Managing Coordination Risks in Complex Construction Projects

As Australia's construction projects expand in size and complexity, coupled with growing pressure to reduce costs, the industry faces a significant yet often overlooked challenge: Coordination risk.

As the name suggests, it inherently involves collaboration between the various parties involved in a construction project, with an unrealistically compressed timeline, and is therefore a shared responsibility…until it isn’t. 

So, who does the buck ultimately stop with for the budget blowouts and time delays often seen in Australia’s major construction projects? And how can coordination risk be managed effectively by builders, consultants and their insurers moving forward? 

In preparing this article, we have canvassed the views of experts, and reflected on our own experiences to identify common coordination challenges on a project, and how they can be addressed, from a practical, legal, and insurance perspective.    

Understanding Coordination Risk 

Coordination risk refers to the potential pitfalls that stem from miscommunication and lack of alignment among the myriad of stakeholders involved in a construction project. 

This risk arises from the intricate relationships between multiple parties involved in projects where it’s common to find multiple engineering firms, architects, surveyors, developers and builders, each with their own internal processes and challenges.

Some key causes of coordination risk include (1) Unrealistic deadlines meaning that critical details can be overlooked due to the pressure to meet them, and (2) the deferring of key design decisions to be ‘fixed later’ in circumstances where it can be more costly or difficult to do so.

The parties must navigate working alongside each other and coordinate how to successfully design and deliver a construction or infrastructure project. There are also multiple construction phases (typically with different consultants engaged) that present their own unique coordination challenges and therefore frequently exacerbate coordination risk. 

In our experience, stakeholders on projects often operate ‘in silos’ where it’s assumed that all parties fully understand their roles and responsibilities. In reality, each discipline focuses on its own speciality (and balance sheet) - be it fire safety, mechanical, or hydraulic - without necessarily fully considering the needs of the other areas. This narrow focus can lead to oversights or misalignment in design that are difficult or even impossible to implement without re-design or rectification. 

In turn coordination risk causes disputes and delays, cost overruns, compromised project quality and legal risks for construction professionals and their insurers to contend with. 

These issues are far too often seen in Australia’s major projects, such as Sydney’s light rail project, which faced disputes around the relocation of utility infrastructure. The original scope of the project reportedly did not account for the complexities of moving underground utilities, leading to significant coordination problems between different contractors.¹ The project reportedly experienced a 3-year delay, with cost overruns of more than $1 billion. Legal disputes also resulted, with contractors suing the government for alleged misrepresentation of the project's complexity.^{2 & 3}  

The North East Link project in Melbourne has also experienced a substantial cost overrun. Initially estimated at $10 billion in 2016, the project's cost has escalated to approximately $26.1 billion as of December 2023, marking an increase of over $16 billion.⁴ The cost escalation is attributed to several factors including a design change incorporating a longer tunnel routed beneath sports fields dictated by the Victorian government,⁵ and the project announcement being made before adequate scoping or cost estimation.

There have also been recently reported cost blow outs of $6.4 billion regarding Queensland Health's hospital expansion program - after services like birthing suites and mortuaries previously missing from plans were added into blueprints.⁶

The Reality of Coordination Risk – our views 

In our experience, a key driver of coordination risk stems from changes to procurement models in recent years towards Design & Construction (D&C) procurement methods (and a move away from a design-bid-build model).⁷ Under a D&C contract, the Principal engages the contractor only, who takes on both the design and construction responsibilities. As a result, the contractor assumes the risks associated with design errors, cost overruns, and delays.

In theory, this model aims to allocate risk to the party best able to manage it (the contractor). However, in practice, the contractor will attempt to divest itself of that risk and will engage the consultants separately to take on the design risk, and subcontractors to absorb the construction risk. 

Challenges can arise when D&C contractors seek to delegate most of their own design and coordination responsibilities under the building contract downstream onto the many sub-contractor consultants involved in a project. 

For residential, commercial and industrial buildings, it is typical for an architect to take on the role as ‘lead consultant’ in relation to design coordination. However, it is not uncommon, under pressure to win work, and with a lack of bargaining power, for consultant sub-contractors to sign up to standard form sub-contracts with near identical coordination responsibilities to those of other sub-contractors. That can mean for example that ‘everyone’ is responsible for coordinating integration of designs, but no one knows who has the ultimate responsibility, leading to a breakdown in accountability and therefore issues can fall through the cracks.

