Water escape - That sinking feeling

Poor workmanship and defective equipment are often cited as causes of water escape on construction sites, but many believe the root cause is the lack of an agreed code of practice. Water damage is avoidable but, unlike fire hazards, which can be tackled by adopting clearer safety measures, creating practice standards for contractors is far more challenging, as Ana Paula Nacif discovers

Insurers are digging deeper to pay for increasingly large water damage claims. And although there has been talk of a code of practice to reverse this trend, nothing formal has yet been proposed.

Water damage, a widespread problem that affects both large and small construction contractors, can be caused by poor workmanship, defective equipment or less-than-perfect design. According to Max Benz, construction underwriting manager at XL Insurance, water escapes during the final works on a construction site are relatively regular.

He explains: "This is frequently due to damage to sprinklers or malfunctioning systems. Water from roofs or leaking seals can also be a problem. For continental Europe, my guess would be that 20% to 30% of the claims are due to water escapes. In more than 40% of these claims they are due to human errors on site. Approximately 20% are due to design and another 20% from quality problems, such as valves."

The increase in high-rise multi-tenant residential developments has put pressure on contractors to finish the job quickly, and inadequately or poorly trained workers are only part of the problem. Work that was traditionally carried out once the services had been commissioned is now being undertaken at a much earlier stage, which increases the risk exposure in the event of an escape of water. Such exposures not only increase the likelihood of claims, they also increase the amount claimed, hiking the bill for insurers.

Paul Barwell, director of Heath Lambert Group claims division, explains that although low standards of workmanship can be the root cause for a considerable number of the claims, this does not tell the whole story. "While poor workmanship may have been the reason why a joint failed or a tap was inadvertently left in the open position prior to the testing of a water system, the absence of industry-wide best practice standards for installation and commissioning is also a major contributing factor."

Contract extension

And, according to Jack Chisholm, partner at Teceris Construction and Engineering, it is not unusual for clients to discover that a tap has been "inadvertently left open resulting in extensive water damage and, therefore, obliging the client to extend the contract".

On large sites, which usually employ a number of contractors and subcontractors, it may be difficult for the management to ensure everything has been fitted and tested, as it should.

"Sub-contracting is another problem," Mr Benz points out. "In some cases no pressure tests are conducted during commissioning of a sprinkler system, because everybody thinks the other person will do it. Sometimes, for the same reason, the systems are not even installed completely before they are put into operation. Generally the systems have to be operational as early as possible."

In such circumstances, ensuring systems are installed properly is easier said than done. Mr Chisholm emphasises that the only way to prevent taps being left inadvertently open, for example, is to get management contractors to be more vigilant. "It is down to someone looking around to make sure everything is in place. This sort of problem usually happens with bigger companies because they work on bigger sites with a lot of sub-contractors and, therefore, it is more difficult to keep an eye on everything. And, when something happens, no-one knows which sub-contractor is to blame."

And, as losses get bigger, so does the fight to prove liability. Steve Tester, partner at law firm CMS Cameron McKenna, explains: "Water can cause extensive physical damage and disruption to the progress of a project. It is not always easy to determine speedily where the cost should ultimately be borne. Much will depend on how, physically, the water has got where it should not be, and upon how the contractual and insurance contracts legislate for this eventuality. The recent litigation relating to the Tate Gallery flooding is a classic example of how difficult cases like this can be to resolve."

The move to more complex designs and modern materials has also raised a few issues. Mr Chisholm believes that the move from metal to plastic pipes is partly to blame. He says: "Defective materials are becoming more common and some companies won't use certain types of fittings because they are not reliable."

Mike Skingsley, head of international construction (technical) at Crawford, which has seen several multi-million-pound water claims, agrees that push-in plumbing fittings are more likely to go wrong. However, he adds: "They work very well when fitted correctly, but it is very easy to assemble them incorrectly. So we need better training and to make sure people comply with the manufacturer's instructions."

Escalation of problems

Problems can also escalate with these types of fittings. For example, if a mistake is made in one of the joints and this is replicated throughout the job, it could mean hundreds of joints are not fitted properly. "In a 30-storey office block you can have thousands of plumbing joints," Mr Skingsley points out.

He adds that water damage in commercial buildings can have devastating effects as the water that comes from huge reservoirs has a much higher pressure to enable it to get to higher floors, which means that in case of burst pipe the volume of water is also extremely high. In some cases, Mr Skingsley explains, faults are not noticed until the plumbing system has been in operation for some time, at which point the building is already occupied, potentially increasing the value of the claim.

