On 3 and 4 February 2009 parts of Auckland suffered from more electricity blackouts, apparently due to ageing components of the infrastructure. These are unacceptable third world events in what is supposed to be a fine city in a developed country. My proposal to assist the problem is to introduce some new legislation so that obligations of electricity and other commodity suppliers are sheeted home. I hope the engineering fraternity, including IPENZ and ACENZ, will support the proposal.
Objective
An Act to consolidate and reform the law relating to essential services and to provide for better protection and control of essential services with enhanced protection to the public, economy and the environment.
Services to be included within the new legislation
(1) The distribution or transmission by pipeline of natural or manufactured gas, petroleum, or
geothermal energy.
(2) Electricity operators or electrical supply authorities as defined by the Electricity Act 1968.
(3) The distribution of potable water for supply.
(4) The operation of community sewerage treatment and disposal systems.
(5) The stewardship and maintenance of state and provincial highways.
(6) The stewardship and maintenance of bridges on state and provincial highways.
(7) The telecommunications industry.
Why these services should be provided for under the proposed legislation
Most of the supplies of these commodities are natural monopolies. While some of them may be run on increasing free-market commercial models, they can never be operated and controlled fully on the principles of unfettered free market supply and demand, as there is not the opportunity for other competitors to enter the market with a competitive parallel offer. For instance, there is not the opportunity for an entrepreneur to duplicate a given section of state highway and operate it on free market principles.
Even although consumers have the opportunity to change their electricity supplier nothing changes physically. The same electrons flow from the same generator along the same wires to the receiving houses or businesses.
The new legislation would be a factor which would most likely lead to the best protection of the health, safety and welfare of all New Zealanders and to better protect the economy and environment against a future major crisis.
With the implementation of such an Act, there would be better assurance that in future major disruption to society did not occur, in the event of a potential unforeseen happening occurring. It is less likely that Auckland would have electricity crises, such has what occurred in 1998, 2006 and 2009, a hydro-electric dam would collapse, or the contamination of the water supply to a part of Wellington would occur.
The proposed model for the new legislation is the Building Act 2004. The model proposed for the Essential Services Act could be partly based the Building Act 2004. Sections 100 - 111 deal with compliance schedules and building warrants of fitness. These relate to features of all buildings such as lifts, air conditioning and fire control systems. Such features are included in a formalised schedule which is registered with the TA. The features have to be inspected and maintained at specified intervals of time in order to ensure there is continued protection of occupants. Such technical inspection and maintenance work is carried out by Independent Qualified Persons (IQPs), private sector contractors working for building owners.
The proposed Essential Services Act could be controlled by a small statutory body, similar to the former Building Industry Authority (BIA) which controlled the Building Act, over the day-to-day control which is administered by TAs. The Essential Services Act equivalent of IQPs in the Building Act regime would be private sector professionals, who would be commissioned by the network utility operator to carry out mandatory technical audits at prescribed intervals of time. These would be similar to mandatory financial audits which companies have to undertake.
The respective industries in question would formulate their own compliance schedules, which would specify the inspection, maintenance and reporting procedures for the continued operation of the essential services. The proposed compliance schedules could be publicly notified to invite submissions to be considered before formal adoption.
In some cases inspection and maintenance requirements will be specific to a particular type of equipment. This will be taken into account in the formulation of the draft compliance schedule for public notification.
Essential Services Authority
An Essential Services Authority (ESA), a Crown agency, would be established under the Essential Services Act, as the sole regulatory authority for essential service controls in New Zealand. It would be responsible for registering the equivalent of independent qualified persons (IQPs) under that Act. The IQPs would be the only persons allowed to carry out the technical audits. Registration would allow an IQP to work over the whole of New Zealand
This crown agency would directly control the relatively small number of essential services throughout New Zealand, without the need to involve the territorial authorities, as they presently are administering sections 100 - 111 of the Building Act 2004.
