Disruption in construction stands for loss of productivity on a project. Disruption claims is a huge problem and its numbers in the construction industry are pretty frightening, writes Tom Kapapa – Operations and Technical Director at Quantum Global Solutions.
If we look at forecasted future spends being discussed in the market, Qatar is looking to spend over or close to USD200 billion (QAR728 billion) on construction projects in the next 10 years in line with Qatar National Vision 2030. Around 20 to 50 percent of this investment will be used on labour and plant costs. That is close to USD100 billion (QAR364 billion).
Based on my experience, in the worst case, the average labour and plant productivity is lower than 20 percent and in the best cases, less than 40 percent. If we extend these numbers in relation to the investments planned for the industry, the following scenarios could be drawn:
- Close to USD60 billion (QAR218 billion) will be lost by contractors due to unproductive resources, or
- Close to USD60 billion (QAR218 billion) will be the money wasted by the project owners making the assumption that contractors are clever and pricing this risk within their bids, or
- Close to USD60 billion (QAR218 billion) will be the ‘opportunity cost’ on potential investments for contractors and/or project owners, depending on any of the above scenarios.
If we evaluate the costs further and extend these numbers looking at how much has been invested in Qatar in the last 10 years, it leaves me wondering why disruption (or unproductive use of resources) is understated and/or overlooked without any gravitas. Try extending these numbers regionally and globally, and one wonders why this has not been declared an investment crisis. The costs of disruption are frightening and surely cannot be ignored at legislative level, stakeholder level and construction industry level.
“It is the project owners who end up paying for disruption in one way or the other; while in the meantime, the costs of disruption to the industry and national economies keep growing.”
It gets worse if you consider that construction is a key economic driver, and in most developing countries, it accounts to as much as 20 percent of gross domestic product (GDP), surely this ‘silence’ cannot go on and be left for the contractors and project owners to fight it out in court. In Qatar, for instance, construction represents nearly seven percent share of the country’s GDP.
Seeing that the level of opportunity that has been and continues to be lost, one wonders why disruption is not considered at a legislative level? Despite disruption claims or disputes in the construction industry running for years and probably centuries, not a single contract dares to mention disruption or provide any mechanism for managing this cost. Is it because disruption is deemed as a contractor’s risk and therefore should not get a mention in the contracts? This is clearly incorrect, because looking at the number of disputes and costs incurred to fight for such claims whether through amicable resolution or formal dispute processes, at the end of the day, project owners are paying for it. So why have the International Federation of Consulting Engineers or any other contract body decided not to address this fundamental financial and/or investment crisis?
The word ‘disruption’ itself does not sell. Putting my marketing hat on, this is a bad product which has cost us a lot of money and we need to bin it or come up with a good name. Fundamentally and personally, I believe this could be the issue as in most cases I have found people shouting ‘disruption’ when in fact it is a variation under PWA General Contract – 51.1, such as a change in the levels, conditions, lines, position or dimensions of any part of the works and can be resolved by seeking a change in unit rate. It is, however, often that people call all sorts of additional costs as disruption – again a bad product and costing us a lot of money. Crucially, Clyde & Co. has indicated that there are two principle legal bases of a disruption claim:
- Claims pursuant to the terms of the contract giving a defined contractual entitlement.
- Claims for breach of contract or a legal obligation, resulting in an entitlement to damages.
Looking at the two legal principles, it is no wonder that a disruption claim is easily disregarded as a baseless claim. We are too quick to call it disruption when in fact it is (1) or (2). So what is disruption then? My initial view on this is that we have been using a very negative word for two legal principles which provide clear entitlements to contractors, and we have made it easier for project owners and legal practitioners to find no basis to award compensation in most cases.
“Seeing that the level of opportunity that has been and continues to be lost, one wonders why disruption is not considered at a legislative level?”
Alternatively, is it that disruption is mainly related to contractor issues and therefore, rarely a client issue? A research paper titled A Survey of Factors Influencing the Productivity of Construction Operatives in the State of Qatar identifies the following as key causes of labour productivity issues: skill of labour, shortage of materials, labour supervision, shortage of experienced labour, communication between site management and the labour force, lack of construction managers’ leadership, high temperature weather, delays in responding to ‘Requests For Information’, lack of providing labour with transportation, and the proportion of work subcontracted.
Ironically, only one of these issues could be considered to fall within the two legal principles for disruption for compensation to materialise.
Debate remains on whether it is the methodology used for quantifying disruption which is wrong or is there no sufficient usable record to demonstrate an accurate scope of disruption. I see a fundamental problem here, which is the use of word ‘disruption’. Even if everyone used the right method for calculating disruption, would it solve the problem? By this I mean contractors being compensated and project owners happily paying out for issues, which arguably fall on the contractor.
Clearly, people will argue that ‘disruption’ is a multi-faceted problem in nature and thus it is difficult to isolate and assess an individual issue which is why disruption claims fail. I see it as a huge fundamental problem that needs industry stakeholders, legislators and the like to really look at the cost that is either being wasted in investments or leading to huge fallouts between parties. In my personal experience, it is the project owners who end up paying for it in one way or the other, while in the meantime, the costs of disruption to the industry and national economies keep growing.
Want to learn more about construction claims? Join Andrew Woodward, Executive Director at QGS who will join Claims Class to deliver two back-to-back courses on construction claims and the how to manage claims using the FIDIC contracts. Click for dates and registration.
Tom Kapapa, Operations and Technical Director
Tom Kapapa is the Operations and Technical Director at Quantum Global Solutions. He is a member and Qualified Professional Surveyor of the Royal Institute of Chartered Surveyors. QGS is acknowledged as one of the leading management consultancies dedicated to serving the interests of national and international construction and engineering organisations.
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This article was previously published in the February 2016 edition of Qatar Construction News.