The route to managing remedial work following substantial flood and burst pipe damage to a building.

Transcription

1 The route to managing remedial work following substantial flood and burst pipe damage to a building. Brian Percival FRICS MCIArb Chartered Quantity Surveyors Project Managers Dispute resolvers Accredit mediator 4-6 Bridge Street Tadcaster LS249AL brian@percivalsbusinesses.co.uk

2 Index 1 Introduction 2 Expectations and their management 3 The stages of remedial work 4 The critical questions 5 The procurement of contractors 6 The monitoring and managing of work 7 The procurement of contents 8 The payment for it all. 9 Methods of dealing with adverse cash flow. 1 Introduction 1.1 At the time of the incident most people will be faced with a major suspension of their lifestyles, more than likely deprived of their home and for a period will be in shock. In the event of extensive flooding their neighbours will be faced with similar situations. For many people their first concern is the retrieval of themselves, their pets and their treasured possessions, then the locating of somewhere to stay whilst they take some stock of the situation. In the event of extensive flooding then there are many neighbours who will be faced with similar situations and very quickly alternative temporary and 6 month and more letting accommodations are rapidly taken up, even after the surcharged prices that are called for and the initial personal safety accommodation appears to be unresolvable. 2.1 After the initial shock many people will telephone their insurance company or broker and seek advice. Many of the large insurance companies do have facilities for finding accommodation, but this will take several days to be arranged. 3.1 All too often, especially after severe flooding, many personal possessions and personal papers become lost or damaged in the flood and finding out exactly the cover that has been contracted to the insurance company is difficult to identify. The local authority and associated emergency services will be on hand for limited assistance with accommodation. The National Flood Forum is probably one of the best qualified national agencies to obtain advice and direction, but this agency has very limited resources, has very helpful signposts to assistance but cannot provide actual accommodation, reinstatement work and the like. 2 Expectations and their management. 2.1 It is natural for people to simply want to get back into their building particularly their home and have little initial regard for the detail of its repair other than wanting to get in, get the job moving, get the debris out of the way and then resume their normal way of life. 2.2 Whatever is done has to be funded, to most people that means 100% reimbursement from their insurance company, some will have some reserves for rainy day purchases or in the anticipation that sometime in the future that some parts of the building may need to be refurbished or remodelled. But such refurbishment and remodelling is not the first thing in people's minds. 2.3 The major consideration when expecting the insurance company to fund the work is that the sums insured should be adequate, too often they are less than the cost of remedial works, particularly household contents and in those instances the insurance company, acting through its loss adjuster, will determine what the reasonable cost of total reinstatement would be and Brian Percival FRICS MCIArb 2