Wednesday, February 4, 2009
Friday, January 2, 2009
Fire in Rawalpindi, Pakistan
The fire in a 400 shop mall in Rawalpindi in which at least 18 persons are reported to have died is another reminder that all is not well in terms of fire safety in buildings. Reports indicate that most victims became trapped and could not escape. My experience in several countries is that retail, commercial and hotel buildings are commonly unsafe in relation to their design features to protect occupants from fire. Perhaps the most common problem in developing and developed countries alike is that egress doors have locks that cannot be opened in a fire and escape routes are cluttered with stored goods.
Was this the case in this latest tragic example in Rawalpindi?
Was this the case in this latest tragic example in Rawalpindi?
Monday, December 1, 2008
Risks of property reports for vendors
Consultants’ reports for vendors of properties are fraught with risk. In my view, it is unwise for consultants to carry out property inspections and prepare reports on behalf of vendors. These types of reports could amount to representations by vendors that could be challenged by future purchasers leading to claims against the vendors and the consultants who prepared such reports for vendors.
In today's very litigious environment (especially in relation to the building industry in New Zealand), I think it is unwise for vendors to commission any reports. Any existing reports known to vendors, in my view, should be disclosed up front, on the basis that prospective purchasers satisfy themselves, without influence by vendors or their consultants, as to the suitability of properties being sold.
In disclosing these reports, the point should be made that prospective purchasers should commission their own reports as they see as being necesssary.
In summary, I think vendors should make full disclosure and take no steps themselves to contradict any existing reports. In my view, this is prudent advice nowadays to all vendors contemplating commissioning their own reports for the purpose of selling property.
This seems to fly in the face of the principles of the Home Information Packs (HIPs) that are in place in England and Scotland.
In today's very litigious environment (especially in relation to the building industry in New Zealand), I think it is unwise for vendors to commission any reports. Any existing reports known to vendors, in my view, should be disclosed up front, on the basis that prospective purchasers satisfy themselves, without influence by vendors or their consultants, as to the suitability of properties being sold.
In disclosing these reports, the point should be made that prospective purchasers should commission their own reports as they see as being necesssary.
In summary, I think vendors should make full disclosure and take no steps themselves to contradict any existing reports. In my view, this is prudent advice nowadays to all vendors contemplating commissioning their own reports for the purpose of selling property.
This seems to fly in the face of the principles of the Home Information Packs (HIPs) that are in place in England and Scotland.
Financial costs to New Zealand society of leaky buildings
The financial and social costs of this situation are unprecedented in New Zealand and they are growing. This means that the lives of many New Zealanders and the costs to society will be adversely affected beyond the next decade.
The Parliamentary Library, “Background Note, Information Briefing Service for Members of Parliament”, 2002 estimated that 6,000 to 12,000 apartment dwellings may have weathertightness problems and on the basis of an average cost of repair of $20,000 the total estimated cost could be as much as $240 million. They refer to a Consumer magazine article of October 2002 in which it was advised that 220,000 homes were built over the previous decade and of those up to 40% (approximately 90,000) could be at risk with estimated repair costs of between $120 million and $1.8 billion. I assume those figures include apartment dwellings.
The estimated $20,000 repair cost per unit for apartment dwellings is too low, in my opinion. That may reflect the fact that in 2002 there was a greater view that targeted repair would suffice, but in 2008 the dominant view in most cases is that a full reclad with a cavity system is required. I would therefore increase the estimated cost per unit as more like $70,000. The cost of repairing many detached or semi-detached houses is $300,000 to $450,000 and some costs are much higher than that. I would propose, therefore, an average repair cost per dwelling unit as being $120,000. Assuming 90,000 dwelling units at $120,000 each to repair then the total cost would be $10.8 billion.
