Insider Viewpoint: How Contractors’ Use of Digital Surveillance Enhances Quality While Reducing Defect Litigation

In the quality assurance world, the days of clipboards, pencils and punch lists have gone the way of green eye shades and buggy whips. Today’s quality assurance is based on sophisticated, digitally generated business intelligence with ready application to counter, in real time, construction issues, such as labor shortages, that affect the building industry and its insurance carriers.

In its most recent labor survey, the General Contractors of America Association reported that two-thirds of construction firms say they are having a hard time filling hourly craft positions that represent the bulk of the construction workforce.

“With the construction industry in most of the country now several years into a recovery, many firms have gone from worrying about not having enough work to not having enough workers,” said the Associated General Contractors. “These shortages have the potential to undermine broader economic growth by forcing contractors to slow scheduled work or choose not to bid on projects, thereby inflating the cost of construction.”

One of the biggest issues that our firm has witnessed is competition for skilled labor across multiple trades in multiple regions. For instance, we see that Sacramento area builders cannot effectively compete with San Francisco Bay Area builders for drywallers due to dramatic pricing differences — Bay Area drywall contractors pay much higher piece labor rates than drywall contractors in Sacramento. It is a painfully serious lesson that labor will move without notice to the highest piece rates available. They may be in Sacramento one day and leave the job unfinished to earn higher rates elsewhere. This marketplace disruption creates scheduling and delivery challenges, site supervision headaches and continuing quality issues that can result in construction deficiencies.

Lacking top-grade workers for whatever reason, builders must resort to B and C quality trades, requiring constant and tedious oversight by field superintendents and construction managers. Deficiencies in field workmanship can result from misinterpretation of plan details and deviations from the manufacturer’s recommendations, leading to more project delays and delivery pressures. An increasing volume of construction issues make it more difficult for project managers and contractors to identify, address and close these items in a timely and cost-effective manner.

Dealing with these growing construction problems has increased quality assurance burdens and challenges on project site personnel, leaving builders, contractors and insurance carriers potentially exposed to quality issues and a higher risk of construction defect litigation.

Construction Performance Metrics

There are solutions for overcoming labor shortages and potential litigation. Significant U.S. builders rely on several digital software methodologies to assist them in high quality project deliveries. The critical factors for reducing construction litigation are based on accurate plan details, durable manufactured products, adherence to relevant manufacturer recommendations and top-quality field workmanship in the construction process. Data via digital surveillance that assesses the status of these four factors in real-time provides builders and their insurance underwriters with three key information benefits: 1) evaluation of trade contractors; 2) evaluation of the field team; and 3) evaluation of a contractors or sub-contractors overall performance on other comparable projects.

The first of these — evaluation of contractors — is essential in a work environment where there are labor shortages that result in a scarcity of experienced tradesmen whose availability is depleted by high demand for their skills, such as Sacramento vs. San Francisco. The ability to measure trade contractor performance in the field helps increase work quality or detect problem areas before they become serious. This also includes measuring trade performance on different product types with the ability to accurately measure and cross-reference good and bad performance, which can be the difference between a successful project portfolio and one impacted by complications and losses.

Next is identifying whether a builder’s site management is a contributor to project issues or delays. Like conductors of an orchestra, site managers must effectively schedule, direct and manage the trade contractors in a fusion of the best workmanship and construction performance. This is a vital factor in attaining on-time project deliveries, achieving closing dates and managing an owner’s expectations of post-closing warranty service. The better the conductor, the less chance of construction defects and costly litigation.

Finally, knowing how well contractors have performed on a comparable project in the past may be an accurate indicator of how well they will perform on the next project going forward. From the insurance carriers’ perspective, also knowing how well a contractor performs in comparison to other contractors that are building the same product type in the same or different regions can identify helpful criteria to evaluate their inherent risk profile and make a judgement about whether to use their services.

Hanover, headquartered in Houston, Texas, with a national construction practice, relies on technology by PlanGrid, Procore and CaptureQA to improve operating efficiency and reduce risk.

Growing construction problems have increased quality assurance burdens and challenges on project site personnel, leaving builders, contractors and insurance carriers potentially exposed.

“These innovations enable our project teams to have real-time mobile access to current plans and punch-list functions reducing errors in the field,” said Howard Dyer-Smith, Hanover’s president, and Allen Cortez, vice president of quality and safety. “As part of our Quality Process, it enables Hanover to document and track work deficiencies through correction. Third-party consultants working independently from the project staff, identify, document and close out individual items which are available to Hanover during the process via a dashboard for completion tracking and trending analysis.”

The Most Common Construction Defects

Our 25-years of experience as a third-party quality assurance consultant for builders has produced substantial data and insight on construction defects that has enabled us to identify the more egregious and pervasive issues. Based on this experience, we have identified the following “seven deadly sins” as the most common causes of construction defect claims. These potential “sins” require continuing, sophisticated surveillance during the building design, construction and maintenance life cycle.