3 if that sums are less than the insured sum then will apply the same proportion of reduction in payments that the sum insured is in comparison with the true cost of reinstatement. 2.4 At the time of renewal of insurance it is always worthwhile checking that the sums at risk are adequate for the additional cost of adequately or being slightly over insured is very small by comparison to the sums that you may have to find in the event of undervalue. Remember that the sum at risk should include VAT for unless it is a total knock down and rebuild then VAT will be charged to you and unless you are a VAT registered business then you cannot recover it from the HMRC. Make sure that your policy provides for realistic costs for temporary accommodation and be aware that getting lets for less than 12 months is difficult, especially when there are great calls on accommodation following major flooding. 2.5 You must always remember that the purchase cost of the house is not the same as the cost to rebuild and the replacement cost of its contents will not meet their initial cost as the price of many goods, particularly the electrical, have decreased whilst furniture and carpets have increased. The cost of rebuilding needs to include the cost of either stripping out or demolishing and the cost of surveyor s fees, building regulation charges and VAT. 2.6 The building, whether commercial or residential, probably has a mortgage that is secured by the value of the building and if the building has been devastated by an accident then its value is less than the mortgage and so there are risks that if there are inadequate funds to fully reinstate the building to its pre-existing condition to justify the monies borrowed through the mortgage then you will be a negative mortgage position. Mortgage companies should be informed of the condition of the building. 2.7 Fundamental to all works and insurance claims is to have the fullest record of the condition of the building and its contents. For the building then as soon as it is possible to gain access then it is strongly recommended that there is the fullest photographic and if possible video record made of every facet of every room, it's floors, walls, ceilings, doors, windows, furniture, anything attached or within all of these elements including floor coverings, wall coverings, curtains, electrical goods, storage furniture and their contents, electrical equipment, kitchen, central heating. Make copious notes and put a purchase prices against each item. These lists are invaluable during the assembly and settlement of claims. 2.8 Record the meter readings of gas, electricity and water including recording the quantity of stored heating oil. If you have had any service to any of the heating, electrical, alarm installations, locate them and save them, including going back to the utility company and asking them for a duplicate. 2.9 The extent of remedial work can never be finitely determined until after the drying, stripping out and stripping off of wall plaster and the taking up of any suspended floors to determine the condition below those floors. But that is not to say that you should not be considering how the remediated building is to look upon its completion The insurance cover will only be for the reinstatement of the building as it pre-existed the accident and they will not contribute to any enhancements or any future flood alleviation works. These will be at your cost and the insurance company will not take lightly the concealment of enhancement works. If you had a nylon carpet then you cannot expect a pure wool replacement, if you had an average grade kitchen then the insurance cover will not replace it with a superior kitchen. But nevertheless it does make sense and it costs the same to install superior grade furnishings and kitchen fittings, it is simply the capital cost of the furnishings and fittings as the extra ordinary cost above what had been pre-existing that will be the enhancement and consequently at your door. 3 The stages of remedial work. 3.1 The anguish, the unfairness and the psychological identification of just who has caused the suspension of my life. Brian Percival FRICS MCIArb 3

4 3.2 The rescue and preservation of people and pets. 3.3 The locating of temporary accommodation. 3.4 The notification to any insurance provider. 3.5 The notification to any mortgage provider 3.6 The identification and appointment of a project manager (provided that the insurance company gives approval). 3.7 Making the fullest record of the condition of the building and its contents, recording particularly the contents, the furniture and furnishings and all decorations. 3.8 The recording of all utility meter readings. 3.9 Notification to the local authority, television licensing authority, utility companies and the post office of your vacation the building and for the suspension of any standing charges, mail redirection and the like The rescue and preservation and storage of salvageable goods, particularly personal and sentimental possessions The procurement of the drying out contractor, preferably one who is capable of stripping out, salvaging, restoring, eradicating mould and flood debris and certifying as fit for reuse, PAT testing of electrical appliances (always providing that such restorative and storage costs are less expensive than straight replacement and storing of goods. It is recognised that in the first instance that many items would give the appearance of being salvageable and in due course not prove to be the case, and goods that upon initial examination look to be being beyond economic recovery could be retrieved, cleaned and stored Drying out will take different forms and is greatly dependent upon the construction of the building. For houses with suspended ground floors in all probability water will enter into the subfloor, especially through the air grates. In old houses there will probably not be any oversite subfloor concrete, in fact possibly only on earth, that whilst it will allow water to drain away, could remain damp and have a consequence on the timber floor. In modern houses suspended floors often are in the form of concrete beam and block laid on brickwork or block work honeycombed walls on top of oversite concrete. They require inspection and depending upon the inspection then the methods of drying In timber framed houses, in all probability the plasterboard linings will have perished and remedial works will comprise the removal of the plasterboard and insulation and the drying out of the timber frame using a more specialist method of drying rather than the general dehumidifier. The electrical installation will need to be tested and whilst water may have got into the switch plates and into the distribution boards it is not always the case that the electrical wiring will have been affected and electrical switch plates may be capable of drying out. Whatever the case the electrical installation will need to be tested and certified by a competent electrician. Brian Percival FRICS MCIArb 4