It is common for claimants and respondents to engage legal representation whether that is in the Court system or the Weathertight Homes Tribunal. Some respondents are successful in being removed from cases and that could cost them up to about $30,000. Others have to endure the full adjudication process only to be found with no liability and that can cost up to about $80,000 in legal and technical expert fees. Most cases settle by mediation but the costs are still significant. It is a common situation for there to be many parties.
A scenario of total average legal and technical expert costs for all parties in both adjudicated and mediated settlements may appear as follows:
Five parties each expending an average of $60,000 = $300,000 in fees per case.
With 90,000 dwelling units from 1992 some of those would be statute-barred as they would not have commenced legal proceedings in time. Assume 70,000 dwelling units were not statute-barred. Some of these units represent terraced houses and body corporate situations where there will be just one action taken on behalf of a group of owners. The fee costs will increase significantly in these cases, such as to $1 million per claim, but the average fee cost per dwelling unit will reduce.
Therefore, say 70,000 units at $200,000 per unit in fees gives $14 billion.
Assuming these figures are in the right order shows that the total fees equate to almost one and a half times the cost of actual repairs to the dwellings. Naturally, both calculations are open to debate as the assumptions could be questioned, but even a sensitivity analysis would show that the total costs to society are enormous and this is a situation that has not been recognised.
The total health care expenditure in New Zealand was about $10.7 billion in 2002 (Ministry of Health, 2004). The above figures indicate that the total cost of repairing leaking homes could be up to about $24.8 billion; over two and a half times the annual health expenditure of New Zealand. This is a burden placed upon a large number of New Zealanders.
There are further flow-on costs that become more difficult to measure but could well cost more than the initial problem. They include the following:
- Funding of the Weathertight Homes tribunal, adjudicators and assessors.
- Additional regulatory costs of the DBH
- Additional costs of processing building consents
- Court costs
Many parties to litigation are covered by insurance policies and the leaky building syndrome is having a direct affect of increasing premiums where those policies are still being offered.
Reference
Parliamentary Library, “Background Note, Information Briefing Service for Members of Parliament”, 2002/10 06 November 2002, http://www.parliament.nz/NR/rdonlyres/464AB9F9-B197-4B53-BE9F-4F411CB67877/360/0210LeakyBuildings1.pdf
Cost of fixing New Zealand's unhealthy homes
The New Zealand Business Council for Sustainable Development has just announced that it will cost $20 billion over the next decade to fix the country's unhealthy and energy-wasting homes. That's all very well, but there needs to be a primary focus on their state of repair and extent of subfloor dampness.
Over the years I have found many older buildings with excess dampness and subsequent mould growth. One significant source of exterior dampness which has had little cognisance is that of subfloor ground leading to severe interior dampness. Another is that of internally-produced moisture from such things as clothes dryers vented to the inside, drying clothes on the inside and a lack of ventilation with windows not being opened. Another is that of unflued gas heaters.
The number one focus should be on dealing with subfloor dampness and lack of ventilation problems and also to try to educate home occupants in the ways in which they can assist in keeping homes drier and more comfortable.
Over the years I have found many older buildings with excess dampness and subsequent mould growth. One significant source of exterior dampness which has had little cognisance is that of subfloor ground leading to severe interior dampness. Another is that of internally-produced moisture from such things as clothes dryers vented to the inside, drying clothes on the inside and a lack of ventilation with windows not being opened. Another is that of unflued gas heaters.
The number one focus should be on dealing with subfloor dampness and lack of ventilation problems and also to try to educate home occupants in the ways in which they can assist in keeping homes drier and more comfortable.
Wednesday, November 26, 2008
Building collapse in Haiti
The building collapse of a school in Haiti this month is a further reminder of the problems facing many third world countries in which political and social norms are not serving their people well.
