Risky business

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Don Bunting

Architect Don Bunting wonders whether warranty insurance is the best way to ensure building quality?

The Ministry of Business Innovation and Employment (MBIE) is considering a requirement that a guarantee and insurance product be put in place for all new residential projects (I just can’t make myself use the term “residential build”).

The intention is to:

Ensure that builders unable to access insurance and an independent guarantee could only work on smaller (under $30K) building projects, and

Ensure that home owners are better protected if something goes wrong with their building work.

MBIE research shows that less than half of all new residential projects have any form of independent guarantee or insurance in place, and that home owners have a low understanding of the risks they face.

I know there are significant risks involved for anyone entering a construction project.

I have often wondered why anyone purchasing an existing home will always get a lawyer to check the purchase agreement, but people seldom take the same precautions with a more complex, costly and risky building contract.

It is unclear what form such protections might take in the MBIE scheme.

However, most states in Australia require some form of warranty insurance while, in the UK, banks won’t lend on new residential projects unless one is in place.

Managing risk

While the devil will be in the detail, ensuring that some form of warranty insurance is available makes perfect sense.

Builders and buildings can and do fail, and the current Consumer Guarantees Act and Building Act provisions, including implied warrantees against defective building work for 10 years, is no protection against builders who don’t survive when problems arise down the track.

The government’s Licensed Building Practitioner scheme was intended to deal with the more obvious gaps in the ability of designers, contractors and sub-trades.

Clearly this is not enough, although I am sure members of trade organisations will be less likely to appear in any negative statistics.

The Registered Master Builders and Certified Builders do a great job ensuring their members have the skills and Intellectual Property (IP) tools to do their job professionally and well.

The bigger picture

I recently caught up with someone in the industry I had dealt with regularly some years ago.

He was then chief estimator in a medium-sized construction company founded in the 1960s — a company still surviving and thriving today.

We talked a little about the personalities involved on both sides — design and construction — and the importance of having leadership that understood their joint responsibility to ensure a quality finished product. And a product that designer and builder would stand behind.

The fact that the construction company has thrived for more than 50 years was a testament to that approach.

I recall some of the basic tenets that good designers and builders followed during the buoyant 1960s and the more turbulent times through the 70s and 80s:

High quality tender and construction documents, including either a full, independent schedule of qualities, or at least a detailed cost plan.

This enabled the designer (on behalf of the client) and builder to know that the tenders were realistic and fair.

Sounds so old fashioned doesn’t it? But it worked.

A good, professional relationship with the local council (now the Building Consent Authority). Yes, it was possible back then.

Contract administration on behalf of the client by the designer. On larger projects this would include a site engineer and a clerk of works who checked the quantity and quality of construction materials and products.

Warrantees for all key sub-trades, including an overall weathertightness guarantee covering the external envelope and water and plumbing systems.

Retentions held by the client (usually 10%) until the contract was completed and signed off.

Never forget the next job. If you don’t perform well you will not be in line for future work.

Today the industry and Government might not favour what was once common practice — invited tenders.

However, from personal experience it was a practice that ensured known standards of competence and trust on both sides of the contract.

A building contract relies on collaboration and not confrontation. Might sound a bit warm and fuzzy today, but along with my own personal tenet — only work with people you like — it worked.

Home ownership rate falling

We think of New Zealand as being among the leaders in home ownership. In fact, the rate is currently around 64% and falling.

The highest rate in more recent years was 74% in 1991. This is still well below Singapore (91%), China (90%) and even Russia (87%).

The potential is for ownership to decline further due to unaffordability, unavailability and unreliability.

The growing trend for older people to move into “license to occupy” retirement villages will add to this inevitable statistical decline.

And the concept of a stand-alone house sitting on its own piece of paradise is already fading, with a growing trend towards terrace housing and apartments.

These changes makes it even more important that we ensure the construction industry takes due note of the changes proposed by the Construction Sector Accord, which is based on driving change and greater collaboration among all industry players.