5 3.14 The heating installation is generally a closed circuit system and whilst water may have got into the boiler and this will require checking and certifying to safety, in all probability most hot water heating systems will not be affected by floods other than it's redecoration and potential replacement boiler mounted on the floor and the complete flushing out of the system. The existing heating installation, if it can be used, is an integral part of drying out. Off peak electric storage heaters will probably have perished Consideration as to whether any of the works will be affected by Party Wall Act, planning policies, compliance with building regulations Drying out and subsequently stripping out will take between six and 12 weeks and longer depending upon the nature of the construction Obtaining a certificate of drying out and of sanitisation It is not until this work has been done that the more accurate determination of remedial works can be made. In the interim period tenders for the remedial works and any enhancement works can be prepared and sought Identifying and specifying the remedial works Considering and specifying enhancement works both for future flood alleviation works and enhancement works Consideration of the appropriate form of building contract and the conditions within the contract, duration of the building works contract, including time allowances for re-fitting out building, its contents and any assistance required from the builder in the fitting of the contents You will need to consider whether the works are affected by health and safety (CDM Design and Management Regulations 2007 and its 2010 amendment) and how these are be accommodated, ensuring that the builder carries adequate public liability insurance including insurance from theft whilst the builder has possession of the building. Be aware that if your property is 'listed' in planning terms that you may need planning consent for the work, especially flood resilience work The purpose of obtaining detailed prices for the remedial work and the enhancement works is that at the tender stage this is the best time to talk to builders, whereas during the construction phase you are simply a hostage to fortune It is strongly recommended that you use the current JCT Form of Contract with Contractor Design, that the key subcontractors of electrical, plumbing and heating, gas installation, specialist damp protection and flood alleviation works are warranted to you direct so that in the event of a failure then you can approach them direct in addition to through the general builder Upon receipt of the tenders and their full delivery of prices then there is an evaluation of the costs. With rectification works then with the loss adjuster. With enhancement works then this has to be a personal assessment of what added value that these works will bring. Arising from the works of this nature then it is inevitable Brian Percival FRICS MCIArb 5

6 that there will be unforeseen works and it is advisable to include at least 20% cover for contingencies and the method of valuing such works During the evaluation of the tender and before the appointment of a contractor it is essential that there is a programme of Works determined and the latest dates when variations to those works can be incorporated for all delays will cost money. The tender needs to show the value of costs (damages) that you will level against the builder in the event of delays in completing the work that are his responsibility. These must be realistic and not punitive. The tender will identify what samples are required in order that there can be a comparison between the delivered materials and those that you anticipated and what guarantees and the like are to be given to you in writing before final payment of money is made Cash flow is very important and currently with the drying up of credit and recognition that the insurance company could take between three and four weeks to clear payments then this must be identified to the builder who will probably have problems in dealing with having to lay out credit After having approval from the loss adjuster and the provider of funds for enhancement work then you can place the contract.(see below) 3.29 During the works your project manager will monitor the works and the finance and report to you It is important to realise that it is the builder has contracted with you to undertake the building works and whilst there is a duty on the part of your project manager to advise you of progress and deviations from the agreed works, to seek resolution of any disputes if such is possible, there has to be a recognition that dispute resolution is an additional service to be paid for and that the project manager can only instruct works, he does not stand in the shoes of the building contractor Liaison during the works are essential and especially that of comparing anticipated progress against actual progress and checking on executed works by comparison to the agreed specification At each project meeting there will be the recording of variations and critical dates for action At the end of the building project the builder will carry out a clean, but this will not be to the quality that a housewife would provide and as a consequence provision should be made either within the building contract or as a separate contract for a sparkle clean The contents of the house will have been taken away, stored and cleaned if there are not beyond economic recovery. Personal possessions and the like will need to be brought back into the house and reinstated. It will be prudent to allow a provisional sum within the contract for this operation At the end of the building work and upon occupation of the building then you need to take new readings of utility meters and make notification to the utility companies and local authorities that you are reoccupying and the post office for the cancellation of the redirection of your mail. Brian Percival FRICS MCIArb 6