1. Improperly Designed and Constructed Roofs: Water leakage from any source can result in unhealthy living conditions due to mold growth and damage to interiors, but poorly designed and constructed roofs are at the top of the list. For instance, increasingly popular flat roofs with decks over living spaces (functioning like a walkable roof) are a potential water intrusion disaster. Keep in mind that many of the most vulnerable roof installation defects are out of sight and consequently create longer term deterioration.
2. Improperly Installed Windows & Doors: Windows and doors are often the first defects noticed, primarily because of water intrusion that leaves telltale drywall stains. More difficult to find are hidden defects such as improperly lapped flashing membranes; missing sheet metal head flashing; and improperly installed flashing at heads, jambs and sills. Those deeply recessed windows, currently in vogue with building designers, are particularly troublesome if lacking positive sloping sills for effective drainage. Similarly, radius topped windows need extra care from installers to assure proper lapping of the head flashing strips from bottom to top.
3. Improperly Designed and Built Decks Or Balconies: Safety is a critical issue in balcony design and construction–whether a two-story wood-frame structure in Los Angeles or a 60-story concrete/steel high-rise in Miami. Of most concern are poorly drawn plan details or missing saddle-flashing of cantilevered structural supports that can result in rotting structural members. Was this a contributing factor to a disastrous balcony failure in the summer of 2015 that killed six foreign students in Berkeley?
4. Improperly Constructed Structural Components: Structural components such as framing members are the bones that support the entire building. The presence of construction defects in these systems may increase the likelihood and extent of structural damage as well as possible injury to occupants. Also, failure to properly design and construct the required load paths from the foundations to the walls and the roofing members is a recipe for disaster when Mother Nature’s fury strikes with earthquakes, tornadoes and hurricanes.
5. Improperly Constructed Exterior Siding: Brick, rock, aluminum, wood, vinyl and stucco are typical exterior cladding systems that protect the actual building structure while giving a home aesthetic appeal. However, improperly constructed siding can result in water intrusion that may be difficult to find and repair, leading to pervasive wood decay, dry rot, mildew and mold growth, with potentially significant health consequences for residents.
6. Defective Foundations and Concrete Slabs: The structural integrity of a home can be compromised if foundations and concrete slabs are defective. For example, improperly mixed concrete (e.g.: too much water in the design mix) can result in weakened concrete with high porosity which is more vulnerable to vapor transmission and possible damage to structural embedments if soluble sulfates are in the native soils.
7. Improperly Installed Meps, HVAC: Mechanical, Electrical and Plumbing (MEP) designs and installations are somewhat less prone to deficiencies because they are usually installed by professionals who are trained, tested and licensed. Nevertheless, construction defects do occur and can cause life-safety issues as well as substantial monetary damage. Certain defects can be difficult to find and repair such as improper installation of electrical wiring and plumbing because they are hidden behind walls and ceilings and under floors.

Digital, Quality Assurance Surveillance

These and other construction issues can be detected and solved as soon as they are found with digital, quality assurance surveillance.

LJP Construction Services has a proprietary tool in the form of an iPad-driven app that visually documents construction projects with the simplicity of a stoplight by identifying subtle structural and non-structural anomalies of specific construction assemblies that may affect overall project performance. With the app, “good” is represented by green-framed images, “not ready” by yellow images, and “workmanship issues” by red-bordered images.

This all-encompassing view of the construction site tells a more complete and comprehensive story about the project as it progresses, making it easier to identify potential trouble spots. Digitally generated business intelligence also measures variation within and between builders’ regional or divisional data sets for a clearer picture of overall company performance. This can be a builder’s best tool for managing team reviews, and just as suitably, an underwriter’s tool for predicting builder performance and insurance premium pricing. This type of rifle shot accuracy compared to a shotgun scatter removes guesswork and increases efficiency of the entire quality assurance and control process.

Finally, another advantage of digital programs is that they can clearly identify construction and vendor problems which could exist across several different projects, and thus allow the builder and contractor to act quickly to rectify problems before they become a trend that can turn into costly, ongoing construction defects company-wide.

Catching these types of vendor problems by a methodical, quality assurance process before they become widespread defects can save developers and contractors, and their insurance carriers, millions of dollars in repairs or, worse yet, lengthy, time-consuming lawsuits.

The need for this third-party quality assurance attention for insurance company underwriters cannot be overstated. “We recognize the need for multi-faceted third-party quality assurance oversight on construction projects as fundamental to creating insurable risk in the residential market space,” said Chris Day, president of Tokio Marine/HCC.

Holly Heimbruch, vice president at Venture Underwriters Inc., agrees. “As an underwriter, I am quite dependent on the reports provided from knowledgeable and experienced quality assurance companies (who are typically experts in construction practices),” she said. “Over the years, the third-party peer reviews have proven to be a valuable tool for tracking a project, whether it is ground-up construction or renovation. The reports provide clear evidence as to the quality built-in before being covered up. If a correction is required, the contractor has the necessary time to correct before a claim is filed. Along with the independent, third-party peer review reports, I also find the quality assurance review process provides insights to the risks of contractors which are not fulfilled by simply reading a project insurance application. In leading QA/Peer Review companies, technical staff is always available to assist with any type of construction-related question.”

Neff is the president of LJP Construction Services, an Irvine, Calif.-based firm that offers asset management, third-party peer review, risk management and quality assurance services to the construction industry.

Topics Lawsuits Contractors Construction