Blog Author: Charlie Woodley
Research from HKA unveils the true complexity of causation and provides thought-provoking insight that illustrates how digitalisation can achieve dispute avoidance by proxy or reduce their severity and prevalence.
Information technology is critical to our ability to manage complexity, inform decision-making, improve productivity, and reduce uncertainty, thereby mitigating risk.
But technology alone will not suffice and broader digitalisation and transformation of organisations, supply chains or industry require investment in people, process as well as technology. Each must be considered equally, and recognition given that change management is a critical and often overlooked component of transformation.
Disputes can be a litmus test of the health of the industry. HKA analyses causation on major capital projects as part of its integrated research programme, CRUX. The first CRUX Insight report debunks the simplicity myth perpetuated by those who chose to focus only on headline causes, and exposes the true complexity of causation with an average of 13 interrelated causation factors per commission, with an eye-watering maximum of 39 on a single project.
HKA Director and CRUX programme lead Charlie Woodley considers digitalisation and causation providing insight into how organisations can ensure digitalisation has a positive impact.
Root out contract ambiguity
Parties rely on the contract to obtain relief or remedy when claims or disputes arise. The irony is that the CRUX causation data shows the failure to ensure ambiguity is absent in contract documentation is a significant cause of claims or disputes, and a strong indicator of poor drafting.
Digitalisation is both a risk and opportunity for contractual due diligence. It affords parties the opportunity for machine assisted interrogation of digital formats, which can root out ambiguity and completeness or adequacy of appended documents. Building Information Modelling (BIM) improves collaboration and the increased information transparency and interaction between supply chain members is expected to flush out ambiguity.
However, without a suitably equipped office (people, process and technology) the opportunity can quickly metamorphize into significant foreseeable risk. This can result in an unreasonable allocation of risk between parties, contributing to adversarial behaviour and impacting on commercial outcomes.
Improve contract compliance
As organisations rely more on technology to assist with the management of projects, contractual compliance will improve and the prevalence of disputes will reduce, accelerating should ‘smart contracts’ gain traction.
In the short term, the inability to properly administer the contract is a good indicator that there are underlying problems, be that information overload, poor communication, or indeed a different interpretation of the contract – commonly cited secondary claim or dispute causation factors in the CRUX data.
As organisations digitally mature, the burden of administering contracts will reduce. The improvement in people, process and technology will help eliminate resource driven noncompliance such as the failure to issue notices or to timeously report the impact of change. Digitalisation will free up skilled resources to focus on project delivery and provide a route to reduce overheads and improve margins.
Be wary of the ‘illusion of control’
It is easy for those focused on delivery to simply assume that the existence of controls directly translates into being in control. HKA’s forensic analysis of projects all too often exposes an illusion of control with flawed record-keeping and situational awareness compromised by poor information flow.
It impacts on the parties’ interpretation of events and contributes to differing or biased interpretations. The resulting entrenchment is what crystallises disputes when no common ground can be agreed. The illusion obscures the interconnection between issues manifesting as an underestimation of causation complexity and overconfidence in the quality and value of available records.
Revisit project controls
Avoidance of the illusion of control and embedding digital ways of working requires the root and branch fitness for purpose evaluation of project controls. Delivery professionals must undergo a data epiphany or risk being replaced by technologically savvy peers.
The quality, format and fitness for purpose of project records are a good measure of both project control and organisational understanding of the flow and purpose of data — poorly conceived or onerous controls are ineffective for managing risk, obscure inefficiency and erode margin.
By first understanding the flow of information, organisations come to understand the transformative nature of ‘information liquidity’ — the ease with which records, and the data they contain, can be converted into knowledge, the kernel of the data epiphany.
Stakeholders understand how to better define information requirements from the supply chain in what is a highly fragmented industry. The objective is to streamline reporting and improve flow of data between parties whilst eliminating the wasteful repeated transformation of records or data currently seen.
This allows informed decisions to be made, reducing the number of disagreements and improving the prospect of settlement in commercial negotiation – in turn reducing the number of disputes.
Evidencing claims and disputes (data not just documents!)
The mantra ‘records, records, records’ is as relevant as ever for informed decision-making, dispute avoidance and resolution. Digitally adverse professionals can compromise supply chain relationships, contractual and legal prospects, and profit margins.
Poor information liquidity, an underutilised risk indicator, often has its roots in past practice where the form, function and intent of paper processes have not been reviewed in a digital context. Suitably structured enables data from disparate sources to be searched, aggregated and analysed in near real time – dramatically reduce the latency in decision-making.
Those issuing or receiving information requests should first look to understand the organisation’s information architecture. It is only by understanding the flow of data through an organisation that the totality of records, both data and documents, can be considered. This understanding allows administrative burden of record-keeping and legal discovery to be reduced.
Achieve dispute avoidance by proxy
The aggregated impact of digitalisation will be dispute avoidance by proxy. The rationale being:
- Most causation factors will benefit from the improved situational awareness and information liquidity that digitalisation brings.
- Armed with all the relevant data, an organisation knows which battles to fight and which to retreat from to fight another day.
- Information liquidity addresses multiple causation factors and increases the speed at which change can be processed and informed decisions can be made, as opposed to gut decisions.
- Digitalisation facilitates better collaboration and shifts away from adversarial relationships.
Reduce the prevalence and severity of claims and disputes
Digitalisation will have a positive impact on claims and disputes. The rationale being:
- Information liquidity and on-demand access to project data will reduce the likelihood or need for global claims.
- SMEs will utilise technology to improve record-keeping, enhance claim submissions, and reduce write-offs.
- The ability to better evidence or rebut claims with readily accessible data will increase the number of commercial settlements.
- Data-driven decisions will reduce the likelihood of disagreement escalating through formal proceedings.
- Machine-readable formats improve and expedite discovery.
- More structured data will reduce the time and cost of preparing records for analysis.
- Digitalisation enables the coordination of numerous records into a single medium to improve understanding and presentation of complex issues.
- Directly connecting dispute resolvers with data removes the burden of information requests.
To download the full CRUX Insight report ‘Claims and Dispute Causation: A Digital Perspective’, visit www.hka.com/download-crux-digital.
Charlie Woodley, HKA Director and CRUX Programme Lead, is a construction informatics specialist with a focus on strategic digital advisory and maximising the value of project records on complex claims and disputes.