CoP - Risk management of contracts works water damage

CIRIA's community of practice recently had their third event placing a key focus on water damage during contract work.

Background

CIRIA launched a new Community of Practice (CoP) in December 2020. This new CIRIA network brings together practitioners from construction and insurance sectors aimed at improving the management of risk and financial performance. CIRIA will help deliver more focused collaboration and enhance knowledge transfer in risk management over the next three years. The community will hold a series of network events and provide integrated resources within one point of reference. This new community of practice will examine some of the challenges related to contract works, project insurance, design risk and professional indemnity insurance (PII). Members include Environment Agency, Fenchurch Law, Fugro, Jacobs, Laing O’Rourke and Landsec.

10:30-10.35: Introduction by the Chair and host Dirk Vennix, CIRIA CEO

Introduction to CIRIA’s new Community of Practice: Managing Construction Risk

The management of risk is a perennial issue for the construction and management of assets. There have been a number of significant high profile incidents in the past where a better understanding and management of risk could have led to better outcomes. To support the development of good practice in risk management CIRIA has delivered guidance such as Code of Practice for Property Flood Resilience (supported by insurance industry) and control of risk: a guide to the systematic management of risk from construction.

CIRIA also has a proven track record of developing communities of practice to support industry good practice and performance improvement. Our independence, industry reach, expertise and facilitation have brought people together to further the aims and objectives of these communities. We run specialist contaminated land networks and a practitioner community that provides a range of events, awards and resources for those involved in delivering local flood risk management and better places and spaces.

The insurance and construction sectors have a vital role to play in managing risk. Increased collaboration and understanding amongst practitioners is needed to improve the management of risk from construction activity related to people, property, environment and profitability. After extensive consultation with insurance providers, clients, contractors and consultancies CIRIA has developed a new Community of Practice focusing on risk management in construction.

Dirk Vennix outlined the aims & objectives which include:

• Improve understanding of how insurance policies are being developed and where clear guidelines have yet to emerge attendees can help share good practice
• Enhance knowledge and understanding of how the construction sector operates to control risk.
• Engage in discussion on opportunities to improve the management of risk and improve financial performance.

He also highlighted the key outputs. There will be a series of quarterly network events and collation of resources within one point of reference.  Community events will highlight challenges for raising awareness and collaboration and put forward good practice. The CoP has already hosted a launch and a webinar on PII.  CIRIA will collate materials from multiple trade bodies and practitioners across a variety of risk management areas. We will make this information freely accessible on a CIRIA portal.

The host explained that the aim of this webinar was to give an overview of the causes and risks related to water damage in contracts works with some tangible examples of impact. The focus would be on what good looks like in terms of risk management from design to preventative measures on site. The webinar would cover the challenges and practical solutions.

Dirk Vennix said he was delighted we had a stellar cast providing client, contractor, innovator, legal, insurer, broker and assessor perspectives. He also noted a strong expert audience with attendees from New Dawn Risk, Allianz, Aviva, Aston Lark, Interserve, Chubb, SFK, IBP, Aqualeak and Lawton Tubes.

10:40: Introduction to all risk/contracts works/water damage
Keith Bishop Laing O’Rourke Group Insurance Manager,
Rona Hogan Laing O’Rourke Insurance Manager

Before Keith Bishop and Rona Hogan provided the contracts works risk overview and the contractor perspective on water damage risk management CIRIA held an audience poll.
87% had been affected by water damage and 90% was looking for a solution to avoid water damage on future projects. When answering the question on awareness of existing guidance 64% had heard of CIREG’s guidance and 36% were not aware of any guidance. 54% of respondees had not been involved in a water management plan.

CoP member Keith Bishop summarised project risks in three categories: insurable, limited insurance and uninsurable. Insurable risks include PII, contractors’ risks related to damage to existing structures and property policies covering construction works. Limited insurance is available such as defects insurance, environmental impairment, delay start up, insolvency and political risks (usually overseas). Uninsurable are events such as cost overruns, site conditions, consents and general business risks such as finance availability and economic risks.

The presentation focused on contracts works and the impact of water damage. This is 38% of claims by insurance and 60% of claims by number of incidents. Claims vary from £10m to £110m plus. Avoidable with test processes and risk management.  

Rona Hogan provided an example of where Laing O’Rourke had implemented good practice. She emphasised that all parties have a role to play in tackling the challenges of water damage risk assessment. Insurers can increase premiums and excesses but can also work together with the clients on risk mitigation measures such as automated water shut off valves. Designers could impact risks through product selection and system design (water services locations, protecting vulnerable parts). Clients can specify requirements in their briefs and contract terms. Contractors can put in place thought through risk management processes and quick incident responses.

