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Construction Leaders Podcast
Evolving Disputes, Smarter Solutions: How Construction Leaders Can Stay Ahead
00:31:57
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- [00:03]
A
Welcome and thanks for tuning in to the Construction Leaders Podcast where we explore the trends, challenges and innovations shaping today's built environment. I'm Carly Trout here with Nick Soto, and if you've been following the podcast, you may have heard recent episodes on fostering collaboration, building high performing teams, effective communication, and increasing efficiency through the use of AI. And if you do all these things, your projects will run perfectly and have zero disputes. Well, not exactly. Unfortunately, disputes are almost inevitable in construction, especially as the industry faces increasing complexity, accelerated project timelines, and economic uncertainty. And while every dispute is unique, recognizing the trends of construction disputes provides valuable insight into industry issues and can steer project participants toward best practices. Today we'll dive into findings of an annual report that explores these trends. Arcadis 15th Annual Construction Disputes Report titled Construction Disputes in Speed, Agility and Adapting to Change. And here to break it all down is Brian Van Lenten and Steve Warhol from Arcadis. Steve is Senior Director of Claims and has 39 years of experience in construction management, program management, and claims resolution and has assisted owners, designers, contractors, and CDMs to successfully complete projects and resolve disputes. Brian is Director of claims and has 21 years of engineering and claims experience on a wide variety of public and private projects. As a testifying expert, he focuses on delay, inefficiencies, changes, and quantum. Brian has also taught construction claims avoidance seminars at Departments of transportation across the U.S. steve and Brian, thank you so much for joining the podcast today. Can you each start off by introducing yourself to our listeners? Brian, let's start with you.
- [02:07]
B
Thanks Carly. Yeah, you summed it up. I got my my background is in engineering and I started as a structural engineer and I started in bridge design. I also did some structural design of buildings and other types of civil infrastructure. I did that work for about 10 years before I transitioned into the field that I'm in now, which is construction claims resolution. And I've been doing this work for about 12 years focusing on delay productivity type claims. And as you mentioned, I've taught claims avoidance seminars to departments of transportation across the U.S. great.
- [02:49]
A
How about you Steve?
- [02:50]
C
As you noted, I've been in the construction business for almost 40 years now. I am a licensed civil engineer. I started out as a scheduler in construction and probably half my career is in the construction business, working my way up from scheduler to program manager of a $4 billion program. And then I got into claims and I testified several times as an expert in productivity, loss and delay and quantum on projects varying from small condominiums up to four $5 billion. Processing plants, refineries, and LNG plants, et cetera. I'm also a professor at the University of Washington. I teach graduate classes on delay and on claims and dispute resolution.
- [03:42]
A
Okay, great. Welcome again. So, before we dive into the specific findings of this year's report, first, Ryan, can you provide an overview of the construction disputes report? As I mentioned, it's the 15th year you all are doing it, so it's been around for a while now. But can you just give an overview of the report and the type of insights it provides to the industry?
- [04:04]
B
Sure. As you mentioned, it's the 15th annual report. We've been doing this for 15 years now. And the report this year is titled Construction Disputes in Motion, Speed, Agility, and Adapting to Change. The report analyzes key trends in the construction dispute market in North America for the past year. So for 2024-2025, the report measures dispute values, lengths and common causes and effective avoidance techniques. It does that by capturing survey responses from industry participants. The report also provides things like statistical benchmarks and identifies emerging trends and risks for things like workforce shortages and supply chain volatility or technological adoption, just to mention a few that are featured in this year's report. And it also provides insights for stakeholders to help them navigate the construction environment, which is becoming increasingly more complex. Ultimately, the report serves as both a snapshot of the current state of the disputes market for construction, as well as a guide for owners, contractors, and legal practitioners on dispute avoidance and resolution strategies.
- [05:33]
D
So, Stephen, first off, go Huskies. But what does this year's report reveal about current trends and significant findings in construction disputes as a landscape, both in the terms of dispute values and resolution times?
