Larger profits mean little when drained away by defect litigation costs.
February 2001 - In the residential housing market, many home builders only focus on how fast they can build units and how much profit can be made. They often operate on a 10 percent margin, meaning that with the average home price at about $250,000, roughly $25,000 in gross profit goes to the builder when a home closes escrow. In Southern California, for example, tracts often include 100 or more units, so a large profit can be realized in a short time.
This profit, however, can vanish quickly if a project gets embroiled in construction defect litigation (CDL). In many cases, the cost of repairs, legal fees, and experts can exceed $75,000 per unit, or three times the profit made on the construction of the home. So what causes homes built by some of the nation's biggest builders to enter into CDL? To find the answers, one must look into how production homes are built. The Wrong Pitch?
Despite all the planning and processing that goes into a project, most builders don't consider the risk of litigation. Decisions are based on how quickly tasks can completed-without discussion about the level of quality that should be achieved. Sales and marketing departments emphasize the newest and most trendy items-to capture the home buyer's attention-without knowing or considering the performance level, life cycle, or maintenance requirements of specific items or design.
Under current California law, for example, builders are liable for patent (visible) defects in materials and workmanship for a period of four years, and 10 years for latent (hidden) defects. Most home builders, however, provide only a one-year warranty and customer service period to their home buyers.
To protect themselves, builders must do two things: First, make specifications' decisions that address the quality of a home for at least a 10-year period. Second, review the way they contract for services with vendors and subcontractors.
Terms such as trade partners, team building, value engineering, and total quality management, have become the buzzwords of consultants, executives, and project managers. These concepts sound good in theory but are almost impossible to implement when purchasing and production decisions are based on the lowest bid, piece rate labor, and unrealistic production schedules.
Very few superintendents can balance keeping a project on schedule using low-bid subcontractors with careful attention to the quality of construction. And their supervisors typically value them more for delivering houses on time than for building a quality home.
Cut And Run
For obvious reasons, builders prefer to spend as little time and money as possible correcting problems after homeowners move-in, during the warranty period. Rather than simply deal with problems quickly and efficiently, however, many customer service departments lack the funding, staff, or knowledge to address post-sale issues. The failure to remedy problems in their early stages is often a principal reason a project enters into CDL.
Another problem is the time allowed in the schedule to check quality-and the qualifications of those inspecting the homes during construction. Although some companies now use checklists or third-party inspectors to check for construction deficiencies, many quality programs still fall short because of scheduling and budget concerns.
Many third-party inspection firms are retained based on price-or the fact that their inspections are known to be cursory (and therefore not disruptive to construction). More thorough inspectors often charge more, or they find too many "red flags" to please hurried builders.
Get A Grip
One of the most cost-effective ways for builders guard against deficiency lawsuits is to hire, train, and retain qualified project managers and superintendents. Each one should be a licensed contractor in the state where he works, and should stick to strict in-house guidelines about quality standards. Smart managers will adjust their schedules to allow for quality inspections at critical construction stages. Builders who don't have a formal quality checklist or lack time to develop one may wish to review our book, Production Checklist for Builders and Superintendents, which is available from the NAHB's Home Builders Press (800-223-2665).
Once the homes are completed and the buyers have moved in, it's important to respond rapidly to home buyer complaints to keep small issues from becoming major sore points. A well-written customer service manual should clearly inform buyers about the level of quality and response that they can expect after the closing. Then sales agents, superintendents, and customer service personnel must refer to that manual whenever dealing with or explaining a company policy to a customer.
Get Real
Catchy mottoes like "your home for life" or "total customer satisfaction" start to taste like cardboard once a home buyer has a leaky roof or a missed customer service appointment.
Quality matters. So does your company's attitude toward fixing problems. Litigation can be avoided, but only if everyone from the president of the company on down pays attention to what may seem like small construction details.
To avoid legal disaster, the home building industry doesn't need a new paradigm. They simply must look to their roots in the old craftsman values of "building it right the first time" and "plumb, level, and square."
It's the role of the company leadership to define and support an emphasis on quality. Speed may be important, but without quality, speed is a dead end. If that message comes down from the top, it's possible to deliver homes in a reasonable time without risking the company's short-term profits against future construction defect litigation.
Common Types of Construction Defects
| Plumbing, drainage & other leaks | 21% |
| Building structure: foundation, walls, siding, floors, masonry, decks, balconies, earthquake, roofing, termites | 19% |
| Infrastructure: landscaping, erosion, subsidence, parking structures, roads, asphalt, driveways, lighting, sewers | 17% |
| Roof leaks & defects | 12% |
| Internal systems: electrical, heating, security, elevators, solar panels, recreation facilities | 10% |
| Other: paint, stucco, soundproofing, child proofing, everything else | 21% |
© Copyright 2008 The Miller Law Firm. All rights Reserved.
If you experience problems or have questions, contact us at Info@ConstructionDefects.com.
|
