CONTROLLING LOSSES
ON A
BUILDERS RISK CLAIM

A large Builder's Risk claim resulted from the failure of a temporary river wall adjacent to the excavation for a new aeration tank for a wastewater treatment plant. FORCON was retained by the Builders Risk carrier to immediately assess the damage and prepare a Scope of Loss and an estimate of the repair costs.

Type of Damage

The temporary river wall failure caused several areas of new construction and one existing pump house basement to be submerged under water from a river adjacent to the construction site. This water inundated a major portion of the lower secondary treatment area.

The flow of water caused various conditions that resulted in several types of damage:

1) Initially, water washing over previously dry surfaces resulted in soil being eroded and deposited on various surfaces not previously exposed to moisture or dirt.

2) Water accumulated in low lying areas of the site submerging equipment in tunnel or building basement areas.

3) Released river water percolated through the upper topsoil and substrata down to the shallow limestone shelf underlying the wastewater treatment plant site. This impervious stratum (approximately 28 feet below existing surface grade) trapped the water flowing down through the over-burden and caused the water table to rise abruptly. Once this water table rose toward the river level, various new and existing structures were exposed to previously unexperienced hydrostatic pressures. This pressure imbalance forced water back through drain lines causing standing water in basement areas of wastewater treatment buildings in remote areas of the site. As this hydrostatic pressure was allowed to build up around empty tanks without being accommodated, structural damage to tank floors and walls resulted.

INITIAL ESTIMATES OF LOSS

The initial water damage to the project was addressed by various methods and entities. Some equipment in the lower building basements was cleaned and dried immediately and put back into use once the enclosed areas could be kept water tight. Submerged equipment was inventoried. An excavation subcontractor to the general contractor rebuilt the river wall. The general contractor and various city workers monitored and pumped out the river water as the river wall was replaced.

The construction team prepared and submitted their proposals to repair the damage. The General Contractors' change order proposal amounted to $1,700,000 for clean-up, and repair of damaged structures. The prime mechanical contractor submitted a change order proposal for approximately $700,000 to repair or replace damaged pumps and controls citing warranty problems as one of the major issues. The electrical prime contractor submitted a change order proposal for approximately $200,000 to replace all instrumentation and electrical equipment in the affected areas, also citing warranty problems.

Thus, the total estimated cost of repair based on the construction teams approach and estimates was $2,600,000. FORCON's initial cost estimate for repairing the same damage was $851,000. Based on the need to resolve this discrepancy and control costs, FORCON's scope of work was expanded to include working with the treatment plants owner, engineer, and construction team to find the most cost effective methods of repairing the damage to everyone's satisfaction.

COST ANALYSIS

The equipment repairs were redefined according to the manufacturer's warranty requirements and operating tolerances. Various factory certified equipment repair firms were interviewed and equipment repair costs were collected from shops providing various specific services (ie. motor armature rewinding, seal replacement, bench testing, etc.).

The structural repairs were reviewed with the design engineer. Once the cause and extent of structural damage was determined, a detailed repair procedure (with options) was established per the engineer's design intent.

Rather than a complete replacement of electrical and control equipment in affected portions of the plant, items of equipment not submerged were inspected and tested. Items of equipment submerged or affected by moisture were inventoried, and costs for partial repairs, replacement and extended warranties were reviewed.

COST CONTROLS

As each of the previously noted cost analysis procedures was completed, methods for cost control became apparent. Repairs of equipment, by the specific shops involved with very focused aspects of repair, resulted in the equipment repair actually costing $223,361.00. When the structural repair procedures defined by the design engineer were bid competitively by several concrete contractors, the cost of structural repair was reduced by more than $400,000. Electrical and control equipment repairs are currently being completed including provisions for extended warranties, for a cost not expected to exceed $150,000.

Overall, the total costs of repair for the loss were reduced from the estimated change order costs of $2,600,000 to actual costs (approximately 90 percent complete at this time) not expected to exceed $750,000.

CONCLUSIONS

Once the details relating to the items of repair are isolated and clearly defined, the cost of construction repair can be controlled by various methods. The owner of the project protected by a builder's risk policy, is the first source for this information and must agree with the various cost control methods employed. FORCON's experience in working with construction project owners, designers, and contractors, combined with our damage assessment capabilities can prove to be a very valuable asset to the Builders Risk carrier trying to control construction repair costs.

Paul Krystal