No one entered the construction business because of a fondness for paperwork and research. Watching a building take shape brings much more joy than tracking change orders and following up on a punch list.
However, nothing will sink a construction business faster than having a job go bad, being on the hook for defect liabilities and becoming known for shoddy workmanship.
Handling a project with an organized approach and strict quality control builds a solid foundation for a construction company’s future success.
The ProblemDuring a walk-through inspection, a contractor that finished a building complex according to plan was on the receiving end of the owner’s dissatisfaction with the landscaping, exterior lighting and other cosmetic features. Focused on pleasing the customer, the contractor made last-minute changes that led to leakage, water damage and other structural integrity issues. The work was neither documented as a change order authorized by the customer nor approved by an architect—opening the door to contractor liability for construction defects.
Such stories are not uncommon in the construction industry. However, statistics about construction defect costs and frequency are difficult to pin down because the problems vary—from the quality of the materials and workmanship, to the site conditions and adequacy of architectural and engineering plans. The range of complexity also is wide, from simple defects like poorly painted surfaces to difficult-to-resolve issues, such as foundation defects or inadequate roof engineering that threaten the integrity of a building.
A 2005 survey by Quality Built, a construction consulting firm, found the cost of corrected defects in multifamily housing and mixed-use commercial construction averaged $4,556 per unit.
Of course, not every construction defect lawsuit represents a legitimate dispute about contractor actions. Some legal action results from different perspectives on whether the defect is worth litigating, versus an inconvenience that should be tolerated, or an owner maintenance issue that is not the builder’s responsibility.
The PayoffContractors do not need industry-wide statistics to know construction defects present a large challenge. They know each construction defect complaint adds costs, eats into time spent on other projects and erodes customer satisfaction. Reducing defect disputes and managing problems effectively pays off in a number of ways, including:
- Reducing the bottom line. Correcting a defect incurs labor and material costs and impacts overhead. The cost of insurance makes up a large portion of overhead expenses. Companies can save money by avoiding or quickly resolving construction defects. Underwriters are more willing to provide insurance to companies with few claims on record, which translates into more competitively priced insurance and lower policy costs over time.
- Increasing customer value. A customer does not want to have problems with a project it just paid to have built. Potential clients listen to word-of-mouth tales about defects and how a construction firm handles complaints from other building owners. Paying attention to quality throughout the construction process and handling complaints promptly and competently keeps customers satisfied.
- Growing profitability. In construction, keeping defects to a minimum opens the door to greater profitability by controlling the potential for unexpected costs and by building a reputation for delivering value.
The Commitment
To get to the payoff, what does a construction company need to do to eliminate defects?
First, recognize many aspects of a major project are not under the control of the contractor, such as unrecognized geotechnical problems at the site or the quality of new building materials. Contractors must manage all potential risks at every stage of construction through a well-established process to reduce defects.
Second, a company must commit to a process control method. That commitment must extend not only from the beginning to the end of the project, but also must permeate from the top to the bottom of the company. Construction executives cannot discuss their commitment to process control once and then move on to other priorities. There must be a constant drumbeat of support for following procedures, as well as recognition and rewards for employees who translate process control into quality work.
Third, a process is only as good as the documentation that proves it has been followed. Establish a paper trail that demonstrates the proper steps have been taken. For example, an owner may request several changes on a walk-through with the contractor. Having all change orders signed on paper not only documents the owner’s requests, but also gives both sides clarity about future changes.
The Process
Reducing construction defects requires companies to follow standard procedures, or process control.
In general, process control should cover three phases:
- Preconstruction. A company must have a process in place for managing requests for information and change orders, assessing and responding to bid packages, pre-qualifying and selecting subcontractors, and training employees, including supervisors and managers. Once a specific project is being considered, a preconstruction survey report can assess the site for soil conditions, adjacent structures, water issues, nearby utilities and other potential issues. Schedules of work and critical paths must be developed for each project, not only to avoid sequencing problems, but also to ensure adequate time is allocated for each task. An overly aggressive schedule can lead to construction defects.
- Construction. The startup package should include all necessary drawings and plans, signed and date stamped. Quality control meetings should occur on a regular basis and should focus on working above and beyond the minimum requirements of building codes. Clear communication among all parties owner to contractor, design professionals to contractor, contractor to workers—is critical. Materials should be inspected for quality and stored appropriately so they do not become damaged while awaiting installation. Work in progress should be monitored continuously for quality.
- Post-Construction. Many defect claims and lawsuits arise because contractors do not follow through after a site has been turned over to the owner. The punch list must be completed, with each item documented and addressed. The warranty period must be considered as part of the process. Contractors that provide operations and maintenance training to new owners are less likely to get into disputes.
Smart construction executives recognize that attention to process control at every step of a job may be tedious, but it pays off by reducing problems and increasing the likelihood of future success.