Such sub-contracts often exclude any proportionate liability defences and may contain unfavourable dispute resolution provisions. In this vacuum, consultants (and their insurers) find it difficult to reduce their liability and risk bearing the entire brunt of an issue caused by a lack of coordination i.e. a risk supposedly shared between various parties.  

The risk created by technology also cannot be overlooked. Most large projects will use cloud-based collaboration platforms for communications between stakeholders. While they may help streamline the flow of information between project teams and ensure consultants have access to updated documents and data in real-time, it’s not without risk. The use of technology can create to information overload, confusion and missed information, which in turn increases the risk of errors, delays and disputes. 

How to avoid coordination risk 

Effectively addressing coordination risk is not only crucial for the success of major projects but also to protect the respective interests of contractors, consultants and their insurers moving forward. 

The ideal approach to managing coordination risks in construction projects is to shift stakeholders away from an adversarial, ‘finger-pointing’ culture and towards fostering co-operative relationships. This involves sharing coordination risks equitably and focusing on the collective delivery of the project. 

According to some experts we have spoken with, coordination risks can be significantly reduced by clients ‘buying in’ to the coordination process themselves (rather than it being dealt with solely by consultants), as well as engaging consultants at an earlier stage to assist with coordination. 

In the meantime, as lawyers, we play a vital role in helping clients navigate these challenges by reviewing contracts, providing advice on risk mitigation, and offering ongoing legal and strategic guidance. 

Disputes: Claims, Litigation, and Arbitration

Disputes over coordination responsibilities can arise during or after complex construction projects, often leading to claims, litigation, or arbitration. Quickly understanding the factual matrix and the scope of a client’s coordination obligations is critical to effectively resolving disputes and mitigating risks.

How we assist:

Our role involves rapidly assessing the factual background and contractual obligations to identify liability and opportunities for resolution. Our dispute management strategies whether through negotiation, mediation, litigation, or arbitration are designed to resolve conflicts efficiently while minimising disruption to ongoing projects (if they are ongoing). Additionally, we help clients implement proactive measures to mitigate risks, such as drafting corrective agreements or amending contracts to clarify roles and responsibilities.

Insurance: Supporting Insurers and Brokers in Coordination Risk Management

Insurers and brokers play a pivotal role in addressing coordination risks in construction projects. With careful planning, underwriting, and claims management, Insurers and brokers can mitigate these risks effectively. 

How we assist:

• Policy interpretation: We analyse policy wordings to assess whether claims arising from coordination risks are covered, ensuring clarity on coverage positions.
• Claims management: We assist insurers in investigating claims by reviewing project contracts and documentation to determine whether the insured party fulfilled their coordination obligations and were adequately qualified to do so. This enables insurers to make informed decisions on coverage.
• Underwriting support: We advise insurers on structuring policies that address coordination risks, including drafting endorsements, exclusions, and policy terms that reflect industry best practices.
• Contractual drafting: Well-drafted contracts are the foundation of successful collaboration and risk management. Clear, enforceable agreements not only allocate responsibilities effectively but also foster cooperation, reduce disputes, and ensure smooth project delivery. By addressing potential coordination risks early, contracts can help all stakeholders navigate complex challenges with confidence.

How we assist:

We draft and review contracts to (1) help identify potential coordination risks early and advise on strategies including with regards to communication and (2) ensure clear, enforceable risk-sharing mechanisms that encourage genuine cooperation and reduce adversarial interactions. Our advice ensures communication protocols are embedded in contracts where possible, facilitating smooth transitions between project phases and minimising delays caused by miscommunication.

Looking ahead

As Australia undertakes larger and more complex construction projects, such as the 2032 Brisbane Olympics, it is essential for all stakeholders to work collaboratively to mitigate coordination risks. By seeking expert legal advice, clients can ensure their contracts, governance structures, and insurance programs are robust, reducing the likelihood of disputes and project disruptions while safeguarding their financial and operational interests.

¹Public Accountability Committee Report - 25 January 2019

²Sydney light rail: ‘Horror story’ of cost overruns and missed deadlines | news.com.au

³Sydney light rail bill passes $3 billion as NSW Government settles legal dispute - ABC News

⁴https://www.abc.net.au/news/2023-12-15 

⁵https://www.9news.com.au 

⁶The Courier Mail (Australia) December 5, 2024  

⁷Where the Principal/owner has a direct contractual relationship with designers, and a separate direct contract with the contractor/builder (that allows the consultants to play more of an impartial role, provide expert advice to the Principal, and remain independent from the builder).