Construction: Rise in major projects results in more costly litigation

Construction: Rise in major projects results in more costly litigation

The rise in the number of multi-million pound construction projects involving joint ventures between companies is leading to an increasing number of legal disputes as partners fall out over contract details, reports the Financial Times.

Joint ventures are separate legal vehicles, which are often created by two or more companies who use the newly created vehicle for the completion of a specific contract or project.

The aim of a joint venture is to separate out the costs and profits from a specific project, allowing several corporate partners to collaborate to deliver a large project, sharing in the costs and revenues as well as any assets procured for the project.

Where a joint venture is carried out for a single specific purpose it is often referred to as a consortium joint venture, operating under the terms of a collective agreement.

In construction joint ventures are used to allow multiple contractors to collaborate to deliver large-scale construction projects.

The FT reports that the average value of construction costs that form the basis of disputes globally are on the rise, reflecting the increasing size and scale of modern-day construction projects.

In a survey by engineering consultancy Arcadis, the typical value of a construction dispute globally has risen from $31.7m in 2012 to $32.7m in 2013.

The Arcadis survey shows that geography plays an important role in the size and scale of construction project disputes, with those taking place in Asia highest at $41.9m average, followed by the Middle East on $40.9m.

“Today’s major construction programmes are fast paced, complex and involve a multitude of supplier parties, so there are numerous points at which a dispute can occur,” said Mike Allen, of Arcadis, in an interview with the Financial Times.

In the UK, the FT reports, the largest construction dispute concerns the Edinburgh tramline. The dispute centred on engineering errors, with several problems over unmapped utility lines. The tramline is now more than 50% over its original £500m budget, and there are still eight stops left to be constructed.

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