CAASA NEWSLETTER FEBRUARY 2024
 
The motivation behind this monthly newsletter is to provide better and more frequent communication to CAASA members, and to solicit suggestions and responses to the contents. We need input from you to ensure that the content of this newsletter, our webinars and annual conference remain both topical and relevant.

CONTENTS:
CRUX Insight Report Forewarned is Forearmed
CAASA Update
Training & Mentoring
Recent Court Cases
CRUX INSIGHT REPORT - FOREWARNED IS FOREARMED 1

CRUX produces an annual report providing a regional and sector analysis of claims and dispute causation in infrastructure and capital projects. In summarising the findings in their 6th annual report it is clear that the industry is still mired in claims and disputes.
 
“The heart of CRUX is our analysis of the underlying causes of claims and disputes. We have distilled the findings of HKA consultants’ investigations on major projects worldwide. This dataset now covers 1,801 projects in 106 countries with a cumulative capital expenditure (CAPEX) value of $2.247 trillion.
 
In a period when the cost of capital has risen significantly, and its supply is more constrained in most markets, the impacts of project distress are all the more chastening. The total value of the sums in dispute exceeded $91.3 billion. Collectively, extensions of time sought by contractors would stretch beyond 876 years.
 
At the project level, the findings are no less disturbing. Claimed costs averaged out at more than a third of committed project CAPEX (33.6%). Programmes typically faced an overrun approaching 16 months – equivalent to two thirds of the planned schedule (67.1%).”
 
What the report does not record is the time and money spent, both directly and indirectly, in pursuing these claims and entitlements, often to the detriment of progress on the project, which takes a back seat while someone decides who owes who.

While not pre-eminent in all regions the report highlights that scope change again topped the global rankings. This, coupled with design failures in the form of incorrect, late or incomplete design information, drove project distress.

Last year’s report argued the case for closer, constant management of scope change and greater investment of time and resources upfront in preconstruction planning to mature designs as far as practicable before starting work on site. In most regions, local consultants again observed that design immaturity more than negated any apparent gains in the early stages of fast-tracked programmes. We need look no further than Medupi and Kusile Power Stations to see the outcome of uncontrolled scope change.
 
Ironically the level of design maturity is more controllable than many other triggers for claims and disputes. While allowing for site-specific quirks and contingencies where necessary, designs can be largely complete and construction ready prior to contract award, minimizing any scope change. Anecdotal evidence is that the extra time afforded by the COVID pandemic to review and mature designs increased constructability. The percentage of design failure rates recorded globally pre and post the COVID hiatus showed a 12% drop.
 
In Africa the biggest cause of disputes was late or restricted access to site or workfaces. Multi-disciplinary megaprojects dominate the CRUX analysis, especially in the energy sector, and were prone to flow-down delays as contractors overlap. Poor management of subcontractors and interfaces, diagnosed on almost a quarter of projects exacerbated the disruption. Contractors also complained of access delays due to political interference, which can be borne out of corruption. In South Africa we have our own “Construction Mafia” which have a  destructive impact on the timely completion of projects, even causing the abandonment of the project in some instances.
 
A high incidence of cash flow and payment issues (on 30.4% of projects) reflects the lack of statutory adjudication regimes in African countries, or prompt payment regulations. The rigid procedures and regulations of state agencies also slow the flow of payments.   South African contractors have first hand experience of late or non -payment when working with public clients, particularly in the last few months of each financial year. This is a blight on the industry that must be rectified.
 
In its concluding remarks on Africa the report proposes some ways forward to deal with the challenges.

“Various measures could curb the forces bedeviling capital projects, though significant progress would require a more fundamental reset.
 
Employers determined to secure the lowest price and shortest schedule set up projects to fail. By using engineering, procurement and construction (EPC) contracts, with the burden of risk carried by the contractor, or FIDIC contracts that are heavily amended, again loading the lion’s share of risk onto the contractor, or to the administration heavy new engineering contract (NEC) can create its own set of problems. Realism about risk allocation, price and programme is fundamental.
 
Early contractor involvement and collaboration would help develop designs and enhance their buildability, but employers and well-motivated contractors need to lead this change collectively. In addition, a dynamic project plan and objective project manager, supported by capable staff, are crucial.
 
Technology, including building information modelling (BIM), can be used to simulate design changes before resources are allocated and costs incurred.
 
The higher complexity and pace of projects delivered by international contractors demand radical changes in project governance and controls. External expertise may be required to address widespread client-side immaturity and share global best practices, preferably embedded through the training and development of local staff.
 
Like the global headwinds, other challenges are not abating. National laws and regulations around decarbonization will have an increasing impact on construction and engineering projects. Increasingly, it is likely that inward investment for Africa’s sustainable development will be tied more tightly not only to cost-effectiveness but also to environmental performance and probity.”

[1] CRUX Insight 6th Annual Report
CAASA UPDATE

One of our guiding objectives is to advance the use of adjudication in resolving construction disputes, not just in RSA, but surrounding countries as well. With this in mind we have made contact with organisations/ individuals in Botswana and Namibia to better understand the current status and explore opportunities to promote adjudication in these territories.
 
We have signed a retainer to promote CAASA in various journals and publications on a regular basis. Any suggestions for articles and content are welcome.
TRAINING & MENTORING

At our next webinar to be held on Friday 5th April. Steven Kaplan, the immediate past president of SAICE,  will discuss the SAICE 2022 SA infrastructure Report Card.

Again we encourage you as the members to provide topics for our webinars and even to present on any matter or issue which you believe relevant.

Should you wish to attend, please register via the CAASA website.
RECENT COURT CASES

Most forms of contract will require the contractor to provide a guarantee, normally from  a bank or other financial institution. The employer is entitled to call on the guarantee in the event of default on the part of the contractor. The court case below deals with one such instance, when does the guarantee expire and the proper interpretation of the wording of the guarantee.

SMBT (Proprietary) Limited v Hollard Insurance Company Limited and Others (2022-022086) [2024] ZAGPJHC 13 (12 January 2024)
 
 Any comments, suggestions or proposals please forward to secretary@adjudicators.co.za
LinkedIn
Email
Website