The survey on managing the risk of dispute in construction (Chapter 6)
A survey was carried out mainly with the support of friends and colleagues within the construction industry and a small amount randomly solicited. Of the questionnaires sent out to people that I directly knew, 92% responded. Of the small amount of surveys sent to people that I had no previous contact with 11% responded. A total of 38 questionnaires were received. There was generally an equal balance of responses received from engineers, project managers, construction managers and quantity surveyors. The were also a few lawyers that responded, one who is a senior in house lawyer from a major American construction company with an annual turnover of 13 billion dollars. There was a response from a chairman and a managing director of well established construction companies with annual turnovers over 20 million and 300 million pounds respectively.
Validity of responses
An analysis of the respondents experience within the industry and the type of construction projects they were involved in was carried out. 40% of the respondents had over 20 years experience in the industry, 40% had between 10 and 20 years experience and 20% had less than 10 years experience. 33 % of the respondents had gained their experience from general construction type of work, 62% from major infrastructure type work and 5% from house building type work.
90% of the respondents had been involved in some form of dispute resolution process ranging from litigation, arbitration, adjudication, expert determination, mediation and negotiation.
Objectives
The main objective of the survey was to solicit the opinions of construction industry professionals on their perceptions of the management of the risk of dispute in the construction and the influence of information technology.
Analysis of the responses
Decision making in construction projects
The respondents were asked in their opinion how decisions were made on construction projects. Three options were provided as follows
• Intuitive decision making based on perception.
• Systematic decision making based on fact.
• The respondents were given the opportunity to choose another approach and provide details.
The analysed results are represented in Fig.6.1. Most of the respondents (40%) stated that decisions in construction are normally based on a combination of both intuitive and systematic methods. Some respondents cited reasons for not being able to make decisions systematically due to time constraints and lack of information as well as lack of understanding of the decision maker. 25% thought that decision making in the construction industry was intuitive and 35% thought it was systematic.
Fig 6.1 – Opinion on the way decisions are made on construction projects.
Although 35% of the respondents initially thought that decisions were generally systematic, when further questions where asked and explained the respondents agreed that decision making was primarily intuitive.
Cost and time overrun on construction projects
The main factors for disputes in the construction industry are because projects do not meet their time and cost budgets. There are literally hundreds of reasons for this happening. However to quantify these reasons the respondents were given the choice of three categories as follows, represented in Fig. 6.2:
• The first category represented two groups that should be capable of avoidance by the parties which included wrong decisions and inadequate systems and policies. The total of these two groups of inadequate systems (36%) and wrong decisions (20%) was 56%.
• The second category included one group, the nature of construction. This category represented reasons which are not capable of being totally prevented (out of the control of parties). The total of this category was 24%. This was the choice of 75% of the respondents with more that 20 years of experience in the construction industry.
• The third category provided the respondents with an opportunity to state any other reasons that in their opinion were the main causes of cost and time overrun, which were not mentioned. The total for this category was 20%.
Fig 6.2 – Why construction projects overrun on time and cost
The effectiveness of risk management in the construction industry
This section was aimed at understanding whether the construction industry in general was doing enough to manage risk. The respondents were asked their opinions whether general operation risk was effectively and actively managed on construction projects and whether they thought more focus was needed on risk management to reduce cost and time overruns on construction projects. As represented in Fig. 6.3, 80% of the respondents thought that more focus was required to actively manage risk to reduce cost and time overrun in the construction industry, 15% thought that enough was being done to manage risk and 5% either did not know enough about the subject or gave an equally weighted answer.
Fig. 6.3 – Percentage of respondents that were of the opinion that risk was well managed in the construction industry
The use of information technology in managing information and process in the construction industry
The financial industry has embraced the use of information technology to manage information, processes and risk with a reasonable level of success. The purpose of this question was to get an understanding in general of the view of construction professionals in this respect. As indicated in Fig. 6.4 only 35% were of the opinion that the construction industry was up to speed with information technology development, while 45% thought that the construction industry has not kept up with the pace of information technology development. There was a group of 20% of the respondents who were unsure of the question. One respondent said that the question was not comparing apples with apples and another thought it was impossible for the construction industry to adopt information technology in the same way as the financial industry did because construction projects are always different while in the financial industry there was a lot of repetition.
