FDI (Foreign Direct Investment) Projects & BC(A)R SI.9

FDI-investment

In our recent post “Building Control Officers need help! BC(A)R SI.9” we noted “The impact of SI.9 was alarming enough for Minister Ruairi Quinn to insist on a part-deferral for healthcare and school projects. The FDI sector is as vulnerable to the adverse unintended consequences of BC(A)R SI.9 as any other”. (SI.105 previous post here)

In today’s piece we expand on the raft of unintended consequences of Building Control (Amendment) Regulation (SI.9 of 2014) on the foreign direct investment (FDI) sector, critical for job creation and the economy. It is widely anticipated that the FDI projects will be the subject of another similar part-deferral. Minister Hogan’s explanation as to the reasons for SI.105 less than one week after BC(A)R SI.9 was discussed in the Dáil: see ” Minister explains part deferral SI.105“. President of the representative body for architects (RIAI) Robin Mandal wrote to Ministers Bruton and Hogan in February outlining the compelling reasons for deferral- see post here.

Building Control (Amendment) Regulations, 2014 and FDI (Foreign Direct Investment) Projects 31 March 2014

1. Background

The Regulations set out to improve standards in design and construction following the Priory Hall and pyrite disasters in the residential sector. Despite the limited need for any change at all, they impact on all non-residential projects requiring a fire safety certificate.

The regulations came into force on 1 March. Immediately afterwards, the Minister for the Environment issued a derogation from the regulations in respect of education and health projects. The question is, what other sectors do the regulations also affect adversely? Where will the next derogation come?

FDI projects are a leading candidate.

The regulations have been conceived primarily to respond to disasters in the speculative residential sector. In this sector, the technical design is not particularly complex. In this sector, also, the design is largely complete, or capable of being made so, before the construction process starts when the Design Certificate must be lodged with the local authority. Furthermore, in the commercial residential sector, there is an easily-achievable time lapse between Project Completion and Handover. None of this is true in many FDI projects.

The likely availability of detail drawings and specifications to future interested parties such as purchasers or tenants seems to be conceived to facilitate legal action against the designers and builders of houses and apartments by aggrieved owners. It does not protect the intellectual property latent in the information. Intellectual property in FDI projects is vital.

Furthermore, the regulations are not adapted to different forms of construction project procurement. One single “Assigned Certifier” must certify compliance with building regulations for the entire construction. The regulations do not allow for, e.g., multiple parallel main contractors; or for separate shell-and-core and subsequent fit-out contracts. They are not framed to facilitate the extensive design input from engineering or envelope specialists. This is how FDI projects are structured.

All in all, the unintended consequences for FDI projects are disastrous.

2. Consequences for projects scheduled to start on site in early 2014

By requiring the client to appoint a “Design Certifier” and an “Assigned Certifier”, the regulations cut across many of the defined relationships in the industry, as they are conceived in relation to a traditional design/construction “split”. Each certifier must be a registered professional. This may work satisfactorily if the lead consultant such as the architect or the engineer is appointed. However, at this time, the consequences for professional liability are serious. Several Senior Counsel have given Opinions to the effect that in their present wording, the certificates impose levels of liability which are tantamount to warranties and may be uninsurable.

If and when the liability problem is resolved, the problem of contractual relationships remains. The Forms of Contract, both standard and bespoke, in widespread use across Ireland require rewriting to include the new powers, duties and relationships. This has not been done.

Because of all this, parallel sets of unintended consequences are likely:

  • A hiatus in the start of construction projects in March-April 2014 as the construction sector struggles to adapt its work practices to a set of regulations which cut across the established relationships. Despite soothing words from the Minister in responses to recent Dáil questions, the decline in the number of Commencement Notices serviced indicates a 70% drop in construction starts.
  • Delays as the various actors rebalance their relationships and jockey for legal or commercial advantage.

3. Consequence for project cost

The Government expect the regulations will increase costs. This remark was made primarily with the commercial residential sector in mind. The increased cost of a project which would already be fully-designed is likely to be smaller. Such increases might arise in three areas:

  • Increased cost of professional indemnity insurance;
  • Cost of preparing and making new submissions to local authority;
  • Construction certification costs.

Professional indemnity insurance premia will increase.

The increase for 2014 is predicted to be 15%. This gives no visibility on what happens after that. It is likely that unless the regulations are changed, premia will increase further. This is because the sole “funding mechanism for redress” built into the system is the PII premia paid by the design professionals. If all construction defects going forward are to be funded out of PII premia (ultimately funded by clients), those premia cannot but increase.

Architects have been advocating no-fault Latent Defects Insurance / “project insurance” to be taken out by the client at the start of the job. Such a LDI scheme is already factored into many FDI projects and is unlikely to increase project cost.

There is a significant cost in preparing and making the detailed submissions required prior to handover. These require new dedicated sets of design drawings and specifications “to show compliance with the building regulations”. The level of information required is not fully established but is likely to be on a par with a fire safety certificate application.

