International Contract Disputes Take Longer to Resolve

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This article was originally published on Engineering News Record on 06/18/2013.

Construction disputes around most of the globe took longer to settle in 2012 than the year before, according to a new survey.

The Middle East topped the chart in terms of both the length of disputes and the values involved.

The average time needed in 2012 to settle construction disputes increased by 20%, or about 60 days, to 12.8 months.

The money at stake in the disputes declined slightly, to $31.7 million.

The data came from the newest Global Construction Disputes Report published by EC Harris, a U.K.-based built asset consultant and a unit of ARCADIS NV.

Harris’ study measures trends in global construction contract disputes with data from cases resolved in 2012 by the firm, a unit of ARCADIS NV.

No data exists for South America.

“Small disputes are taking twice as long, and large disputes are taking 30% more,” says Michael Katz, an attorney with The Coleman Law Firm, Chicago. It focuses on litigation involving engineering and construction companies.

One of the reasons for the prolonged process derives from the complex nature of the work, says Katz.

“Projects are increasing in complexity and so the issues that are material to the dispute can be equally as complex, and therefore need appropriate time to consider the issues,” says the report.

Unsubstantiated Claims

The top cause for disputes last year was incomplete and/or unsubstantiated claims.

The trend in dispute causes fluctuates greatly year over year, and is very complex to generalize, notes Joe Seibold, executive vice president at ARCADIS U.Ss, a branch of EC Harris’ parent company ARCADIS Group. “It is almost impossible to predict or say with certain what the absolute single cause of a claim is,” says Seibold, “Every project is different.”

Disparities among different cultures and regions also add more time into negotiations. The report says that this is often because of the complexity and multi-geography and mixed cultures and the need for both contractors and clients to consult and engage with head offices.

The Middle East stands out for being the region that saw the longest and most costly construction disputes in the areas covered by the survey. Average disputes took 14.6 months to resolve, and carried an average value of $65 million, two thirds more than the second most-costly region, Asia, which had a value $39.7 million, according to the report.

The Middle East is one of the most complicated areas in the world in terms of disputes, “because we bring to the region a wide range of different nationalities, cultures, procedures, laws, customs,” says David Dale, head of contract solutions in the Middle East and Africa regions for EC Harris. “It’s problematic.”

Jurisdictional Challenges

Dale notes that the biggest concern in the area is the jurisdictional challenges and enforcement under the New York Convention, which is one of the key sets of rules in international arbitration that many countries in the world honor, but the number of states that follow the Convention is the Middle East is limited.

“There is still an element of mistrust there with the dispute resolution process,” Dale says, “They are taking much, much longer to resolve partly because of the fear of jurisdictional challenges, and I also think it’s partly because of the lack of qualified experts, arbitrators, lawyers that are able to take the parties through a proper international arbitration process.”

Countries in the region are making an effort to regulate and generalize the process.

United Arab Emirates passed a law last year that went into effect January this year to define the qualifications of an expert witness.

The new law states that an industry expert “must be specialized persons of experienced works” with postgraduate experiences exceeding seven years for nationals and 15 years for foreigners and the degree must be from a “recognized” university, according to Clyde & Co, a global law firm covering sectors such as energy and infrastructure with experiences in emerging markets.

Dale believes this law change would result in additional shortage in experts in the area and might further complicate the situation. “People on the back end of a decision in an arbitration are using any means they can to avoid paying,” says Dale, “The problem is, some of the local courts aren’t experienced enough to deal with the ramifications to the region and how to handle all of that.”

Improvements, however, are in the projection and to be expected for the region. “Before things get better, I think they potentially can get worse,” Dale notices.” But what the Middle East has achieved out here is phenomenal, and what they have built in 10 years, it’s crazy.”

The U.S., on the other hand, amassed the least dollar value at stake in disputes, only $9 million in settlement last year, down from $10.5 million in 2011. The disputes lasted a mere 11.9 months, down from 14.4 months.

Market sophistication and experienced professionals with substantial knowledge help hold down the time needed to resolve disputes in the U.S..

In addition, Seibold points out that the competitiveness of the market and discounted pricing were also critical for the decline.

“The construction contracts that were awarded in the last three to four years during the economic downturn are now approaching completion,” Seibold says.” Those earlier construction bids often came in lower than was budgeted by the owner due to a hyper-competitive market at the time.”

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4 thoughts on “International Contract Disputes Take Longer to Resolve

  1. An impressive share, I just given this onto a colleague who was doing a little analysis on this. And he in fact bought me breakfast because I found it for him (?).So let me reword that: Thanks for the treat! But yeah Thanks for spending the time to discuss this, I feel strongly about it and love reading more on this topic. If possible, as you become expertise, would you mind updating your blog with more details? It is highly helpful for me. Big thumb up for this blog post!

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