The $95 Billion Problem Hiding in Every Construction Contract

The construction industry loses more to contract disputes than most sectors spend on innovation. The root cause is a workflow that was never designed for the complexity it now carries.

A Pillarix analysis of contract management in North American megaprojects

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Construction is one of the last major industries untouched by meaningful productivity growth. Since 2000, labour productivity in construction has grown at just 0.4 percent per year, compared to 3.0 percent in manufacturing.^[1] The consequences show up everywhere: delayed transit lines, budgets that double before a single rail is laid. Underneath these projects sits a contractual machinery designed for a simpler era, now buckling under the weight of modern megaproject complexity.

In 2025, the global construction industry will generate an estimated $95 billion in claims and disputes, representing 33.4 percent of total contract budgets across surveyed projects.^[2] For every three dollars committed to building infrastructure, one dollar ends up in dispute.

The scale of the problem

The data are consistent across geographies and project types, as Exhibit 1 shows.

Globally, 92 percent of megaprojects finish over budget or behind schedule, with an average cost overrun of 62 percent.^[3] The primary driver is rarely inflation or labour shortages. According to Autodesk, 80 percent of cost deviation on large projects originates from design changes.^[4]

In Canada, HKA's analysis of 81 projects across transportation, power and utilities, and buildings found that disputed claim amounts average 21.6 percent of total project capital expenditure.^[2] Change in scope is the single most common cause of disputes, affecting 34.6 percent of Canadian projects. Design errors rank second at 30.9 percent, more than six percentage points higher than the U.S. equivalent.

The connection between the two is well documented. Change in scope is often a downstream consequence of incomplete design. Projects go to tender before the design is finished, and disputes accumulate as the scope evolves during construction.

Case study: Toronto's Eglinton Crosstown

In a Canadian context, the Eglinton Crosstown LRT shows the same structural pattern: incomplete coordination at contract handoff, scope disputes during delivery, and claims that compound over time.

Ontario announced a $4.6B construction estimate in 2011. Exhibit 2 traces the reported cost path from the initial construction estimate to opening-day baseline. In 2015, Infrastructure Ontario awarded a $9.1B DBFM contract to Crosslinx Transit Solutions, bundling construction with 30-year maintenance.^[5] By 2019, Metrolinx acknowledged a revised $12.2B baseline — $3.1B above the contracted price just four years after signing.^[8] In 2022, confidential internal documents obtained by CBC Toronto showed an approved budget of $12.81B, with Crosslinx holding an additional $260M in unresolved claims. The documents stated that Metrolinx had no credible plan for project completion.^[6] Between 2018 and 2020, two successive legal settlements paid to Crosslinx totalled $325M.^[7]

The line opened on February 8, 2026, with a reported baseline of $13.1B and completion roughly six years past the original 2020 target.^[9] From the 2011 estimate to the 2026 baseline, the project reached approximately 2.85x its initial projection.^[8][9]

As with other megaprojects, escalation did not come from a single incident. It accumulated through dispute cycles, unresolved scope interpretation, and prolonged owner-contractor coordination failures that persisted across the life of the project.

Inside the workflow that breaks down

Most megaproject disputes trace back to the same workflow: processing client's comments on design packages. Exhibit 3 maps the end-to-end process.

The owner submits comments in Excel or PDF format, batched by design package. The contractor receives, logs, and distributes them. Two parallel tracks begin.

The technical track routes comments to specialists across structural, utilities, estimating, scheduling, and other disciplines. Each specialist assesses whether the comment can be addressed within their scope, constraints, and interdependencies. A single comment often requires coordination across several teams before a technical position can be formed.

The contractual track cross-references each proposed response against project agreements and technical specifications. Many comments land in contested territory: the owner treats them as design clarification, the contractor views them as scope additions.^[11] Every comment requires a formal written response regardless of classification.

The response is drafted, reviewed internally, approved, and submitted. Disputed items are escalated to negotiation or arbitration.