7 4 The critical questions 4.1 What is covered and what sums are within the insurance contract? 4.2 What is the true valuation of the cost to rebuild the building and to replace its contents? 4.3 Does the insurance cover include temporary accommodation, meals, laundry, additional expenses with travelling to and from work? 4.4 Does the insurance cover include the use of a project manager/surveyor? 4.5 Do you have a comprehensive statement of condition of the building and its contents? 4.6 Have you informed your mortgage provider? 4.7 Have you informed your insurer? 4.8 Have you thought about how your building will look after the remediation work? Have you thought about flood alleviation methods to prevent or reduce the effects of any future flooding and have you made any provisional allocations of money for such works. 4.9 Have you thought about any enhancement works? 4.10 Have you considered whether the remedial works will require planning consent, especially if you are in a listed building or in the conservation area? 4.11 Have you considered whether the remedial works will require a Party Wall Agreement? These are required in the event of you working on a wall that you share with your neighbour and would include such works as the installation of a damp proof course, any percussion work on the wall that may cause issues to your neighbour Have you considered the Health and Safety legislation Have you considered that the works will need to be compliant with the Building Act and consequently the involvement of a building inspector, whether from the local authority or from a private specialist firm? 4.14 Have you considered your master programme? 5 The procurement of contractors 5.1 Unless you have an in-depth knowledge of building, specification writing and contract management it is better to leave the work to the experts. The expert should not simply come in and undertake what they think is necessary but take into consideration your requirements and those of any insurance contracts. Get everything in writing. At common law there is a duty on the part of the insurers to mitigate their losses under the contract and they may wish to promote their own teams. In times of inundation the insurance teams tend to be swamped out and you do not necessarily pick up the best teams. Equally others outside of those teams will be under similar pressure. Brian Percival FRICS MCIArb 7

8 5.2 Provided you are having only flood remedial work done then I strongly recommend that you do not agree to the appointment of anyone who does not have a direct and totally clear liability to you. The areas of greatest risk are always electrical, plumbing and heating and you must insist that any specialists warrant, in writing, their work directly to you and that you will not accept the job back until there are warranties (guarantees) from the specialist and the general builder. Equally that there is an agreed programme of commencement and completion and the sums that will be paid directly to you for delays of any causing other than your own. 5.3 You will need to appoint a project manager with building surveying skills, carrying professional indemnity insurance, an ability to communicate both with you and the building contractor and the capacity to monitor and manage the building works and monitor and manage the financial reports. All too often it is the case that variations occur and those costs are not declared in advance and approved but turn up in the final account when at that stage it is just too late. 5.4 Essential to the pre site commencement of works and that must be recorded in writing, agreed and acted upon are the latest dates when decisions are required from you for your decisions on anything that is not buttoned down in the specification, for example colours of paint, floor coverings, kitchen units, electrical sockets and switches and their positions. 5.5 The National Flood Forum know of some project manager surveyors, others can be obtained through the Royal Institution of Chartered Surveyors, The Royal Institute of British Architects, the Institute of Structural Engineers and by personal recommendation. 5.6 With the drying and stripping out works you should check out the proposed companies for there are many cowboys. Drying out was traditionally undertaken by lighting a brazier in the centre of a room, allowing the hot air to dry the building but pulling in circulation air to exhaust the damp. Dehumidifiers now provide this in the reverse but in closed rooms. The water collected however needs to be removed on a regular basis. 5.7 The alternative and more cost and time efficient is to use the equivalent of the old brazier but using strong local dry heat in the form of specialist electric heaters, again venting the humidity to the fresh air. 5.8 The type of process used must be appropriate to the nature of the building being dried and you must obtain guarantees in writing that the system proposed would be fit for its purpose and usage of the building. 5.9 You will need to appoint a contractor who will monitor the drying process and at its conclusion issue a certificate of dryness and a certificate of sanitisation as a precondition to future works. 6 The monitoring and managing of work 6.1 Quality and financial management are at the heart of the project. 6.2 Insurances for public liability and theft from the builder need to be in position. 6.3 Critical dates for final selection of materials and monitoring progress of the must be incorporated into the contract before it is placed. Brian Percival FRICS MCIArb 8

