How to Avoid Skyrocketing Dispute Costs
Date Posted: September 5, 2023
Posted In: Discussion,
From Construction Dive: This feature is a part of (Construction Dive’s) “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.
It’s no secret that construction has gotten more expensive since the pandemic, with material and labor costs ballooning and supply chain issues complicating project deliveries.
But now, a second wave of increases may be hitting the industry, in the form of rising dispute costs.
According to Arcadis, the Amsterdam-based engineering firm, the average value of construction disputes in North America rose 42% last year to hit $42.8 million, up from $30.1 million previously, with the largest single claim ringing in at $2 billion.
That average was by far the highest value Arcadis has seen over the last 13 years of publishing its report, and double the amount from its annual survey results in the 2016-2019 time period, before the pandemic. Indeed, since 2019, the average dispute has increased by 128%.
Call it a holdover from COVID-19. The firm said the rise in dispute costs “illuminates the challenges and changes that society and the industry has experienced since 2020.”
A confluence of issues
For lawyers operating on the front lines of construction disputes today, those findings make sense.
“Over the past few years, we’ve certainly seen a dramatic increase in claim severities, which is how we say it when the amount goes up,” said Michael Vardaro, a former construction worker and current managing partner at construction law firm Zetlin & De Chiara in New York City. “Big construction disputes arise when there’s not one error or one issue, but a few in combination. That’s when you have a problem, and that’s kind of where things hit.”
The timing of the cost increase also computes, as projects that were in motion or got underway at the beginning of the pandemic are now coming to completion, said Stewart Whitehead, an attorney at Winstead in Austin, Texas, who has served as lead counsel in construction dispute trials.