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Why development monitoring is a must to prevent building defects and protect parties’ interests in new developments

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  • Development monitoring on new developments

Why development monitoring is a must to prevent building defects and protect parties’ interests in new developments

Building developments are often financed, sold to or leased by parties that have no direct control over how the development is managed.

Yet recent history has shown that there’s a need for these parties to protect their interests and mitigate their exposure to risk.

You only have to look at the leaky buildings crisis, which has affected multiple buildings resulting in multi-million dollar fixes.

And it’s not just limited to leaky buildings. We are seeing buildings constructed in the last five years with structural and fire protection defects with potential wide-ranging consequences. These things are problematic to assess and costly to fix.

Take offsite manufacture for example: while it can speed up construction, when it’s done poorly by the supplier (who independently checks it’s suitable before delivery?) or delivered to a site before the installation locations are weathertight, then it can go badly wrong and be harder to fix than a traditional build.

While each member of the project team typically looks after their own quality assurance, often there’s no-one taking an impartial, holistic view of the whole development. This means things fall through the cracks particularly at points where trades interface and when the materials or designs originally selected are changed.

So who does look after quality assurance on a typical project?

The client says the designer does during the design phases; the designer says the builder does when it’s being built and then it’s checked by the Council; the builder says the designer and Council do it.

The reality is few people are truly objective about their own work and most project participants are operating on low margins, so often no impartial or independent resource is allocated to this role, because no-one thinks there’s a problem.

The evidence suggests otherwise. This is why banks/lenders, insurers, investors and tenants are engaging Development Monitors on their projects.

In fact, elsewhere it’s common for funders and government bodies to engage Development Monitors and is often something warranty providers require. This is currently being considered by warranty providers in New Zealand so is likely to become much more commonplace here.

What is a Development Monitor and development monitoring?

A Development Monitor (also known by various other terms including project monitor or investor/bank/tenant project manager) is an independent consultant, not associated with the development or development team.

A Development Monitor is engaged by a party that has an interest in a development but no direct control over how it’s managed, yet who wants someone suitably qualified to oversee it to protect their existing or future interest in the property. A Development Monitor’s core function is to protect their client’s interests and minimise exposure to risk.

Development monitoring is the process of identifying, monitoring and advising on the risks associated with acquiring an interest in a development which is not under the client’s direct control.

It’s much more than quality assurance.

Why engage a Development Monitor?

While engaging a Development Monitor will mean up-front fees, it will save potential headaches down the line. It’s the best way to ensure a building’s sustainability. Imagine you were buying a commercial venture or property without carrying out due diligence prior to purchasing it. If not assessed, you could be buying a problem, affecting your investment. It’s the same with building developments, but there’s a better chance of limiting risk.

We are involved in a remedial project, which is estimated could cost up to $80M to fix. This is just one of many apartment complex buildings we’re remediating. And it’s not just confined to residential buildings – many schools and commercial buildings have been found to be defective and requiring remediation or, in the worst cases, demolition. A Development Monitor can help prevent similar situations from occurring.

If you have an interest in a property and want to bridge the gap between the designer, the contractor and Council compliance, then a Development Monitor can help. Their role is not simply to review documentation; knowing there is someone independently assessing the proposals can help the design team to sharpen how they do things, and it provides another set of eyes. The level of involvement the Development Monitor has will depend upon the size and complexity of a development. Unlike a design peer reviewer, a Development Monitor reviews the project at all stages, including during construction and checks whether any variations materially affect the development agreement/s. For example, if a designer has designed the lowest possible pitch for a roof and the material profile changes, is that design still a good idea or is it likely to be outside the new material warranty?

What’s a Development Monitor’s role at each project stage?

At the pre-construction stage:

The Development Monitor’s role is to review development of this stage, adequacy of documentation and ensure required agreements, warranties, bonds, consents etc. are in place.

The Development Monitor addresses pre-construction technical issues such as:

  • Terms in agreements.
  • Document audit during the due diligence process, checking necessary documents are in place.
  • Assessing health and safety issues related to the site.
  • Evaluating the quality of the drawings/specifications against technical standards, the Building Code and materials limitations.
  • Reviewing information appended to development agreements, such as draft warranties.

During the construction stage:

The Development Monitor will inspect the development to check quality thresholds are being maintained, the programme is being adhered to and variations do not dilute the standards signed up for. The Development Monitor can check draw-down payments are reasonable and referable to completed work.

They will address technical issues during construction stage such as:

  • Undertaking periodic inspections to assess quality and specifications are being adhered to, often an overlooked important aspect of a development monitors’ involvement in construction.
  • Checking health and safety issues related to the site are in place.
  • Evaluating any requested variations to ensure they meet the agreements.
  • Reviewing early access requests.
  • Assessing whether draw down payments against cashflow and work completed are reasonable.

At completion and handover:

The Development Monitor will check sign-off of practical completion and Code Compliance Certificate(s) (CCC) as well as the final account and ensure Operating & Maintenance (O&M) manuals are handed over, and any Building Information Modelling (BIM), or as built documents, reflect what was actually built.

The Development Monitor will also undertake a final assessment at end of defects liability period.

How do you ensure development monitoring is effective?

The development monitoring role should be referenced in the legal agreements. These can outline the degree to which the development monitor can monitor the development on behalf of the client, from the development agreement through to the construction contract.

The Development Monitor should be allowed to attend key site meetings in the role of observer only. It is important to note that the Development Monitor is not the project manager, builders clerk of works nor the contract administrator, and should not approve any instructions relating to the project unless formally requested to do so.

The Development Monitor needs to be sufficiently informed about the detail and design/performance criteria, to ensure that the parties are meeting their obligations and do not fall into breach of contract. So choose a Development Monitor with sound technical training and background.

The Development Monitor should record site inspections and include findings in regular reports to the client. Any issues identified during inspections should be raised with the parties following agreed action protocols, with all necessary remedial measures undertaken and monitored through to a satisfactory conclusion for the client.

If you’d like to talk to us about how we might be able to help you, please call us on T: 09 912 2550 or E: office@maynardmarks.co.nz