Building frustration: Poor contract management and construction disputes

Tim Cummins over at the Commitment Matters blog does another fine job of sniffing out evidence of the value of contract management. In this post, he pointed to a study by a global consulting firm EC Harris on construction disputes. (Cummins is CEO of the International Association for Contract & Commercial Management.)

Photo Credit: miamism via Compfight cc
Photo Credit: miamism via Compfight cc

The report makes it quite clear: contract management practices (and failures) are at the heart of costly construction industry disputes that cost companies millions of dollars in disputes.

For the readers of this blog (mainly US-based), it’s important to point out that the report is worth a read if you’re in the construction business. Though the report takes a global look, there is a section on US construction disputes.

Here’s why Cummins noted the study – and why it’s of value if you’re in the construction business and considering a contract management solution. One of the common themes in these construction industry disputes are mistakes, but not just any mistakes; ones that are closely tied to contract management.

Here are the report’s ranking of top dispute causes in 2012:

  • — Incomplete and/or unsubstantiated claims
  • — Failure to understand and/or comply with its contractual obligations by the Employer/Contractor/Subcontractor
  • — Failure to properly administer the contract
  • — Failure to make interim awards on extensions of time and compensation
  • — Errors and/or omissions in the Contract Document

 

As the report notes: “…it is interesting to note that the causes are all directly related to contract administration, with the causes ranked 1-4 occurring post contract and rank 5 connected to the pre contract period.”

Now, there’s a good chance if you are in the construction business in any form, your company may not be in the league of those that hire EC Harris for dispute resolution. And as the report notes, in the US, the construction industry is very good at risk mitigation (comparatively).

Nonetheless, there are literally thousands of small and mid-sized businesses that subcontract on construction projects. And although the industry in the US may be relatively good at setting the terms of contracts to avoid risk/problems/disputes, it’s probably also true that many of those contracts are signed and forgotten. Given the length of some construction projects, not having access to a database of contract information (and related documents) can be a real problem should time-sensitive problems arise.

So you have to ask yourself: if your business is in the construction or subcontract construction business, doesn’t it make sense to have a contract management solution?

If you’re looking for some info and data to back up the need for contract management solution, the EC Harris report should be in your quiver when it’s time to let fly your reasons.

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