Interface Identifies Trends in 25 Years of Service to Clients

In a May 23, 2011, interview with RedHardHat, Interface’s President and Principal Consultant Frank Adams, PE, responded to questions about projects undertaken throughout the firm’s 25-year history and the trends he saw in his analysis of the firm’s work. Check out highlights from the interview below.

RedHardHat: How did you conduct your analysis of trends involving Interface’s claims and disputes work?

Frank Adams: My staff reviewed a list of 835 projects that we had completed or are still working on since the firm’s formation in 1986, and identified the type of work we performed and the industry involved. We screened out projects involving construction management, management consulting, scheduling, and acquisitions and focused on those projects in which we performed claims management work or assisted as experts in litigation and arbitration. We then segregated the information into five-year increments to determine the prominent industries we worked in during those five-year periods.

RHH: What were the results of your analysis?

FA: Our work in the buildings and commercial sector has encompassed 30% to 40% of our engagements in 20 of our 25 years of operation. Marine and offshore work has steadily declined from 25% of our workload to less than 10% of Interface Consulting work since 2007. We believe this is partly due to the increasing sophistication of marine contractors and oil companies due to requirements for deepwater exploration, and reduced marine and offshore work along the US and African coasts. Based on our analysis, land and subsea pipeline disputes have increased significantly since the firm started in 1986, from 5% to 20% of our workload. We expect this upward trend of increasing claims and legal action to continue. Civil and infrastructure project disputes have remained 25% of our workload for 15 years out of our 25-year analysis. In the power, process and industrial sector, projects were 27% of our workload in the 1992 to 2001 time frame but have dropped to 17% in the las 10 years. A large portion of that work has recently involved international disputes in the biofuel and LNG areas.

A graphical representation of this data is provided below:

construction claims, disputes, and defects

RHH: Were there any major conclusions that you did not expect from your analysis?

FA: I was surprised at the decrease in the number of marine and offshore projects, including fabrication. Every five-year period we analyzed showed a progressively lower percentage of marine and offshore projects. I was also surprised that the reverse of this trend in each five-year period was true for land and subsea pipelines. I expected our refinery and petrochemical work to have remained strong, but it also had a downturn for the last ten years. Part of the downturn in the industrial sector was offset with more power industry work.

RHH: What trends have you observed in your land and subsea pipeline work?

FA: The pipeline work that has increased for the last five years has involved mostly land pipelines, as opposed to marine pipelines, which have been in a continuous downturn relative to disputes. Land pipelines are increasingly problem prone due to inexperienced owners and contractors entering into the marketplace. In addition, unlike some other sectors of the construction industry, many of the pipeline owners and contractors lack effective project controls and project management systems to mitigate the impact of changes that produce delays and disruptions. As a further complication to the land pipeline industry, many new and inexperienced pipeline contractors and owners possess inadequate capital, which further restricts their ability to adjust to cost increases and extra work, producing a heightened need for Interface’s services.

RHH: In your opinion, why are construction and design defect disputes on the upswing?

FA: I think the upswing is partly due to contract provisions and new legal developments in the classification of defects and associated warranty requirements. Construction defects have always been an industry issue, but the insurance companies are now taking a more aggressive stance and performing more and higher-end evaluation. Work in commercial and government facilities has increased, but the projects tend to be smaller and involve construction defect and design problems. We have also seen a steady increase in insurance-related work relative to construction and design defects.

RHH: What changes do you foresee relative to your firm’s future projects portfolio?

FA: I anticipate that we will continue to see an increase in international project disputes in the industrial and pipeline sectors. US contractors and engineers are increasing their efforts to obtain international work and teaming up with other contractors and engineers. Also, profit margins are remaining small, leaving little latitude for changes and additional cost. My experience in international joint ventures and consortiums is that they contain proportionally more risk, leading to more claims and disputes. In addition, many non-US owners, contractors, and engineers working in the foreign sector, while very experienced in change order and claims management, are not experienced in working with US firms. This interaction between different cultures and contracting approaches will tend to lead both parties to our doorstep. Few claims consulting and expert firms compete with Interface on an international level relative to claims and disputes; thus, we expect to see growth in our international sector projects in the coming years.

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