scope, late issued design information, and incorrect design.

These causal factors are not perhaps surprising, given that design has grown increasingly fragmented since the 1990s, with the introduction of many diverse subcontractor packages into design development. While these activities are usually confined to early stages in the project cycle, giving a longer period in which to recover the lost time, a serious error affecting multiple interfaces can have severe time and cost implications, and be difficult to put right.

But assessing project risk with absolute certainty can be tricky, not least because it is only during the construction phase that practical issues can be fully appreciated as they emerge. Design risk events will also affect procurement: for instance, details are all too often left to fabricators and manufacturers. Sometimes this is out of necessity, for example, because fabricators are familiar with the constraints of the fabrication process, whereas a general design consultant might not be. Consequently, it is not always possible to robustly define interfaces at the ideal time.

The packaging of works and services is one of the most critical parts of the procurement process and creates the most effective interfaces with and between suppliers, allowing a client to manage the risks it is best placed to manage. Packaging also drives the organisational delivery model and structure.

There are many other risks in the transition between digital technology and physical construction. Insufficient allowance for the necessary design iterations between the detailed and scope design can store up problems for the future.

Work together

Collaborative working has been gaining ground, both in contract agreements and in practice, with a focus of on teams working together in a spirit of co-operation to design and build a project, identifying divergences in terms of planned time, cost and specified technical matters as they arise, then dealing with them using appropriate behaviours via available contract mechanisms. This means designing out problems before manufacturing and construction start, then monitoring and controlling any identified residual risks.

There is a downside to this: monitoring can become a retrospective exercise, looking back and taking a ‘lessons learned’ approach, while other new risks remain unidentified.

Maintenance of risk registers solely by those intimately involved with the project can result in significant upcoming issues being overlooked, because those monitoring the risks are simply too involved in the detail. It is also not unknown for a significant risk to be worked around on a daily basis, as its severity increases, while being played down by those who should be sounding the alarm to the decision makers with the authority to sanction possible solutions.  This is a recipe for future disputes and goes against a significant learning point in the recent National Audit Office cross-government report Lessons Learned from Major Programmes, which points out that decision makers need to consider whether they are being given the right indicators and management information in timely way.

Setting up and running regular multi- disciplinary design reviews is essential to enable interface co-ordination, particularly given the increasing and often diverse factors that influence the phases of a project. The latest of these, sustainability, has become a growing focus area, adding a fifth influencing factor to the traditional ones of time, cost, quality and safety.

Prevention is better than cure

One client, Network Rail, is pioneering a review process focus on prevention. With its ‘disputes premium’ less than a quarter of its global comparators, it has developed effective collaborative relationships with its supply chain over the last 10 years.

As part of this, its commercial projects director, Stephen Blakey, worked with key suppliers and industry stakeholders to explore what more could be done to further reduce the propensity for dispute. The result was dispute avoidance panels (DAP). The concept is simple; seek to prevent disputes arising instead of relying techniques that focus only on intervention.

The technique is gathering momentum and is being employed across a number of its key projects; HKA was recently awarded the framework to deliver DAPs. The DAP process starts with a review of a programme by an independent panel comprising subject matter experts across commercial, legal, planning, and – uniquely – behavioural disciplines who understand major infrastructure delivery and the genesis of disputes.

In collaboration with the project teams, DAP members identify potential issues of concern and provide the project leadership with practical ways to avoid or mitigate the implications. Blakey likens panel members ‘…to being on fire-watch, looking for smouldering embers of dispute in the dry grass’.

Network Rail has developed a process to avoid disputes, but the process has the its flexibility to select the expertise and make-up of panel members to reflect the project and phase of development. For a project in the early stages of design, say, it would make sense to include an architect on the panel.

Small price for nothing

The risks of adopting this type of technique are small; namely paying for a review where either no risks are to be found (possible but unlikely) or where no ‘dispute risks’ materialise (more likely) which in turn presents the challenge of demonstrating the benefit where ‘nothing actually happened’.

However, the potential savings in averting major schedule delays, additional cost and the inevitable breakdown in working relationships are real, as illustrated by the huge cost of disputes. 

Paul Cacchioli, director, HKA