Water damage on construction sites — your guide to managing risk

Insurers have identified water damage claims as one of the top 3 causes of loss on construction projects, both in relation to frequency and value of incidents. Damage from water can cause significant losses particularly in a high density environment. Such losses generally occur when construction is well advanced and nearing completion, exposing finishes, prime cost items and electrical components to damage. In addition to immediate damage, mould can cause further resultant losses. This can delay completion of the works under contract and cause ongoing issues with manufacturer’s warranty on water affected items. Insurers view losses resulting from water damage as more manageable than other losses (such as earthquake, wind etc.) and are increasingly looking to see how water damage is being managed during the course of construction.

Water damage usually occurs from three main sources – internal building sources (plumbing, fire suppression, drains and gutters), external sources (rain, doors, window openings and groundwater) and construction defects.

With the current La Nina weather cycle resulting in high frequency and prolonged rainfall events both in and outside the usual storm season, construction sites face greater exposure to weather related damage. Whilst contractors in the north of Australia are generally well prepared for weather events during the wet season, contractors south of the tropics have had prolonged periods of drought and low rainfall which has led to less rigorous risk management and planning for wet weather.

In addition there has been a shift in plumbing processes, where it has been suggested that crimping of plumbing components in lieu of welded joints has resulted in a greater failure rate. The influx of imported products which, when tested, do not meet the specifications stated on the packaging has also caused significant losses in Australia over the past 5 years.

Given insurer concerns in relation to water damage, it is important for construction professionals to be able to demonstrate consideration and active risk management to prevent exposure in relation to water damage.

The following prevention measures should form part of the project management plan during the pre construction, construction and completion phases to assist in managing the risk of water damage and demonstrate to insurers that active risk management procedures have been observed:

Pre-construction phase

During the preconstruction phase, designers should have regard to the following:

  • Plumbing systems being utilised

  • Timing of project elements to reduce risk

  • Use of onsite water retention where needed

  • Use of temporary drainage

  • Placement of isolation valves where they are easily accessible.
Construction phase

During the construction phase, contractors and subcontractors should implement wet weather procedures to ensure that rain events can be managed, and that risk of loss or damage is minimised during construction. Particular attention should be given to:

  • Technology solutions such as water leak detection units should be considered to provide an early alert to the project management team of any water leaks.

  • Waterproofing has been identified by the NSW Government as a shortcoming in the residential apartment space. Thorough checking of all membranes to ensure they are installed in line with the specifications prior to tiling will reduce potential for losses once the works are handed over.

  • Sealing of penetrations as soon as practical can reduce water entering the building.

  • Plumbing, hydraulic and fire suppression systems should be checked prior to final commissioning and being charged and online.
Completion phase

At the completion of a project, a rigorous testing regime should be implemented to ensure the project is protected whilst operational to avoid claims arising during the statutory warranty and/or defect liability periods. These tests should cover the following areas:

  • All building elements

  • Building openings

  • Hydraulic systems

  • Drains & gutters.

The provision of detailed information will provide insurers comfort that the exposure has been well considered and actively managed. This will result in improved outcomes, both in terms of availability of insurance cover and the works being undertaken.

For further information and advice relating to risk management for construction projects, please contact us via the form below.

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