Following on from last year’s report, the HKA Crux Insight Report 2022 Battling the Headwinds has again reviewed claims and disputes on global construction projects.
Changes in scope (the #1 cause of disputes) might be an unavoidable side-effect of major construction projects, but the #3 cause of disputes is contract interpretation. Disputes caused by this, according to the authors, are eminently more avoidable.
The Report states:
Ensuring clarity on responsibilities and liabilities is the principal aim of contractual agreements. If properly and clearly drafted… the contract should not be an issue. The fact that conflicting interpretations continue to happen and so often can mostly be explained by lack of effort, time or money, if not competence, during contract preparation and project on-boarding of team members.
We need to spend more effort, time and money to create a clear effective contract, especially one that the parties and the contract administrator can put into action.
We also need to ensure that the contract users understand exactly what the contract requires of them. I’ve lost count of the number of times in a training session that it has become clear no-one understands what the contract means – even once they’ve read it.
Checking processes
Many of the processes in a construction or engineering contract are not easy to adopt.
For most organisations, their processes are not determined by individual projects, but by company policy or by existing platforms and software.
As the Report proposes, this requires the parties to ‘stress-test the contract’ before it goes live. This ensures everyone understands how critical provisions and processes work in practice – either changing the contract terms to suit the process or vice versa. The goal should be to reflect the parties’ internal compliance needs with the contractual mechanisms, which will maximise the chance of processes being adopted.
Instead of trying to squeeze existing processes into the contract straitjacket, the contract should simply reflect what is already available.
What should you do?
Create clear effective contracts and ensure its users can action their processes.