Yet using plastic instead of metal is not only cheaper but also more flexible in terms of design. Similarly, these materials do not require a highly-skilled workforce to fit, which increases the likelihood of mistakes being made.

As Norwich Union risk manager Allister Smith explains: "These fittings benefit the construction industry because of costs and ease of installation, which does not require the same skilled workforce. Our concern is that the finished plumbing is not as robust as its metal predecessor. Another problem is that, after the construction phase, invariably 90% of the pipe work is out of sight and you can't check every joint within the system. It is critical to get it right at the construction phase."

And, whereas with metal piping there are problems with defective joints that cause leaks, plastic pipe failure can have a much more catastrophic impact with the whole system literally falling apart. "One example," says Mr Smith, "was the complete destruction of a five-storey block of flats, which was flooded with 700 litres of water per minute."

As indicated above, when things do go wrong, it is not easy to attribute responsibility. While manufacturers blame installers for not following the instructions to the letter, installers blame manufacturers for producing a defective product, says Owen Gorman, director of Sigma Claims Solutions.

He adds: "Sometimes the client specifies what they want in the building and contractors are obliged to use whatever is there on the site. We have also seen the use of cheaper imported fittings made in China, where quality control may be different. It also makes recovery much more complex."

In an attempt to tackle the issue, some insurers are working with their clients to suggest the use of water detection devices that automatically shut down the water supply if the flow of water goes above a certain level.

According to Richard Harrison, loss control manager at Chubb, measures to mitigate the risk of water damage exposure should be in place both during the commissioning phase and after the handover, in the maintenance period. "We encourage clients to install water leak protection. If you put those in the stages of construction it is only a marginal cost in comparison to the total construction costs."

A little incentive in terms of premiums could also go a long way. "Premium discounts could be offered when the contractor introduces measures to reduce risk, such as flow devices on high rise multi-tenant type projects," says Mr Barwell. "Alternatively, insurers could warrant their use in the policy."

However, there is more insurers can do. "The industry needs to consider improving the training of operatives and to achieve this there needs to be more apprenticeships, along with an industry-wide installation and commissioning standards to measure what is best, or at least, acceptable practice," says Mr Barwell. "If the construction industry does not want to take steps to improve the situation, should the insurance industry take the lead?"

According to a snapshot survey by Lockton's real estate and construction division, more than 70% of property professionals believe that the construction industry should take serious steps to reduce the instances of water escape on construction sites.

"There has been a significant increase in water damage claims," says Steve Bracey, Lockton's managing director, international real estate and construction, "We have reached a point where we believe something has to be done."

Lockton is, therefore, in the early stages of leading discussions around this issue with large developers and contractors "to get to the bottom of the situation and reach a conclusion as to how we can take this forward and cut down the volume and size of these claims".

According to David Hayhow, fellow Lockton director, although insurers, brokers and clients are aware of this frequent and often expensive problem, the causes are yet to be analysed. "I don't believe insurers have looked at water damage claims in such depth as to be able to draw firm conclusions."

He explains the discussion forum will help to get people together to address the problem, but adds he cannot foresee the outcomes. "It would be foolish to try to determine what the way forward may be before forming this discussion group, which will involve developers, building contractors, representatives of the insurance industry and possibly solicitors."

Devaluing the process

He adds: "Although we have some idea of how the issue can be addressed, if we try to pre-empt the discussion as to what the outcome might be, in some ways we would be devaluing the process."

But not everyone believes it would be feasible to enforce a code of practice to deal with water escape. "I am not really surprised that talk in February of a code dealing with water escapes has amounted to nothing," says Mr Tester. "This is not like fire hazards where taking some obvious precautions can substantially reduce the risk. Avoiding water escapes is much more about complying with manufacturers' instructions and knowing where live services are located."

One of the main difficulties is that, unlike fire, water escape seems to have more complex and somewhat disparate causes. "Fire risks are more obvious, with water damage you have failure of equipment, installations, design and faulty products, so it is not so easy to identify," says Mr Harrison, who also believes that creating a code for water damage will be challenging.

And Paul Donnelly, construction lawyer at law firm Weightmans, concludes that insurers will have to tread a fine line if they decide to set a code of practice by which their clients will need to abide. "Insurers could set up minimum standards for policyholders; if they don't comply the policy would not be valid. However, it depends. If the bar is too high, arguably it is not worth having a policy that is so limited it will not respond. If it is too low, what is the point of having extra requirements anyway?"

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