Fig 6.4 – Percentage of respondents who were of the opinion that the construction industry was keeping up with the pace of information technology development
Barriers to resolving differences in the construction industry
In practise and in theory there could be a host of barriers to resolving differences that arise in the construction industry, however there are some general recurring themes in this respect. To probe the respondents opinions to what they thought the main barriers were the respondents were given a choice of the following options:
• Personal issues
• Lack of contractual mechanism
• Power imbalance between parties
• Lack of quality information
• Other of which details were requested
As detailed in Fig.6.5 the respondents thought that the main barriers were lack of quality information (28%), personal issues (24%), other (24%), lack of contractual mechanism (18%) and power imbalance between parties (6%).
Fig 6.5 – The main barriers to resolving differences that arise between parties on construction projects
The best ways of preventing disputes in the construction industry
An open question was asked with no multiple choice answers on the respondent’s opinion on the best ways of avoiding disputes in construction projects. There were a few general themes as follows:
• Communication and the ability to make quick decisions between parties who were adequately empowered to do so were seen as a key theme. This was summed up quite neatly by one respondent “Sharing information, a proactive attitude, dealing with matters before they escalate out of control and then sensible negotiation”.
• There was a general feeling that adversarial relationships had to be worked on and it was necessary for all parties to work together with common objectives.
• One theme that was picked up on was the need for more robust contracts and specifications from the outset.
The use of real time analysis as a management tool in the construction industry
An open question was asked with no multiple choice answers that probed to what extent the respondents thought that real time analysis of contemporaneous data would help parties in managing the construction process effectively and resolve differences when they arise and prevent disputes. Most of the respondents were of the opinion that it would definitely be beneficial however there were general scepticisms; that all parties would need to buy into the process, that the analysis would need to be measured against a programme that was agreed at the outset and that because of the nature of construction not being repetitive it would be a major task of which costs could outweigh the benefits and even then there was no guarantee that it would be of value. One respondent with over twenty years in the construction industry working as a claims consultant said that real time analysis would be a boon for the construction industry provided contracts supported it.
Validity of responses
An analysis of the respondents experience within the industry and the type of construction projects they were involved in was carried out. 40% of the respondents had over 20 years experience in the industry, 40% had between 10 and 20 years experience and 20% had less than 10 years experience. 33 % of the respondents had gained their experience from general construction type of work, 62% from major infrastructure type work and 5% from house building type work.
90% of the respondents had been involved in some form of dispute resolution process ranging from litigation, arbitration, adjudication, expert determination, mediation and negotiation.
Objectives
The main objective of the survey was to solicit the opinions of construction industry professionals on their perceptions of the management of the risk of dispute in the construction and the influence of information technology.
Analysis of the responses
Decision making in construction projects
The respondents were asked in their opinion how decisions were made on construction projects. Three options were provided as follows
• Intuitive decision making based on perception.
• Systematic decision making based on fact.
• The respondents were given the opportunity to choose another approach and provide details.
The analysed results are represented in Fig.6.1. Most of the respondents (40%) stated that decisions in construction are normally based on a combination of both intuitive and systematic methods. Some respondents cited reasons for not being able to make decisions systematically due to time constraints and lack of information as well as lack of understanding of the decision maker. 25% thought that decision making in the construction industry was intuitive and 35% thought it was systematic.
Fig 6.1 – Opinion on the way decisions are made on construction projects.
Although 35% of the respondents initially thought that decisions were generally systematic, when further questions where asked and explained the respondents agreed that decision making was primarily intuitive.
