Recovering costs following an insured event such as a water leak

We strive to write practical articles and blogs which utilise our experience. Our aim is to help Contractors maintain a positive cashflow.

Of course, the subject title for this one is interchangeable to any other type of site damage such as fire, earthquake, etc. For the sake of consistency this article covers issues caused by water egress from pipes in a residential/commercial building project. It applies to Sub Contractors or Main Contractors alike.

There are plenty of blogs and articles examining construction insurance. The purpose of this article is to focus on what to do in the event of site damage. We look at how to record and ultimately recover costs incurred from the damage.

The Event

First things first, water is cascading down the site and it is causing untold damage to the partitions, M&E installation and inconveniently forming a bespoke swimming pool in the basement, plantrooms and the welfare areas.

There are many items to consider when this occurs. In particular we want to ensure that parties don’t lose out on their entitlement to costs.

Lets’ Mitigate

It goes without saying that once the source of the problem has been dealt with, the first thing we need to do is reduce the risk of further damage and ensure costs are being kept to a minimum.

In our example, its sod’s law that the leak started at night (a Friday being the worse case scenario) and the water has been flooding the site for the whole weekend. In this respect, anything that was going to suffer damage probably already has.

However, where there is potential, then mobilise the team to get out and remove/power down any plant, and stop the water getting into areas where it isn’t wanted. Once complete, its time to start carrying out surveys of the damage.

The operatives carrying out the mitigation and survey will probably be moved from the Contract works. Therefore their cost is no longer recoverable under the Contract. From this point on the records needs to be perfect.

For all works carried out, signed timesheets are key. These need to specifically and accurately record what works are being carried out and where. They need to state “stripping out damaged M&E on level 3 apartment following water damage” or “surveying flood damage to plant room”.

Its no good the  timesheets recording “work to level 3 apartment”. In weeks and/or months time the activity will be long forgotten and the chance of recovering the cost of that time will have greatly reduced.

It goes without saying that photographs are essential. Videos to demonstrate the scale of the damage will also assist. Sometimes this is easier said than done. Photos need to be precise and record the exact area in which they are taken. Often with photos of damage it can be hard to distinguish the exact areas. Rushing photos can end up in them being useless and result in a random montage of wet, half completed, partitions and conduit.

Rectification works – Recovering Labour Costs

Once surveying the extent of the damage is complete, it’s time to start rectification works. These works can essentially be procured in two ways, dayworks and lump sum price (don’t forget that the duty to mitigate still applies).

Where works can’t be measured and are urgent, dayworks and timesheets are usually used. When there is time then there is the potential to procure the works on a lump sum basis. In this respect the duty to keep records is reduced but should still not be ignored.

When works can be measured and pre-assessed (i.e. you’re not running around like headless chickens), it may not be necessary to rectify the works on a dayworks basis. In this regard quotations from Sub Contractors can be obtained and the costs recovered. This is often preferable as it transfers some of the risk and lump sum deals (as we all know) can be much better value than dayworks.

Remember, works carried out on rectifications are not Contract works. Therefore, the cost of the operatives probably can’t be recovered in Interim Applications. We can’t emphasise enough the importance of signed timesheets specifying the work being carried out. Getting these in place for dayworks is essential to recover the cost of your labour.

Finally, make sure everyone signs in. Even if you don’t keep timesheets then the site sign in records can be useful in demonstrating the labour you had on site.

In respect of materials, keep those invoices and record what is being replaced and why.

Management Time

In addition to the labour and the material costs incurred, the site team will spend time managing the problem. These activities could include reviewing quotes, ordering materials, attending meetings, sitting around waiting for the Contract work to start up again or mitigating the issues. These cost should be recoverable as they are directly linked to the event.

For the management element of the claim, record full details of the time spent. The actual cost of those staff will exist on the cost ledger system used (or in another format). If you go to meetings make sure there are minutes. As a QS, if you spend time reviewing a quote for work, record it (somehow, anyhow). Sometimes the cost of management time can exceed the rectification work themselves. For this reason evidencing time spent is crucial.

Delays

You should be entitled to claim for management costs not already claimed above. This could include costs for periods of delay and some other prolongation costs, such as Sub Contractor management, plant hire and other time-related prelims.

As always with delays, unless the delay is obvious (site closed for 4 weeks due to swimming pool in welfare area, for example) then some delay analysis will be required. This will show that the leak (or event) affected the critical path for your Contract works and subsequent rectification works.

This aspect is often hard to prove but is important in order to evidence the cost incurred and recover the costs.

Finally, as with any delay, its important to comply with any time bar clauses in the Contract and submit delay notices as soon as possible.

Overhead and profit

The old formula based claims for loss of overhead and profit associated with delays/damage are extremely hard to demonstrate. However, it makes sense that for every pound spent on site there is a cost to the company (administration, accounts etc..). There should be an entitlement for these costs.

As you are only recovering the actual cost of staff, no overhead is included in the sums presented. A way round this is to provide marked up accounts and a breakdown of the company overhead %. Those reviewing the claim may be meticulous in assessing and removing certain items (marketing and entertainment for example) from the percentage and they may argue that these items are not linked to the money spent on site. However, it’s an element of the impact of the damage which is worth pursuing.

Conclusion

Manor helps Contractors to manage the above. We help present the costs incurred so that the chances of recovering the cost of the rectification works are maximised. If you need our assistance and advice please do not hesitate to contact us.