Insurance surgery: A call to action over construction costs

23 November 2016

How can losses incurred from construction & engineering disputes be avoided, asks Paul Lowe

To practitioners specialising in the field of construction and engineering disputes it will come as no surprise that financial losses flowing from errors in construction projects in the UK remain high. To a great extent those losses are ultimately picked up by the industry’s insurers. What might be surprising is the sheer scale of these losses, which have recently been estimated at an annual total of between £10bn and £25bn. These sums unsurprisingly exceed the industry’s annual profit level.

Given that lawyers are often the beneficiaries of disputes that result from construction and engineering projects it may seem counter-intuitive for lawyers to be advocating a strategy aimed at reducing those errors. The scale of the losses in question is so significant to the construction industry and insurers that failing to act is not an option.

Strategy for change

The question then arises, what would a strategy for change look like?

Some important research recently carried out by the Construction Industry Training Board, together with leading construction industry players, experts and the Institution of Civil Engineers, collectively known as the Get It Right Initiative is helpful.

In a report entitled Improving Value by Eliminating Error, the Initiative has analysed the construction activities that generate the highest quantity of annual financial losses. Using that analysis, it then proceeds to investigate which systemic factors are most likely to contribute to a higher frequency of errors and losses.

The research’s findings are extremely interesting both in identifying the areas of works where errors occurred with the greatest frequency and identifying the most frequent root causes.

The construction activities that generated the highest financial losses were identified as:

  1. Concrete Works
  2. Mechanical Systems
  3. Façades/Cladding
  4. Electrical Systems
  5. Finishes
  6. Roofing
  7. Basement Waterproofing.

The most frequent root causes of error were identified as:

  1. Inadequate planning (from task through to project level)
  2. Late design changes
  3. Poorly communicated design information
  4. Poor culture in relation to quality
  5. Poorly co-ordinated and incorrect design information
  6. Inadequate attention paid in the design to construction
  7. Excessive commercial (financial and time) pressures
  8. Poor interface management and design
  9. Ineffective communication between team members
  10. Inadequate supervisory skills.

What messages should we relay then to our clients as to how improvements can be made and errors and costs reduced?

The following might be good starting points:

a) Management ethos

The Initiative’s findings are clear in highlighting the central importance of senior management giving proper emphasis and incentivising quality requirements and attention to detail. Sites which adopt practices which result in high quality and with few defects are generally safe and efficient sites almost certainly because there is good management. Failure here is perhaps most clearly demonstrated in the “get it done” attitude that is commonplace in the industry and which often results in poor decision-making. Too often rushed procurement, rushed design and rushed planning all compromise effective understanding and contribute to the occurrence of error.

b) Design management

As is all too often the case, the lack of a properly co-ordinated design results in clashes on site and consequent rework and delay. This can stem from (i) lead designers and/or design managers lacking the skills, appropriate fee or desire to co-ordinate properly the design; (ii) ambiguity and confusion as to who is responsible for design co-ordination in some design and build contracts; and (iii) trade specialists responsible for key parts of the design are not involved in the pre-construction phase and so design co-ordination happens very late in the overall process.

Dealing with the first two issues, employers and contractors need to identify and appoint suitably qualified lead designers and design managers, make their responsibilities clear and pay them enough to do the job properly. Regarding the third point, the use of building information modelling should deliver a rigorous design process from inception to completion and will be the key to good design delivery.

c) Thorough construction planning

Ineffective planning is the single biggest cause of errors in the construction industry and several of the other causes in the top ten are planning related. The shortage of suitably skilled and experienced construction planners is clearly problematic. One other key issue is that although plans are made circumstances will certainly change, rendering the plans obsolete. Businesses should not be surprised by this. Indeed, they need to plan for it and develop a standard practice for when things change.

As trusted advisers to the construction industry and its insurers, lawyers are in a privileged position to advocate change and best practice. The research carried out by the Get It Right Initiative is a hugely useful resource that should be explored and drawn upon to support clients.

Paul Lowe is a member of the Forum of Insurance Lawyers’ (FOIL) construction sector focus team & an associate at Weightmans

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