- [05:47]
C
Well, first, I would say I want to say about this survey that supports the report, that it was sent to a diverse set of people around the industry. So it includes engineers and contractors, construction managers. So it wasn't just one area of the business. Also owners. And the results, I find, were pretty striking. Based on the results, in 2024, the average dispute value jumped about 40% from about $43 million in 2023 to over $60 million to $60 million. That's more than triple what we found from way back in 2019. At the same time, the average resolution time dropped by about 14% to just 12 and a half months, which is the shortest we've seen in a decade. I've come up with various theories on why that is the case, but we're seeing disputes becoming larger and more financially complex, yet they're being resolved faster. This Reflects stakeholders growing preference for speed and efficiency in resolving disputes. Even going to alternative methods like mediation and data driven analyses rather than the prolonged litigations. Even the arbitrations can last a long time. I worked on one arbitration that was for a project that was valued at $3 million and it doubled in value to $6 billion because it was a reimbursable contract, believe it or not. And that arbitration took nearly five years to finally get resolved. So even arbitrations are not fast.
- [07:41]
D
I want to follow up on that because I want to hear more about your theories and what this frequency and more complex claims are going to really mean to construction managers on keeping projects on track. Can you dive in a little bit more about those theories?
- [07:55]
C
Sure. Just that coming out of COVID I believe that many construction projects had to be put on hold, but that doesn't mean that they disappeared. So once things got cleared up and we could all work on a construction site together, you know, it was all hands on deck getting these projects started and moving. That doesn't mean that we don't have disputes on these projects. And so people were motivated to get the work done. But they also saw in the disputes that the traditional litigation and arbitration method was not resolving the disputes. And owners and contractors knew that there was this big backlog of projects. So my thought was we want to get through these disputes and move on to the next project as fast as possible. The other problem is, and as a result of, at least based on my research, is the shortage of labor. And it's currently happening. It's happened out of COVID and it's continues. And the people who are running the project, the owners, are finding that their projects aren't getting done as quickly as they would like them. And again, that's another reason they want to get past the dispute so they can move on to their next projects as quickly as possible. So as we mentioned in our report, things like alternative dispute resolution techniques like mediation and dispute review boards, et cetera, are becoming more and more popular to get through these disputes as quickly as possible.
- [09:44]
B
And if I could just jump in, Nick, and add something onto that. Steve mentioned the issue with the labor shortages. And I think we've been hearing a lot about potential labor shortages or coming labor shortages in construction and skilled labor in construction. And those shortages are. Have materialized. They are here and affecting projects right now. And owners and project managers are reporting that the shortage of skilled labor is having an effect on their projects and causing delay on their projects. So we have reached the point where the shortages of skilled construction labor is impacting our ability to get projects done on time.
- [10:28]
C
In addition to that, not only is it impacting the schedules, it's impacting the cost. I was speaking to the project manager for a city here on the west coast that has a $2 billion program going on now because they cannot find enough people. The contractors can't find enough people. Those people that they do find are asking for a premium rates for the labor. And so it's a supply and demand issue right now. So it's cost is going up and schedules are being delayed. Labor is a big thing right now in this country.
- [11:06]
B
Yeah. And I think we can say that from basic economics, I'm not an economist, but we have a shortage of labor, so the demand goes up. So we could expect that, like Steve said, pay might increase and that might make it more desirable. We might expect then to see an inflow of folks working. So I think we can expect to see that as the solution, that costs will go up for labor and that might draw in more workers.
- [11:36]
A
Brian, one thing you mentioned earlier is that the report also provides some common causes of construction disputes. Can you share a few of those? Maybe specifically for North America, I'm not sure if it was a global survey, but for North America, what are the top causes for construction disputes?
