HKA has launched the 9th edition of its annual CRUX Insight report. The latest edition reveals that renewables, nuclear and data centre projects emerge as risk hotspots amidst the global energy transition in the latest analysis of construction and engineering projects.
Despite growing evidence of improving risk management across all sectors, the effects are uneven and the cost of project distress remains structurally high. Design failures and scope change were the leading causes of claims and disputes overall, with conflicts over cashflow more prominent on recent projects, HKA outlined.
CRUX is HKA’s annual research programme. For this edition, the firm’s consultants detailed the underlying causes of claims and disputes (and the impact on contested contracts they investigated) on 2,410 projects in total across 122 countries. This represents a combined investment of $2.56tn. The average capital expenditure (CapEx) per project is $1.19bn, while cumulative sums in dispute have reached $100bn.
Key findings in the latest report include:
Claims on contracts averaged two-thirds of schedules and a third of budgets Scope change was blamed for disputes on 33.4% of all projects Design-related failures, on 40.5%, outweighed scope creep over the full dataset Megaprojects were more prone to most types of claim or dispute Evidence grows of improving outcomes on more recent projects Renewables face heightened risk from new entrants and site-specific factors Data centre delays halved on later projects but sums in dispute tripled Nuclear projects saw smaller time savings but costs have balloonedAcross the report’s unique dataset, HKA said that cost claims on contracts averaged 33% of budgets and claimed extensions of time (EOTs) amounted to 65.8% of planned schedules. The firm notes that little has changed from last year’s rolling averages, but is still significantly higher than the equivalent outcomes for later projects in the dataset.
The report explained that change in scope was the single biggest cause of conflict over the full CRUX timeframe, (33.4% of projects) followed by 3-design-related factors – design error (20.8%), late design information (19.7%), and incomplete design (17.2%). Together, one or more of these design failures drove claims and disputes on 40.5% of projects.
The latest edition of the report is said to examine causation patterns across different regions, changes in contract outcomes over time, and focuses on 5-construction sectors. In addition, the report outlines the growing risks associated with environmental targets and ‘social licence to operate’.
“Global construction growth remains strong, and risk management is improving, as our research shows. But claims and disputes still cost the industry heavily in time and money. While technology adoption may be contributing to the progress indicated by CRUX, but we don’t believe the industry has yet been able to absorb the potential benefits from AI and other advances,” explained HKA Partner and CEO Steve Culp.
He added, “Also, any current and future gains could be jeopardised as projects increase in scale and complexity, and regulatory and environmental impacts continue to evolve. Stakeholders can reduce this uncertainty by learning from the shifting risk profiles and dispute causes across sectors – from renewables, nuclear, and data centres to oil and gas and transportation infrastructure – analysed in this CRUX Insight report. And better project outcomes can be secured by taking note of the actions recommended by HKA experts for each sector and for projects in general.”
HKA explained that several sectors are bound up with the global energy transition, each with distinct risk profiles.
Data centres: Rapid roll-out is testing contractors’ capacity as well as water and electricity infrastructure, and public acceptance. Incomplete and inaccurate designs – each affecting almost a quarter of projects – compound delays installing dense building services and integrating critical systems. Overruns more than doubled (112%) planned schedules and costs claimed 20.6% of budgets. On projects completing from 2020 onwards, EOT claims shortened to 67.0%, but costs rose to 30.2% Nuclear projects’ historically long overruns approached 50% of contract schedules, often driven by political pressures to start works before completing planning and design. Later projects lost less time, but late design worsened (41.7% of projects) and dispute sums ballooned to 122% of contracted budgets Renewable energy projects face uncertainties and blockages in national policy, supply chains, grid access, and on site: unforeseen conditions (typically ground or seabed) disrupted 23.7% of projects, and late or restricted access a further 18.7%. Outcomes improved on later projects, though HKA consultants report rising interface failures – often involving contractors inexperienced in cable-laying – and supply chain constraints. The fitness of EPC arrangements and standard contracts for offshore wind is also questioned Improving over time, with exceptions Overall, projects scheduled to complete from 2020 onwards were less likely to experience most types of dispute, reinforcing evidence of general improvement reported last year. Incomplete design and scope change were down by almost 10 percentage points on earlier levels. Average EOTs fell to 48.8% of contract schedules, and contested costs to 28.4% of budget.The report also said that the world’s various regions continue to show significant differences in causation and outcomes:
Africa: Historically high overruns fell on later projects to 55.4% of schedules and 25.0% of budgets. But disagreements over site access (33.3%) and payments (25.9%) worsened Americas: Deficient workmanship (20.1%) and unforeseen physical conditions (17.4%) triggered more claims than elsewhere. EOTs dropped to 44.2% of later schedules but claimed costs edged up to 31.8% of budgets Asia: Most dispute drivers eased post-2020, but late approvals affected 23.9% of projects. Both outturn averages improved to 46.7% of schedules and 20.4% of budgets Europe: The only region where scope change was outranked. Design error hit 31.5% of all projects but was less common on later contracts. Overruns shortened a few points to 57.0%, but costs to rose to 38.1% Middle East: The most improved region saw average EOTs shrink to 46.7% (from 97.6% of earlier schedules) with cost claims down to 22.4% of budgets (from 37.2%). Disputes over payments still affected 24.2% of projects Oceania: Previously low claimed costs fell further to average 13.3% of budgets, but this was the only region where schedule overruns lengthened, to 60.0%“The sectors powering the energy transition are seeing some of the most ambitious construction programmes ever undertaken. Whether it is offshore wind, nuclear generation or data centres supporting the digital economy, the pressure to deliver at pace can expose weaknesses in planning, design and execution. Understanding where risks emerge, and how they evolve and can be countered is critical to improving outcomes and avoiding costly claims and disputes,” concluded HKA Partner and International Client Lead Toby Hunt.
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