RC108 SeptOct2023 - Magazine - Page 28
LEGAL
DESIGNS ON BETTER OUTCOMES
Getting to the CRUX of time and cost overruns on capital projects
by Maged Abdelsayed and Rick Moffat
TEERING MAJOR CAPITAL or infrastructure projects to
achieve successful outcomes involves navigating
multiple risks. And as one would expect, the larger
the scale of a project, the more complex the challenge. Meanwhile, prevailing market conditions and
headwinds generate additional uncertainties and
impact input costs and supply chains.
Yet, the critical factors that push these projects over
budget and beyond schedule are all too predictable and
recur across sectors and regions, as CRUX—HKA’s integrated research programme—shows. Uniquely, CRUX is
based on expert consultants’ first-hand investigations of
claims and disputes on major projects worldwide.
S
Maged Abdelsayed
is Partner,
Joint Construction,
Claims a nd Expert
Services Lead, Canada
with HKA Global, Ltd.
Rick Moffat
is Partner, Head of
Operations, Canada,
with HKA Global, Ltd.
28
Colossal toll of claims and disputes
HKA’s Fifth Annual CRUX Insight Report, published
in 2022, distilled the analysis of over 1,600 multi-year
projects in 100 countries. The report examined the patterns
of causation in world regions and identified ways to
address root causes and mitigate risk. Combined capital
expenditures on these projects exceeded US$2.13 trillion,
and the toll in lost time and money was colossal. Sums in
dispute amounted to more than US$80 billion, while the
total of claimed extensions of time would stretch beyond
840 years.
Project outcomes in Canada and the U.S. were slightly
better than the global average. Extensions of time sought
by contractors typically prolonged planned schedules by
58.6 per cent while disputed costs averaged a third (33.4
per cent of capital expenditures (CapEx) committed when
our investigations concluded.
We have now updated our analysis with intelligence
from HKA assignments undertaken since the report’s July
2022 cut-off. Also, we drilled deeper into the CRUX data
for North America to cover nearly 500 projects—91 in
Canada and 405 in the U.S.
RENEW CANADA – SEPTEMBER/OCTOBER 2023
To align more closely with the focus of ReNew Canada,
we concentrated on transportation infrastructure, power
and utilities, and buildings—excluding mining and oil
and gas projects from our dataset. This meant only a
modest reduction in scope, leaving 81 Canadian and 401
U.S. projects.
Cross-border divergence
A high-level finding favourable to Canada is an apparent
performance gap in project outcomes. Both CRUX headline
metrics—for average costs and extensions of time claimed
per project—were lower in Canada than in the U.S.
In terms of schedules, the additional time sought
by contractors averaged 60.8 per cent of planned programmes in the U.S., against Canada’s 51 per cent. For
costs, the gap was wider at 34.7 per cent of U.S. CapEx
versus 21.6 per cent in Canada.
This apparent gap may be surprising given that cost and
schedule control practices are similar in both countries.
Other important considerations are the mix of projects in
each jurisdiction and their scale. Average project CapEx
in Canada was higher, at US$876 million, compared with
US$564 million south of the border. Also, the U.S. construction environment is traditionally more contractor-driven,
and in general, Canada may be considered less litigious.
More significant than the foregoing is the commonality
of underlying causes that drives disputes and claims (see
Table A). Change in scope tops the ranking in both countries, as it does in other world regions, and the prevalence
of design-centric problems is notable. In Canada and the
US, design errors, incompleteness, and lateness are all
‘top 10’ causes of claims or disputes.
Deficiencies of design
The CRUX data aligns with HKA Canada’s experience.
Many on our team have investigated or testified on
RENEWCANADA.NET