- [11:55]
B
Sure, and the report is targeted for North America. But what we found as far as the top causes of disputes is similar to what we found last year in last year's report. The leading cause of disputes for in fact the third year in a row is errors and omissions in contract documents. I'll go through the top three. The second one is the failure of owners and contractors and subcontractors to understand or to comply with their contractual obligations. So the first two are dealing with the contract, errors and omissions in the contract and understanding or complying with the contract. And the third one is owner directed changes. And these three causes are. They're commonly found. The leading cause is two years in a row. We've seen changes in there two years in a row. And the issues are persistent, unclear documentation, misaligned expectations, inadequate compliance. I would add to that failure to communicate. I think communication is a huge part of not just resolving claims, but avoiding claims in the first place. The consistency of these clauses shows that things like contract clarity and stakeholder education remain really central to avoiding disputes. And with regard to owner directed changes, these are often also tied to issues with the contract, be they errors in the contract, omissions in the contract, or even a scope in the contract that's ambiguous or unclear. Owners also should be aware that the impact of the changes that they make and the disruption of those changes and the disruption it can have on a contractor's schedule and budget can be severe. And that itself is the cause of disputes.
- [13:57]
D
Brian, I want to follow up on that. Can you go into a little bit more about the contract ambiguity because it remains one of the top causes of disputes. So in your view, what practical steps can CMS take during pre construction to make contracts clear, clear and fair for all parties?
- [14:12]
B
That's a good question, Nick. I think maybe one of the things that they can do is turn it over to Steve to answer this question.
- [14:19]
C
Yeah, I'd be happy to take this one. One of the things what I've seen in my years of doing claims is often the most disputed claims come from either side, one side or the other, or the parties, the owner of the contractor not carefully reading the contract before it's signed. Examples of disputes come out of like the change management process, the claims management process, the schedule process, how that's managed and oftentimes it's one side or the other. And I'm even blaming the owners too because they don't read their own contracts sometimes that they don't understand their contract very well and that a lot of times leads to disputes. Custom contracts, those are a big challenge because they are get written sometimes by people who don't understand the construction process as well as they should and that creates these gaps or ambiguities that can lead to misinformation, misunderstandings and therefore disputes. And the owner might read the same paragraph one way and the contractor reads it another way, obviously probably to their advantage. And that can lead to some serious disputes in the way how contracts become a problem.
- [15:42]
B
And Steve, would you also say that constructability reviews are something that could help avoid?
- [15:48]
C
Absolutely. And that's the thing that I've seen it in the billion dollar programs and the hundreds of million dollar programs. But you don't see it. You remember we're seeing the smaller projects, the $25 million disputes. Those are typically smaller. Those are smaller things and those are performed on projects that are. They may not even have constructability reviews or even risk assessments. That's another problem that I've seen. Project owners do not do enough in performing risk assessments of their own projects and understanding where the weaknesses are before they even hire the contractor.
- [16:27]
A
Well, we're going to pick back up on this conversation soon, but we're going to take a quick break to hear about today's sponsor. Thanks to IHG planning travel for your team just got easier. IHG Business Edge helps small and medium sized businesses travel smarter. Whether it's heading to a client meeting, a conference or corporate retreat. Members receive receive guaranteed discounts at thousands of IHD hotels and resorts around the world, plus flexible booking options and exclusive partner savings. And the best part? There is no annual fee. Join the program today and start unlocking value every time your team hits the road. Learn more and enroll@businessedge.ihg.com so let's switch gears a little bit and talk about technology adoption. We we have things like BIM that have been around for a while and then obviously AI is huge now and is a big part of all industries, right? But how are these technologies like? What benefit have you seen and what challenges remain for widespread adoption? We've heard that construction, the industry tends to lag as far as technology adoption.
