Legal Assets Report 2021: Construction Industry Outlook
In 2020, construction companies saw an increase in both the value and number of disputes arising from contractual obligations and third party or force majeure incidents. While this is not entirely surprising given Covid-19’s disruption to global markets and supply chains, the numbers are noteworthy: according to Norton Rose’s 2021 report on global disputes in construction , the average value of construction disputes increased sharply from $ 30.7 million in 2019 to $ 54.26 million in 2020.
With so much at stake given the increasing size and scope of construction litigation, it is in the interests of companies in the construction industry to familiarize themselves with the tools that can help them maximize the value of their legal claims. .
To better understand how construction industry finance professionals assess and exploit legal claims, the 2021 Legal Assets Report includes an overview of the industry. Here are the main points to remember:
Construction industry legal and finance professionals may benefit from closer collaboration
While 68% of construction financial officers recognize business claims as financial assets – the highest percentage compared to other industries – they are the least likely to report working with their legal departments to assess and select. the claims to be pursued. For example, only 39% of financial officers in the construction industry say they have influence over decisions made on major disputes, and less than half say they have control over their legal department’s collection targets.
With the increase in construction litigation in 2020 – and given that several of those litigation were worth billions of dollars – any missed opportunity to maximize the value of outstanding legal assets means construction companies can miss out on significant revenue. . Based on research, CFOs and industry finance professionals recognize the value of pending legal assets and are eager to work with their legal departments to increase the value of the business.
Construction industry legal and finance professionals can work together to make more informed decisions about legal assets
While finance departments in the construction industry report a lower level of influence over legal department decision-making than their peers in other industries, CFOs and construction finance professionals are more likely than their peers. peers from other sectors to perform quantitative financial litigation modeling. Nonetheless, there remains a significant opportunity for more modeling: 32% of CFOs and finance professionals in construction report performing quantitative financial modeling, compared to 24% in other sectors.
Interestingly, finance professionals in the construction industry are more likely than their peers to view duration risk as the primary factor when making litigation decisions. Duration risk (i.e., time to resolution) is critical when considering pursuing a claim, especially since the process can cost businesses millions in litigation costs and expenses that may not be reimbursed through litigation or arbitration for many years. More than half of construction companies have chosen not to sue because of the costs, a factor that only gets worse over time.
Legal finance offers a unique solution to the age-old problem of duration risk by providing seed capital, equipping companies for the long road to recovery. Since capital is usually provided on a non-recourse basis, meaning that repayment depends only on a favorable outcome, construction companies can quantify disputes without the pressures of duration risk and costs.
Legal finance can help construction companies take the next step
Construction companies are already taking the first step in recognizing the business value of legal assets and the lessons learned from quantitative financial litigation modeling. This is also reflected in the fact that the majority of construction companies surveyed in the study report having affirmative recovery programs: 79% of construction finance professionals report having affirmative “extremely” or “very” recovery programs. »Comprehensive – formal programs that identify, track and evaluate collections secured by legal services. Yet construction companies continue to leave millions on the table in commercial claims, which, according to the 2021 Legal Assets Report, average $ 15.9 million.
As legal departments focus on staying on budget and finance managers are wary of the risk of loss, construction companies can benefit from partnering with a supplier to mitigate risk. Legal finance providers like Burford can help financial officers and CFOs take action and strengthen their positive payback programs by lowering program costs and allowing construction companies to grow and capture more money. opportunities through meritorious litigation.