Extralegal capital in the form of shanty towns, squatter developments and illegal buildings is a large part of economies of some countries. An earlier article in this blog site cites the following characteristics of some of these economies:
- Houses built on land with inadequately recorded ownership
- Lack of property rights
- Lack of enforceable transactions on property rights
- Unincorporated business with undefined liability
- Non-compliance of building with building codes
- Illegal buildings
- Corruption at national and local government levels
Haiti appears to have these characteristics. Irrational adherence to outdated traditions, a disregard for any building codes that may exist, and dense populations of people all trying to compete for limited resources and opportunities, are just some of the reasons for the problem.
Haiti is a relatively small land-mass attempting to support about nine million people. A plundering of resources by deforestation is one characteristic of this society. It is typical of many countries where too many people are trying to eke out a living on impoverished land where there are increasingly diminishing resources.
As with many other poor countries, the resource base is simply inadequate to fulfil the needs of most people and this leads to building structures for shelter (or in this case in Haiti, a school) using the most rudimentary methods and with minimal use of materials.
The pressure on the planet is well understood to be leading to increasing shortages of food and water. While building technology and construction knowledge using rational engineering principles should be accessible to people anywhere in the world, perpetual poverty in some countries and diminishing access to appropriate building materials is going to lead to many more building failures and loss of life in the future.
As New Zealand has experienced with leaky buildings, even having what was considered a world-leading building code is not sufficient if there are not the appropriate social and political norms in a society.
Sunday, November 9, 2008
Speedy enactment of payment for the construction industry
The Master Builders Association Malaysia (MBAM) is pressing the Malaysian government for new legislation to deal with speedy payments within the construction industry due to the looming worldwide financial crisis.
Malaysia has been formulating a proposed Construction Industry Payment and Adjudication Act (CIPAA) for some time as several other countries have a similar act. They include New Zealand, the UK, Australia and Singapore. It appears that much of their act will be modeled on that of the New Zealand Construction Contracts Act 2002 (CCA).
The Act covers every construction, demolition and maintenance contract in New Zealand including buildings, roads, energy and services reticulation, mechanical, electrical and civil projects: in other words the management of our total infrastructure system.
The key to working within the CCA is correct documentation and understanding what it means. It starts with the contract documents, which should state the number of progress payments, intervals between payments, amount of each payment and the date each payment becomes due, otherwise for commercial projects, if these are not covered, the default provisions of the Act apply.
The major instruments of the Act are the Payment Claim and the Payment Schedule. The Payment Claim is the written claim by a payee (contractor or subcontractor etc.) to the payer (owner or contractor) for payment for work done. This claim must be in writing, identify the construction contract and the relevant period to which it applies, indicate a claimed amount and due date for payment and state that it is made under the CCA. For a residential contract the claim must be accompanied by written explanations of the process and the consequences of not responding or paying. The Payment Schedule is the payer’s response to the payee. To be valid the schedule must be in writing, identify the Act, identify the Payment Claim to which it relates and indicate a scheduled amount. If the scheduled amount is different from the claimed amount, the schedule must indicate how the amount was calculated, the reason for the difference and the reason for withholding payment. The scheduled payment must then be made within the timescale of the contract. Engineers and project managers need to be aware of these details of the Act, lest they be taken to task for negligence.
A poignant lesson to all those involved with administering construction contracts is the case of Canam Construction Ltd and George. The latter party was the principal of the contract who engaged a representative to act on its behalf, as many building professionals are routinely engaged to do. A summary of the lessons to be learnt in this case is as follows:
Adjudication under the CCA is different from other existing forms of dispute resolution such as mediation, arbitration and litigation in the courts. It was designed to be neutral and confidential but also quicker, easier and cheaper than the other forms of dispute resolution. Adjudicators need to have a good understanding of practical building processes, how the industry operates, building law and general law pertaining to such things as evidence. This is why engineers, architects and other building professionals, with specific training often make good adjudicators. In practice there are very few building professionals who are not affected by the Act.
Although Adjudication is a relatively new process, there are now a number of trained Adjudicators throughout New Zealand. How you select a trained Adjudicator depends on whether the parties agree or not. If the parties agree, then whoever they agree on, can be simply selected by approaching that Adjudicator directly.