Cost and time overrun on construction projects
The main factors for disputes in the construction industry are because projects do not meet their time and cost budgets. There are literally hundreds of reasons for this happening. However to quantify these reasons the respondents were given the choice of three categories as follows, represented in Fig. 6.2:
• The first category represented two groups that should be capable of avoidance by the parties which included wrong decisions and inadequate systems and policies. The total of these two groups of inadequate systems (36%) and wrong decisions (20%) was 56%.
• The second category included one group, the nature of construction. This category represented reasons which are not capable of being totally prevented (out of the control of parties). The total of this category was 24%. This was the choice of 75% of the respondents with more that 20 years of experience in the construction industry.
• The third category provided the respondents with an opportunity to state any other reasons that in their opinion were the main causes of cost and time overrun, which were not mentioned. The total for this category was 20%.
Fig 6.2 – Why construction projects overrun on time and cost
The effectiveness of risk management in the construction industry
This section was aimed at understanding whether the construction industry in general was doing enough to manage risk. The respondents were asked their opinions whether general operation risk was effectively and actively managed on construction projects and whether they thought more focus was needed on risk management to reduce cost and time overruns on construction projects. As represented in Fig. 6.3, 80% of the respondents thought that more focus was required to actively manage risk to reduce cost and time overrun in the construction industry, 15% thought that enough was being done to manage risk and 5% either did not know enough about the subject or gave an equally weighted answer.
Fig. 6.3 – Percentage of respondents that were of the opinion that risk was well managed in the construction industry
The use of information technology in managing information and process in the construction industry
The financial industry has embraced the use of information technology to manage information, processes and risk with a reasonable level of success. The purpose of this question was to get an understanding in general of the view of construction professionals in this respect. As indicated in Fig. 6.4 only 35% were of the opinion that the construction industry was up to speed with information technology development, while 45% thought that the construction industry has not kept up with the pace of information technology development. There was a group of 20% of the respondents who were unsure of the question. One respondent said that the question was not comparing apples with apples and another thought it was impossible for the construction industry to adopt information technology in the same way as the financial industry did because construction projects are always different while in the financial industry there was a lot of repetition.
Fig 6.4 – Percentage of respondents who were of the opinion that the construction industry was keeping up with the pace of information technology development
Barriers to resolving differences in the construction industry
In practise and in theory there could be a host of barriers to resolving differences that arise in the construction industry, however there are some general recurring themes in this respect. To probe the respondents opinions to what they thought the main barriers were the respondents were given a choice of the following options:
• Personal issues
• Lack of contractual mechanism
• Power imbalance between parties
• Lack of quality information
• Other of which details were requested
As detailed in Fig.6.5 the respondents thought that the main barriers were lack of quality information (28%), personal issues (24%), other (24%), lack of contractual mechanism (18%) and power imbalance between parties (6%).
Fig 6.5 – The main barriers to resolving differences that arise between parties on construction projects
The best ways of preventing disputes in the construction industry
An open question was asked with no multiple choice answers on the respondent’s opinion on the best ways of avoiding disputes in construction projects. There were a few general themes as follows:
• Communication and the ability to make quick decisions between parties who were adequately empowered to do so were seen as a key theme. This was summed up quite neatly by one respondent “Sharing information, a proactive attitude, dealing with matters before they escalate out of control and then sensible negotiation”.
• There was a general feeling that adversarial relationships had to be worked on and it was necessary for all parties to work together with common objectives.
• One theme that was picked up on was the need for more robust contracts and specifications from the outset.
The use of real time analysis as a management tool in the construction industry
An open question was asked with no multiple choice answers that probed to what extent the respondents thought that real time analysis of contemporaneous data would help parties in managing the construction process effectively and resolve differences when they arise and prevent disputes. Most of the respondents were of the opinion that it would definitely be beneficial however there were general scepticisms; that all parties would need to buy into the process, that the analysis would need to be measured against a programme that was agreed at the outset and that because of the nature of construction not being repetitive it would be a major task of which costs could outweigh the benefits and even then there was no guarantee that it would be of value. One respondent with over twenty years in the construction industry working as a claims consultant said that real time analysis would be a boon for the construction industry provided contracts supported it.
posted by Will at 19.10.06
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