- [17:41]
B
Sure, I can start that one off. It's true that the construction industry does have a reputation for being slow to adopt. I do think that that's starting to change. You do see things like drones being used for construction projects. That has been pretty widely adopted. I think in construction the hesitancy comes from a desire to see real results. And with something like a drone, I think it's fairly obvious what the benefits are. And among other things, you can track progress on the project. And that's valuable for a number of reasons, but specific to disputes, you might be able to say, we can see that this area has been delayed. We know when that delay started, we know when work started or stopped in a certain section of the project. We can see how much progress has been made in a period of time. If drones are being used weekly or hopefully daily or something like that, we can track progress very accurately and go back after the project is completed and really zoom in to see how much work was being done and get actual supportable evidence on that. So with other technologies, digital technologies on construction projects, for example, AI, obviously AI is everywhere now and it's all over the news and it does have the potential to really impact construction as well. And I think that it will be probably adopted more quickly than some other technologies have been adopted in construction. And for things like predictive scheduling, obviously for risk assessment and real time monitoring, there's a lot of talk about AI being able to predict claims before they happen. There are of course some more grandiose claims about what AI is going to be able to do. But I think for things like predictive scheduling, making schedules more accurate based on historic data is essentially what that predictive scheduling can do. Risk assessment is something that AI can help with. Right now you have other types of technology. Internet of Things from the Internet of Things with construction, you're getting information from sources of equipment on the project, or even manpower on the project or tools on the project. When the equipment is being used, what area it's being used in, how long it's being used for. That kind of information can be really helpful. Just as an example for efficiency type claims, you can see how long the backhoe was being run, which part of the project it was being operated in. And you can use that for calculating productivity to determine if you had productivity losses. So Internet of Things is something that is being adopted, I think that might be a little slower to be adopted in a more widespread fashion than let's say AI. Another technology that's been being used for a while is bim. I have used that when I was a structural engineer to detect clashes in the design that used to be very difficult to find in design documents. For example, are the structural beams running through where the plumber has his piping, or I guess it would be vice versa as the plumber run his piping through my structural dean and H vac ducts, Things like that. Where BIM is really excelling at determining that there's more than one thing in this space. So it's, that's a clash. These tools can help the construction project run faster. They can support claims with actual evidence based information. They can help flag disputes and flag risks before they turn into full blown claims. There's obviously some problems with the adoption of some of these. Some of the technologies have not fully fleshed out or some of the claims have not really materialized the claims of the capability of the technologies. And also we see that the technologies are being adopted more quickly by larger firms. So smaller construction firms might have a more difficult time skilling or say upskilling or training their staff to work with AI on their project to incorporate AI with predictive scheduling or risk assessment. So I think those are some of the potential strengths and some of the challenges that we're seeing with adopting technology and construction.
- [22:24]
C
I would just only like to chime in a little bit. What Brian just talked about is dead on. But I just want to bring up a real life example that data mining is something that is just coming into being something useful and understood, at least in our business. And on this project I just mentioned, that was 3 billion oil refinery that was a cost reimbursable project, grew to 6 billion. It included about 50 months of schedule updates, and each schedule Update averaged between 35 and 40,000 activities per month. And that's huge. And so if you're a construction manager and you're trying to find where things started changing a year or two years back, having something like AI to help you find that information will save a ton of time. And construction managers would rather be out watching the project in real time instead of trying to spend hours and hours trying to figure out where one activity started going askew in the project. And so that is one place where I really see construction managers being helped by, with the usage of AI. I don't foresee AI replacing construction management people as much, because the one thing about construction that makes it unique to other industries is that construction is built by humans. And you can't replace workers, can trade workers with machines on building a building. And you also have to have people who are watching and managing and have a human understanding. It's rarely ever black and white what the situations are out in the field and how they get resolved. So that's why I do see a very large need for AI in our business. And it's, it's progressing.
- [24:18]
A
I think our listeners will be very happy to hear that, that they will not be replaced by AI. But beyond technology, I think the report goes into other broader market challenges, such as supply chain disruptions, pricing volatility, regulatory shifts as some examples. So how are these pressures affecting the industry and what strategies do you suggest for adopting and tackling these in 2026?
- [24:44]
C
What I see off the top of my head are the geopolitical issues that are going on, the threats of tariffs and the tariffs that are happening, even the battles, the wars that are going on throughout the world and threats of those kind of things, those affect how people spend their money, how owners spend money, or when they spend their money. And the concern is also escalation of costs. So if we shut down the borders with Canada, for example, on lumber, the price of housing is going to go up because we get a lot, much of our wood from Canada. And so that is one of the big concerns I have is steel from Asia. That's another biggie that I, I find is going to be a problem for places like North America and South America when it comes to constructing in the future. And how do we resolve it? We'll just have to let the politicians figure that out. But there's ways to get around it. But I don't, I don't know. I guess all we can say is that the future will only can only.