Malaysia has been formulating a proposed Construction Industry Payment and Adjudication Act (CIPAA) for some time as several other countries have a similar act. They include New Zealand, the UK, Australia and Singapore. It appears that much of their act will be modeled on that of the New Zealand Construction Contracts Act 2002 (CCA).
The Act covers every construction, demolition and maintenance contract in New Zealand including buildings, roads, energy and services reticulation, mechanical, electrical and civil projects: in other words the management of our total infrastructure system.
The key to working within the CCA is correct documentation and understanding what it means. It starts with the contract documents, which should state the number of progress payments, intervals between payments, amount of each payment and the date each payment becomes due, otherwise for commercial projects, if these are not covered, the default provisions of the Act apply.
The major instruments of the Act are the Payment Claim and the Payment Schedule. The Payment Claim is the written claim by a payee (contractor or subcontractor etc.) to the payer (owner or contractor) for payment for work done. This claim must be in writing, identify the construction contract and the relevant period to which it applies, indicate a claimed amount and due date for payment and state that it is made under the CCA. For a residential contract the claim must be accompanied by written explanations of the process and the consequences of not responding or paying. The Payment Schedule is the payer’s response to the payee. To be valid the schedule must be in writing, identify the Act, identify the Payment Claim to which it relates and indicate a scheduled amount. If the scheduled amount is different from the claimed amount, the schedule must indicate how the amount was calculated, the reason for the difference and the reason for withholding payment. The scheduled payment must then be made within the timescale of the contract. Engineers and project managers need to be aware of these details of the Act, lest they be taken to task for negligence.
A poignant lesson to all those involved with administering construction contracts is the case of Canam Construction Ltd and George. The latter party was the principal of the contract who engaged a representative to act on its behalf, as many building professionals are routinely engaged to do. A summary of the lessons to be learnt in this case is as follows:
- A Payment Claim (in accordance with the CCA) submitted by a contractor must be paid by the principal, or if disputed, that must be done by way of a Payment Schedule as described above. No amount of correspondence that may be seen to be correct in terms of the conditions of contract is acceptable in the absence of a valid Payment Schedule.
- Based on the “pay now and ask questions later” principle any associated disputes that lead to the principal not wanting to pay the full amount of the Payment Claim would have to be dealt with separately, possibly by going to adjudication as described below.
- To have these disputes brought in as an integral part of the payment in question, they would need to be properly written into the Payment Schedule.
- In the event of not accepting the amount claimed in the Payment Claim the Payment Schedule must indicate a scheduled amount that the payer proposes to pay. Valuation certificates and the like are not acceptable. These only form part of evidence to justify a Payment Schedule.
- Building professionals need to note that a Payment Schedule must be issued by the payer, usually the principal to the contract – the party to the contract that is liable for the payment. This flies in the face of standard contract procedure whereby the Engineer to the contract acts on behalf of and signs all documents on behalf of the principal. In practice, this would mean continuing to do all the usual preparation work and filling in the details of the Payment Schedule, but submitting the Payment Schedule under the name of the principal (which has to be the payer) and with the signature of the payer.
Adjudication under the CCA is different from other existing forms of dispute resolution such as mediation, arbitration and litigation in the courts. It was designed to be neutral and confidential but also quicker, easier and cheaper than the other forms of dispute resolution. Adjudicators need to have a good understanding of practical building processes, how the industry operates, building law and general law pertaining to such things as evidence. This is why engineers, architects and other building professionals, with specific training often make good adjudicators. In practice there are very few building professionals who are not affected by the Act.
Although Adjudication is a relatively new process, there are now a number of trained Adjudicators throughout New Zealand. How you select a trained Adjudicator depends on whether the parties agree or not. If the parties agree, then whoever they agree on, can be simply selected by approaching that Adjudicator directly.
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