9 6.4 Three weekly site meetings are essential to compare actual progress with planned progress, decisions on variations and comparison of executed work to the specifications and samples received. 6.5 Wherever possible any variations should be costed out in full before orders are placed and those costs are to include any variations in time. 6.6 It must be remembered that any variations and any changes in mind will cost money and delay the completion of the works. 6.7 The project manager should prepare monthly interim projections for total cost expenditure and presenting them to all those financially involved. 7 The procurement of contents 7.1 There is a great tendency to slash and destroy during the first stripping out works, sentimental possessions are discarded along with obviously destroyed goods. You need to give clear instructions to the stripping out contractor as to what you expect to be preserved in the first instance and obtain from them a method statement of how they will remove, store, clean, check and sanitise where appropriate, return and install back into the building. Goods are sometimes categorised as being beyond economic recovery, i.e. they cost more to clean or repair and store than cost of new and as a consequence they are regularly thrown into the skip. It is better for you to take the personal view on what you do not want to see in the skip. 8 The payment for it all. 8.1 Credit at the current time is in very short supply and small-time builders are finding that they have to pay for cash up front for the procurement of materials. 8.2 It is not uncommon for builders to ask for payment upfront however the major problem is whether that money then will be used exclusively for your project and not simply used to pay off existing debts. 8.3 Standard forms of building contracts allow for payments on a monthly basis and payment within two weeks. If the building works are subject to insurance reimbursement then this is not achievable and the period between making an application and being paid can be between two and four weeks. The building contract must reflect this extended period for payment. 8.4 If you have entered into a building contract with the builder, you have an obligation to pay that builder on time and without deduction, except as is in your contractual right, from the certified sums. This means that all monies paid to you for onward payment to the builder must be made as quickly as the money has been cleared into your account. Make it part of the project manager s service to issue certificates of payment analysed into insured works, none insured works and any deductions for breaches in the contract. Do not enter into direct payments from the insurance company to the consultants or contractors unless you have instructed such in writing and had the sums approved by your project manager and yourself. 9 Methods of dealing with adverse cash flow. 9.1 Contracts directly between yourself and the builder Brian Percival FRICS MCIArb 9

10 In effect an arrangement whereby the insurance company pays you for you to pay to the builder upon the issue of the payment certificates from your project manager. It allows for a single contract to cover flood remedial work and additional work. Your project manager can itemise the categories within the payment certificate and he can direct monies in the event of offsetting and the like. This is the preferred method of managing finances, subject to the issues below. If this route is taken you must ensure that whomever is paying or where the project manager is certifying monies that there is an arrangement to ask if there is any claim to set off from the monies before payment is made and how is that set off moneys to be held and when it is to be released. In all of the standard building contracts there is the facility to hold what are known as retention monies (generally around 5%) against payments on account. These sums are not your monies and must be held in trust for payment to the builder at the end of the works. If this procedure is used then you must remember that you are taking on the liability that removes the insurer from future liability if matters go wrong such as the builder not completing the work, undertaking those works in a less than competent manner, identifying all work that is required, ensuring rectification of latent defects and liability for the builder going bankrupt before and after practical completion and during the 6 year right for the rectification of defective materials or workmanship. You could potentially take out insurance for this risk. These are contracts of credit (the builder is giving you 6 to 8 weeks credit on monies that he is laying out) and as a consequence need securing. The builder will make a charge for the provision of credit somewhere within his tender The use of a joint bank account for payment in of monies and subsequent out payments with an agreement on the rules is a solution solution but it will require an additional service from your project manager to manage this financial arrangement. 9.2 Contracts directly between the insurance company and the builder Having the builder contract directly to the insurance company. Again there is a tendency the insurance company to shy away from this method and if there are variations and enhancement works these will present major problems and mechanisms that may have to include two contracts, each tied to the other. But splitting responsibility between two contracts is not a recipe for success. Guarantees of performance and against future defects are very critical and contracts entered into between insurers and the builders do not give third-party liabilities unless agreed at the outset. It may be possible to agree with the insurance company automatic step rights or guarantees and the like to be delivered directly to you as though you were the direct contracting party. This method is not recommended and needs a lot of setting up and administration and very probably lead to divided loyalties by the builder. 9.3 You acting as the project manager The insurers will pay you against proven expenditure or make a lump sum settlement with you. You would be foolish in taking such a risk against unknown final costs and unless you have absolute confidence in your ability, prepared to micro manage the project and be on site for long periods every day. In any event why take on such a task if you have adequate cover for a professional to take care of it. Brian Percival FRICS MCIArb 10

11 Brian Percival has many years acting for insured in flood damage remedial work, greater than 30 years experience in dealing with construction disputes and their resolution, especially between the insured and the builder and the insured and their insurer 4 March 2012 Brian Percival FRICS MCIArb 11