CIREG have produced best practice guidance on the escape of water and BESA will publish their guidance in August. Keith Bishop welcomed the opportunity to explore further tools and guidance which could be adopted by the supply chain. Rona Hogan stressed that everybody loses with major water damage. The host added that the presenters had demonstrated the value of having implemented a water management plan and an emergency response plan. Clients should provide funds for adequate risk management measures and would have to state the need for management devices as contractual necessities to avoid insurance deductibles going up even further. On the other hand, insurers should take the quality of risk management on a project into account when providing cover terms.

11.00: Stakeholder perspectives

Client perspective - Veronica Flint-Williams, Contract and Risk Manager, Environment Agency

CoP member Veronica Flint-Williams emphasised the need for a risk sharing approach amongst partners on the major projects. She stressed the requirement for focus on the “known unknowns.” The quality of decision making also relied heavily on competence and sufficient CDM resources.

Innovator perspective – Stephen Redmond, MD Redmond Group

Stephen Redmond is working with CIRIA member Polypipe on an innovative risk management approach which includes a 29 point plan to mitigate flood risk disasters and a ‘Forensically Controlled Installation System’. This management system has created accountability at the workface and is the cornerstone to a defect free installation. He stressed that having learnt from a number of incidents in recent years these activities were critical in risk management terms and had helped avoid huge insurance claims on a number of projects.

Legal perspective - Amy Lacey, Partner Fenchurch

CoP member Amy Lacey said that the increasing prevalence of water damage losses on construction projects, combined with hard market conditions, had led to a rise in disputes over insurance policy response for these types of events. Claims in consequence of cascading water from burst pipes or adverse weather conditions often give rise to disagreements over the occurrence and timing of ‘damage’, in order to trigger coverage under contract works policies, and a number of standard exclusion clauses may impact upon the level of protection. Amy Lacey provided some case law examples where the legal test for cover has been tested.

Careful consideration should be given to policy conditions requiring particular steps to be taken in relation to risk mitigation and claims handling. Amy Lacey mentioned that insurers are increasingly focused on water damage risk management procedures as part of the underwriting process, and may include specific provisions in the policy requiring compliance with e.g. CIREG guidelines. 

Advice should be sought from specialist brokers on potential improvements to the scope of insurance for contract works, with particular reference to the trigger for coverage, exclusion clauses and policy conditions. When a loss does occur, it is important to investigate and document the condition of insured property without delay following a water damage incident, with expert input if required, to minimise the prospect of insurance disputes. More details can be found in Amy’s paper on the CIRIA CoP website pages.

11.20: Good practice in all risk policies

Underwriter perspective - Andy Kane, Portfolio Manager Construction, QBE European Operations

Andy Kane looked at the impact of water in the all risk insurance category. High rise buildings and hospitals featured strongly with regard to escape of water and ingress of rain water. In 75% of the cases the causes were usually joint failures and outlets or pipes being left open. Two out of 3 large losses occur out of hours.

Andy Kane pointed to three important areas covered by CIREG guidance. Insurers will ask for a water management plan and a named individual as the “responsible person”. Prevention is key and can be achieved through adherence to design operating conditions, standards, testing and qualification requirements. Mitigation could be provided by automatic detection and isolation of leaks and an adequate emergency response.

Broker perspective – Craig Charles, Senior Vice President Construction Infrastructure Client Executive Marsh 

Craig Charles reiterated the earlier point that water management plans were a “must have”. Quality control was critical, from materials and storage to installation and testing. He also stressed the need for regular review of risk assessment and water management plans to ensure the allocated mitigation measures remained appropriate.

Craig Charles asked the question how water damage risk management affected new projects. He felt that larger/taller residential projects will be under most scrutiny.
Some insurers have already decided against insuring tall buildings. Quotes/cover may be withheld if water management plans and automatic shut off valves were not covered. Their risk surveys would look at exposures.

From a broker’s perspective Craig Charles said they would always raise the issue of water damage early on and provide CIREG guidance notes. Insurers were clearly looking for more information pre-inception of the project and clients should expect challenges from their risk engineers. The increased focus on water damage risk management is a good thing for all parties although one has to be prepared to take the cost.

11.50 The host led a general Q&A with the audience and expert panel of experts with Veronica Flint-Williams, Contract and Risk Manager, Environment Agency, Yohan de Silva (Lloyd’s Register), Adrian Wright (Intertec) and presenters.

In conclusion the host asked the audience in a final poll whether they had gained a better understanding of water damage risk management following the webinar session. The outcome was a resounding result with 100% saying yes.

Our next webinars will cover project insurance (September) and design risk (November).

If you would like more information and to get involved in CIRIA’s community of practice, please do get in touch by emailing [email protected].