Change in scope is the top-ranking singular cause of project conflicts both in Canada and globally.
Every major building project faces its own particular challenges, but all too often cost claims and overruns have common underlying causes. Canada is no exception to this universal truth, though projects here are more susceptible to certain risks.
According to risk mitigation and dispute resolution specialist HKA, which investigates claims and disputes on capital projects worldwide, the impacts in the Americas tend to be lower than elsewhere, yet still highly damaging. For example, sums in dispute averaged just under a third (32.3 per cent) of project capital expenditure (CAPEX), while time extensions sought by contractors would prolong programmes by more than half (58.8 per cent) of schedules.
This was one of the major findings in the Sixth Annual CRUX Insight Report — covering 1,801 projects in 106 countries with a combined CAPEX of US$2.247 trillion — which revealed some notable differences not only between regions, but also between the U.S. and Canada. This divergence is intriguing given the commonalities north and south of the border in schedule and cost control practices, government and regulatory oversight, and labour market conditions.
Distressed by Design
Change in scope is the top-ranking singular cause of project conflicts globally, as in Canada. But the three design-related factors in the CRUX analysis — design inaccuracy, incompleteness, and lateness — affected a greater proportion of projects (44.8 per cent) than scope change (38.8 per cent). This design “triple whammy” is prominent in Canada and often entangled with scope change.
Around 530 projects in North America were analyzed, 99 of them in Canada. Each type of design failing triggered claims or disputes more often in Canada than in the U.S. Other top 10 causes (see table below) that were more prevalent included scope change (one-third of projects) and unforeseen physical conditions, plus restricted/late access to the site or workface (both factors responsible for disputes on one in four projects).
On the other hand, projects in Canada were less prone to conflicts arising from poor management of subcontractors and supplier interfaces (15.3 per cent versus almost 20 per cent in the U.S. and elsewhere) – or from contract interpretation issues (where there was a much wider gap with the rest of the world than with the U.S.).
The overall impact of claims and disputes was also lower in Canada than in the United States. In the U.S., sums in dispute averaged more than a third (34.4 per cent) of project CAPEX, while extensions would prolong planned schedules by 60.3 per cent. For Canadian projects, the costs claimed averaged 22.0 per cent and time extensions 53.4 per cent. Cultural differences may be in play, given America’s more contractor-driven and litigious environment, and Canada’s statutory provision for adjudication and a preference for early settlement.
Canada versus U.S. – Infrastructure and Capital Projects
|Top 10 causes of claim or dispute||Canada||U.S.|
|Change in scope||32.7 per cent||26.3 per cent|
|Design was incorrect||26.5 per cent||19.1 per cent|
|Workmanship deficiencies||20.4 per cent||20.5 per cent|
|Physical conditions were unforeseen||25.5 per cent||17.5 per cent|
|Design was incomplete||23.5 per cent||18.9 per cent|
|Poor management of sub-contractor/suppliers and/or their interfaces||15.3 per cent||19.8 per cent|
|Design information was issued late||22.4 per cent||17.7 per cent|
|Contract management and/or administration failure||16.3 per cent||14.7 per cent|
|Contract interpretation issues||11.2 per cent||13.3 per cent|
|Access to site/workface was restricted and/or late||24.5 per cent||12.8 per cent|
|Percentage of projects on which this factor was a cause|
Focusing on Buildings
In Canada’s buildings sector, CRUX suggests that prolongation (averaging 52.7 per cent of schedules) tended to be longer than for other types of projects, though still less than in the U.S. (68.4 per cent). Similarly, claimed costs exceeded a quarter of project CAPEX (25.7 per cent), but there was a narrower gap with the U.S. (26.6 per cent of CAPEX).
While infrastructure and capital projects in Canada were more vulnerable than their U.S. counterparts to the triple design whammy, a more nuanced picture emerges for buildings. One in five Canadian building projects (21.2 per cent) had claims or disputes arising from incorrect designs, the same as for U.S. buildings, but a lower rate than for all Canadian projects (26.5 per cent). The other design factors were far less prevalent than in the U.S. (see table below).
There is another design lesson from CRUX. Our analysis supports anecdotal evidence of a “design dividend” from time taken amid the pandemic to test and mature designs ahead of construction work. Design-related failures affected fewer building projects due to complete after the hiatus: 20.0 per cent, compared with 26.3 per cent for those on a pre-COVID schedule, in Canada.
The incidence of workmanship deficiencies should be another major concern. Compared with projects as a whole, this rose seven percentage points to 27.3 per cent for buildings in Canada (becoming the joint top cause of claims and disputes alongside change in scope) and by four points to 24.3 per cent for U.S. buildings. Further analysis suggests that these quality problems are most common in the residential building market across North America, where over 30 per cent of projects had issues with workmanship deficiencies.
Canada versus U.S. – Buildings
|Top 10 causes of claim or dispute||Canada||U.S.|
|Change in scope||27.3 per cent||28.9 per cent|
|Workmanship deficiencies||27.3 per cent||24.3 per cent|
|Poor management of sub-contractor/supplier and/or their interfaces||18.2 per cent||22.0 per cent|
|Design was incorrect||21.2 per cent||21.1 per cent|
|Design information was issued late||9.1 per cent||17.0 per cent|
|Installation failure||3.0 per cent||17.9 per cent|
|Operational performance||6.1 per cent||17.0 per cent|
|Physical conditions were unforeseen||24.2 per cent||14.2 per cent|
|Design was incomplete||3.0 per cent||17.0 per cent|
|Contract management and/or administration failure||18.2 per cent||12.8 per cent|
Canada’s somewhat better record on management of subcontractors and their interfaces was maintained in the buildings sector, but the CRUX data points to other areas of apparent weakness. Contract management and/or administration failures, cashflow and payment issues, site access restrictions, and unrealistic targets or expectations were all more common on Canadian building projects.
A tight labour market, input inflation and higher capital costs will continue to pressurise the Canadian building industry. Mitigating the risk factors highlighted by CRUX will help secure more favourable project outcomes for all industry stakeholders.
Maged Abdelsayed, HKA Partner, Construction Claims and Expert Services Lead, Americas, is a professional engineer with 35 years of construction industry experience. He is a member of Quebec’s Order of Engineers (Ordre des ingénieurs du Québec), the American Association of Cost Engineers International, the American Society of Civil Engineers, and the American Bar Association. He holds a master’s in engineering project management and is a frequent speaker on the subjects of delay analysis, productivity analysis, quantification of damages, claims avoidance practices, and data management practices.