The cost of contractors sourcing, providing and retaining, as they are required to do, sets of completion certificates, warranties and the like is difficult to determine.

It is difficult to hazard a guess as to the increased capital cost of these items. No regulatory impact assessment was prepared before the regulations were promulgated and so no cost estimate is available from any third party. Such an assessment should be undertaken, even at this late stage.

4. Consequence for project timescale to handover

The regulations introduce an extended gateway at the start of the project on site, and a new gateway just in advance of project handover on completion. These gateways are separate for each part-project or project-phase, with each fire safety certificate apparently requiring separate sets of certificates. More complexity.

The Commencement Notice is to be accompanied by a Design Certificate, signed by a named designer, to the effect that the design complies in full with the building regulations. The building control authority do not audit the design but must be satisfied that the Certificate has been duly worded.

The Design certificate is also to be accompanied by “such plans, calculations, specifications and particulars as are necessary to demonstrate how the proposed works or building will comply with the requirements of the Second Schedule to the Building Regulations.” This will involve dedicated drawings and specifications to cover the structure, accessibility, drainage, energy etc.. The length of time this additional work will take will vary between projects but will take some weeks.

Just before completion, a further submission is to be made, of revised drawings, specifications, inspection plan, commissioning certificates and more. Without the local authority being satisfied that this submission is valid, the building may not be not be occupied or used.

There are provisions for the accelerated lodgement of certificates which may ameliorate the problem. However, the amount of material needed (typically, some hundreds of documents) will take considerable time to assemble. A similar exercise is done in assembling a Safety File and an O+M file. These, however, are assembled after handover and there is no time pressure. Gathering material in advance of completion is likely to delay handover.

As no regulatory impact assessment was carried out, there is no independent third party advice on how much more time this process will add to a typical project. Designers and contractors will, presumably, be at pains to minimize the extra time involved. One would hazard a guess that the unavoidable extra time to gather the hundreds or sometimes thousands of documents in advance of Handover will add perhaps a couple of weeks to a typical project.

5. Consequence for the protection of intellectual property

The regulations require lodgement of design drawings, specifications, test certificates etc. It is intended that this be available to future purchasers of buildings. It is unclear whether this will be available to the public and on what terms. This is potentially a serious problem for foreign-backed projects. The requirement impacts on (a) design to non-Irish construction and engineering standards and (b) protection of intellectual property.

* (a) Design to non-Irish construction and engineering standards will be more problematic than it presently is. The drawings and specifications to be lodged must “demonstrate compliance with the requirements of the regulations”. Compliance is usually referenced to the building regulations technical guidance documents. Projects designed to other standards will be open to challenge in unnecessary ways and will be threatened by the requirement to lodge, for example, engineering calculations.

* (b) Protection of intellectual property. There is no clarity on whether public access will be denied to detail floor layouts, construction details and design specifications or on what conditions it will be facilitated. It seems likely that the tendency will be to facilitate public access to all this material, and to download it against a modest fee. Material on the web will be viewable all over the world. This is a grave threat to the valuable intellectual property in many FDI projects.

6. Problems relevant to promoters of larger or more complex projects

Furthermore, the following questions seem not to have been considered in drafting the legislation.

6.1 Appointments and tenders

* What happens if the client wishes to appoint his own Engineer from abroad as a Certifier? This person, or these persons, will have to be admitted to the Irish register of engineers – or of architects, depending on the qualifications – and this will involve sometimes protracted review of qualifications under international agreements. Delay.

* What happens if the Design Certifier and the Assigned Certifier are not the same person? This possibility seems sensible, but there is no provision for the Design Certifier to make further submissions after construction starts. Delay.

* What happens if the architect and/or engineer is novated to a Design-Build Contractor (having worked for the developer/other client at the design stage)? If the architect/designer is novated to the Design-Build contractor, the architect and/or engineer will either have to be retained by the owner in a separate direct appointment or another Certifier appointed to the project. The areas of potential dispute regarding design authority and liability appear not to have been considered.

6.2 The construction site

* What happens to Enabling Works contracts? Do all projects now have to have a main contractor on site from Commencement, with associated costs? This also has implications for other forms of procurement including construction management, management contracting etc.

* How does one ‘value engineer’ a change which is not in compliance with the Design Certificate when the project is on site and after the Design Certificates are complete, and the Design Certifier is no longer appointed?

6.3 Possession and handover

* What happens if the building owner wants to occupy the building on a phased basis or when part of the building is not complete? The Regulations permit the submission of Completion Certificates for ‘areas within a building or development of phases thereof’. However, there is no provision for the Certifier to ‘qualify’ the certificate to exclude certain works that are incomplete or not relevant at the time of the Certificate.

Solutions

A simple way to remove the problem for FDI and related projects is to rewrite the legislation so that it applies to projects in the residential sector only, and not to other projects. Then, the opportunity should be taken for a thoroughgoing review of all such hurdles, not to lower standards, but to simplify a process which is growing inexorably.

0 thoughts on “FDI (Foreign Direct Investment) Projects & BC(A)R SI.9

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