Playing “pass the parcel” with risk in construction

OPINION: There was an interesting article in the newspapers very recently on the sharing of risk in construction. I think the thesis was that if the risk was explicitly shared between all those involved there might be better recognition and better management of those risks (particularly through improved and more robust better construction).  I entirely agree with the general thesis.

As I and others have said before, one of the issues here is that so many parties are involved – owners, builders, sub-contractors, Councils, suppliers, insurers and so on. There is an instinct to simply pass as much risk as possible to the other parties, rather than look at the total risk and how it might be best dealt with. This approach is understandable because the financial liabilities involved are potentially very large.

There are also so many risks to be considered and that includes fire, floods, water damage (leaky building syndrome), earthquakes, tsunamis, severe storms particularly if you are near or on the coast. And the list goes on.

A simplistic solution is to say well it is just an insurance problem. If damage occurs insurance will pay for the restoration. The problem with insurance is that it only applies to accidental and natural events.  And the Christchurch experience shows that insurance is not necessarily an easy solution. Also, owners hate to pay insurance premiums and would like insured values to be as low as possible so as a general principle I would say that many if not most properties are under-insured.

It is tempting to say that it is up to owners to sort out issues arising from construction and design, but they don’t necessarily do that and by the time problems surface the original owner may be history – it is the present owners who have to deal with consequences.

It is equally tempting to say that this is a regulatory problem. We should not be building anything that has not passed strict regulatory tests. This lays the problem on Councils who don’t want it and try to minimise their exposure. I find it irritating for example that Council building inspectors will not approve a proposed piece of construction in advance ie say it is compliant. It is up to the owner/builder to make that decision. But that does not insulate the owner/builder from being found to be at fault if there is a failure or fault in the final product. The Councils also have an acknowledged problem in getting skilled staff to act as inspectors.  There are just not enough skilled people to go around at present.

Which brings us to the problem of the construction industry being under stress and desperately short of trained staff – a situation which lends itself to short cuts and unintended mistakes. This is partly being dealt with through immigration but the Government is not prepared to go past a certain point because immigration is such a hot election issue.

I have said in previous articles that an integrated approach is required to make a better job of dealing with construction and buildings. An integrated approach would bring together, at each critical point, all of those agencies and people involved in the design and construction process, and would aim to produce a product which is both well designed and constructed against all of the relevant standards and has been subjected to a realistic and implementable risk assessment process. It sounds simple enough but in practice, it is made very difficult by the complexity of the arrangements, eg the number of agencies involved, the significant cost of fixing up mistakes and particularly the culture that has developed of avoiding any chance of collecting the blame. The fear of being landed with the blame and the consequent costs is a real deterrent to getting an integrated approach.

I can’t see this changing anytime soon particularly because of the “blame” issue. However, I think progress will occur slowly as key agencies get to grips with particular aspects of construction. For example, I think there is now a genuine commitment to putting in place better standards and methods for dealing with earthquake design and that process will continue as knowledge and experience accumulate. I am sure the same could be said for many other areas of concern. I could be useful if, for example, an agency like MBIE kept a running “score card” on the state of progress in each critical area, to see where more effort needed to go. A score card such as this could provide a  documentary basis for the integrated approach talked about above.

By Bas Walker

This is another of Bas Walker’s posts on GrownUps.  Please look out for his articles, containing his Beachside Ponderings.