Under standard CCDC 5B contracts, the contractual window for this entire process is 15 business days.^[10] In practice, about 20 percent of responses are completed within that deadline. The vast majority take 15 to 30 days. At the extreme end, some responses exceed 60 days. A delay to a construction milestone will trigger $200,000 per day in liquidated damages for the general contractor.^[12]

Why the industry must act now

The cost of leaving this workflow manual plays out across four dimensions.

Cost

Large commercial and industrial contractors typically earn net margins of 4.1 to 7.2 percent.^[13] On a $100 million project, that is $4 to $7 million in profit. The average construction dispute in North America is worth $60.1 million.^[14] One dispute can exceed the entire project profit several times over. Exhibit 5 illustrates the mismatch.

In Canada, disputed claim amounts average 21.6 percent of project capital expenditure.^[2] On a typical Canadian megaproject worth $876 million, that places over $189 million at stake. Ontario's ODACC adjudication claims more than doubled in a single year, from $69 million in FY2023 to over $140 million in FY2024, and that represents only one formal channel.^[15]

Aecon Group reported a $120 million operating loss in 2022 across four fixed-price legacy megaprojects, driven by disputes and unresolved scope claims. In 2024, Aecon took a further $127 million charge from its Coastal GasLink Pipeline dispute settlement.^[16][17]

The financial exposure does not stop at the dispute itself. Managing it requires some of the most expensive and least available expertise in the industry. Contract review teams span contract law, the governing framework, and deep technical knowledge of the design — a combination that takes years to develop. FIDIC's certified contract manager designation requires three years of experience with a degree, or ten years without one.^[18] These specialists cannot be hired at scale. The firms that provide external contract review face the same supply constraints. Demand is growing. Supply is not. Every unresolved dispute spends more of both.

Time

The time gap in the scope analysis workflow does not stay contained. One late response on one design package triggers a chain reaction that runs for months.

A response that arrives ten days past the CCDC 5B deadline starts accruing liquidated damages immediately, at $200,000 per day from Day 15 onward.^[12] By Day 30, every review step dependent on that response has frozen: structural coordination, discipline sign-off, and the next package in queue. By Day 40, construction on the affected segment cannot proceed. Crews rotate to lower-priority work while equipment stays mobilized and billing. By Day 60, a structural milestone is missed and schedule penalties begin stacking on top of accumulated damages. By Day 90, the contractor disputes the penalty and a single late response has become a formal claim.^[12]

The sequence above reflects how construction schedulers model delay propagation using Critical Path Method analysis. When a design response sits on the critical path, every sequential activity inherits the delay.^[19]

Flyvbjerg and colleagues found that each year of schedule delay adds approximately 4.64 percent in additional cost overruns.^[20] On a billion-dollar project, one year of slippage is roughly $80 million. The cascade above is how that slippage begins. Not with a major incident, but with one package, ten days late.

Quality and accuracy

Industry practitioners estimate that only 65 to 80 percent of client's comment responses are accurate — roughly one in three to one in five contains errors. Construction teams implement these responses directly, so errors get built into the physical structure. On average, rework represents about 12 percent of total project cost.^[21]

There is no formal training pathway. Junior staff are assigned immediately, learn on the job, and produce responses at volume under time pressure.

What becomes possible

In a recent pilot, Pillarix deployed an AI agent to support the client's comment review process. The system works alongside existing contract teams to accelerate the technical and contractual analysis that consumes the bulk of the response window. The results are shown in Exhibit 7.

Approximately 90 percent faster than manual review, at roughly 15 percent of the cost. Time, cost, and quality have long been treated as an impossible trade-off in contract management. These results suggest all three can improve simultaneously.

Pillarix's engagement follows an iterative Request for Automation process, from discovery call to integration in three to six weeks.

Eglinton Crosstown moved from a $9.1B contract baseline to $13.1B by opening day while disputes and claims accumulated through delivery. The same forces are at work on megaprojects today. Contractors who automate this workflow will respond faster, more accurately, and at lower cost. In an industry where a single dispute can exceed the entire project profit, that matters.

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This article is part of a Pillarix research initiative examining AI-driven contract management in North American construction. To explore how Pillarix can support your workflow, submit a Request for Automation above.