- [25:48]
D
Tell Speaking of the future and looking at it, I want Brian and Steven to try to answer this, but we'll start with you. Brian is how do you. Vision, technology, collaboration and leadership, reshaping the very nature of construction disputes, or even preventing them altogether.
- [26:04]
B
I don't know that we're going to be in a position to get rid of construction disputes, at least not in the foreseeable future. I just think that there's so much uncertainty in construction and it's just the nature of people and it's how the business is set up that there's always going to be, first of all, unknowns that you encounter. You won't be able to completely flesh out a project. There'll always be the potential for ambiguities, or, let's say, excavation. You might find something unexpected underground. And once you have a change like that, someone's going to end up paying for it. Chances are they're going to feel like it wasn't their responsibility and they're going to want to be repaid for their costs. So I don't know that I foresee the ability, even with technology, to eliminate or construction claims. I think the best that we can probably hope for is we can use technology to more accurately record the kind of more granular detail on a construction project. And that's obviously going to dramatically increase the amount of data that we gather and hopefully use AI to really be able to parse through that data, to understand what happened, who might be responsible for that, and to continue to improve the efficiency of claims. In other words, we're seeing that claim values are going up, but the dispute resolution time is going down. And that kind of speaks to an increased efficiency in resolving the claims. And I think we can expect that technology will help with that, gathering more data, being able to identify the important pieces of data that we're concerned with, and that should help us resolve claims more expeditiously. So that would be my answer.
- [28:04]
C
Nick, is it okay if I add on to that? One of the things that at least our company offers to owners, well, and contractors, is the services before we even get into the dispute phase. And that is offering consulting on how to avoid a dispute before it even becomes something to be worried about. A lot of owners are very new to construction or they haven't performed any construction in a long time, and they've had turnover in their leadership, and they don't know what they don't know a lot of times. And this is me speaking from experience. We talked about things like risk assessments and constructability reviews and just educating their construction people, the people who are going to be out on the site representing the owner on ways to red flag things that could be an issue and work in very close collaboration with the owner early in projects. Contractors and owners are typically very cordial and professional and things. But as projects tend to move on and there can be a lot of tension because of miscommunications and issues that arise, you can avoid all those tensions and miscommunications if you keep in touch with each other and resolve things professionally. I've seen projects where the contractor doesn't even come to the owner's project meetings anymore. They just will not talk to each other. And that's just not the way. If we're going to try to work on avoiding claims issues, that's one way to nip it in the bud before it even happens. The other thing that we work on is mitigating claims, turning those mountains into a molehill by negotiating or talking with the contractor early on if they submit a change order or a claim, carving out the stuff that's easy to carve out, whether the owner approves it or the contractor takes it out of the change order request, that solves a lot of the problems up front and that now it's down to the real crux of the issues that might be there or they might even disappear. But that's what we're finding eliminates a lot of the issues that arise and that's probably what contributes to getting resolving disputes a lot quicker is because there's a lot of upfront that gets taken care of with claims and disputes.
- [30:29]
D
Absolutely. And this has been wonderful. So thank you Steve and Brian for the in depth look at construction disputes and evolving dynamics of the collaboration and technology shaping the construction industry. For more information, you can read the full report by going to arcadis.com just click on expertise and go down to Contract solutions. And that's a wrap for today's episode. But next time we're shifting gears and we're digging into resilience, we'll explore how planning and construction management can strengthen a project's capacity to withstand and recover from disruptions. Whether it's a natural disaster, a supply chain crisis. No one saw it coming. It's about much more than that. It's about bouncing back and building back. Better join us as we talk to experts in redefining what resilience really means in the built environment and how today CMS are leading that charge as well as CMAA hosting a webinar on the same exact topic with expanded content by the Sustainability Committee as well. Make sure you download and subscribe to the podcast and follow us on social media at maahq. And don't forget to leave us a review with your thoughts on today's episode and let us know what you'd like to hear on an upcoming podcast. On behalf of SA cmaa, I'm Nick Soto with Carly Troup. Thank you for listening.