This audio is automatically generated. Please let us know if you have any comments.
Dive brief:
- The leading cause of construction disputes in America remains disagreements about scope changesbut the region also stands out for staying closer to budget and schedule compared to the rest of the world, according to HKA’s 8th annual CRUX Insight report, which examines the causes of construction disputes.
- However, the London-based construction risk mitigation consultancy also found that claims for poor workmanship in the region outstripped global counterparts, with the problem affecting more than 20% of builds across the region, compared to just 16% globally.
- Still, according to Kimberly Reome, an expert in quantum and forensic accounting at HKA, the most compelling story is not just in the data, but in what is actually changing on the ground. “We’re seeing a clear shift,” Reome said. “Disputes of some kind have been trending downward since 2020. Traditional triggers like scope and design issues are less common, but financial pressures are gaining ground.”
Diving knowledge:
HKA found that projects in the Americas have a lower percentage of disputes based on scope changes and incorrect designs than the rest of the world. Scope change disputes affected 25.7% of disputed projects in the region, compared to 38.8% globally. Similarly, design errors were to blame for 18.3% of project disputes in the Americas, compared to 21.7% globally.
That said, disagreements over scope changes remain the leading cause of construction disputes in the Americas, affecting more than one in four distressed projects completed since 2020.
This cause was closely followed by labor shortages, an area where the Americas underperformed other regions with 20.5% of disputes stemming from the issue, compared to 16.1% for the rest of the world. The figures were slightly higher in the US (20.6%) and Canada (21.4%).
The top five causes of disputes in the Americas and the percentage of distressed projects affected were ranked as follows:
- Range change: 25.7% vs. 38.8% overall.
- Labor shortages: 20.5% compared to 16.1% overall
- The design was incorrect: 18.3% compared to 21.7% overall
- Unforeseen physical conditions: 17.4% vs 14.7% overall.
- The design was incomplete: 16.8% compared to 19.1% globally.
The Americas outperformed global averages in both cost and schedule outcomes, suggesting improved project controls, even as labor and financial disputes gained ground.
In the Americas, the average time extension claim was 57.5% of what was expected, compared to 69.6% globally. Likewise, cost overruns accounted for 31.1% of the budget, compared to 34.7% for the rest of the world.
The report analyzed claims and disputes in 2,204 projects in 114 countries, drawing on the HKA’s direct involvement in distressed projects. In the Americas, the dataset included 703 projects in 20 countries, with an average capital expenditure of $639 million, providing a detailed view of how disputes are evolving in the region.
The report points to improved results in the Americas, particularly in projects scheduled for completion in 2020 or later. Claimed time extensions fell from 60.2% of pre-2020 projects to 44.2%, while claimed cost overruns remained comparatively modest at 26.8%.
Globally, similar trends are seen, but the Americas continue to perform slightly better than the global average. HKA cautions, however, that some newer projects are still ongoing and that disputes may arise later in the project life cycle.
For example, payment and cash flow disputes are increasing rapidly across all project sizes, especially in a softer economic environment marked by inflation and persistent supply chain constraints.
“We’re seeing payment disputes increase rapidly,” Reome said. “These financial pressures can lead to delays and cost overruns that ultimately lead to disputes.”
The report attributes a reduction in other classic problem areas to a combination of better project discipline and tougher lessons learned in recent turbulent years.
For example, while the CRUX data predates the most recent tariff developments in the US, Reome said the report’s findings from the post-COVID period provide a preview of how trade policy changes could affect projects.
“External shocks are accelerators of disputes,” he said. “Covid, geopolitical conflicts and commodity price spikes are hitting projects hard. Tariffs and trade policies can have similar effects if contracts aren’t structured to deal with volatility.”
Looking ahead, Reome sees several pressure points for what’s to come.
“AI is a game changer, but it has risks,” he said. “Collaborative procurement models require real cultural change. Skills shortages may increase. And emerging regulations, whether environmental standards or payment laws, will put pressure on projects.”
Ultimately, he believes the industry needs to stay proactive by spotting risks early, keeping up with learning and evolving contract approaches.
“This is the best way to reduce disputes in the future,” he said.
