Blog Post

Building Warranty – risk management that improves construction

02.08.2022 | 8 min read | Written by Simon

You’ve finished your project. Inspections are completed, snag lists are closed and a full handover with all documentation has been passed to the client. But as all construction managers know, this doesn’t necessarily mean that the project is concluded. You might well hear from the client again. That’s where your building warranty comes in. 

New-build construction is complex. Even smaller projects are multi-faceted collaborations, requiring the coordination of subcontractors for utilities and specialist equipment, teams for groundworks and other construction phases, with materials deliveries and movement, equipment and other people such as managers, clients and inspectors flowing through site. Complex projects are prone to mistakes and even the most closely managed project can expect defects and faults to occur. It’s Ok, if they are well managed. 

Mistakes in installation, sub-standard workmanship and equipment faults can remain hidden and emerge after handover. Clients are likely to come knocking if a fault appears after handover, even years down the line. For this reason, construction firms must protect against remedial work, which often includes expensive contractor time and replacement equipment. Prevention is always best. Contractors do all they can to ensure that projects are fault-free, but when problems do occur, a building warranty is the construction company’s best friend. 

construction site

What is a building warranty?

A building warranty may also be referred to variously as a builders warranty, builders warranty insurance, structural defects warranty, construction warranty or a builders guarantee. It’s an insurance policy that construction firms take out to cover any remedial work should faults emerge post-handover.  

It can cover any aspect of the building from structural elements to the workmanship, HVAC systems, plumbing, electrical fitting, light fixtures, roofing, windows and doors, flooring and more. 

Construction businesses generally enter into an agreement with an insurance provider at the beginning of a project and then work with them throughout to evaluate and manage risk as the project progresses. 

Related reading: Find out more about what PlanRadar can do for snagging

How much does a building warranty cost?

There are a range of factors that affect the cost of a building warranty, but to put the cost into context if you are a developer or builder, you should ask yourself what it would cost you to resolve a structural defect once the homeowner has moved in.  

The cost of the building warranty will be affected by the building size, building usage, the scope of the warranty and the selected duration of the building warranty period.  

Insurers will look at past and present portfolios to assess liability. Construction firms that can demonstrate high-quality work with low complaint levels are likely to be offered much lower insurance premiums for the same amount of cover. PlanRadar’s defect management tool can help to reduce risk during construction to achieve these low insurance premiums, but more on this later. 

How long should a builder guarantee their work?  

A builder should be available to rectify any faults that relate to the construction of the building. NHBC offer a warranty package to homeowners in which the builder provides two years guarantee and in this period NHBC offer to be a mediator through their Resolution Service. The NHBC then provides insurance cover for a further eight years for most parts of the building but excluding plumbing, electrics and gardens. So, if something goes wrong with the electrics, who will the homeowner call? Over the lifetime of the building, material decay will occur, things will be damaged through misuse or accidents, and repairs will be required, but it’s not always obvious whether these are construction faults, and consequently whether they are the responsibility of the builder. This is why many builders will protect themselves with a clear ten-year warranty. 

A rule of thumb is that ten years is sufficient for a building to show its construction faults, but whenever a problem occurs a homeowner would understandably wonder whether it was built properly in the first place. By this time, the construction company’s staff have largely changed, and site details are a distant memory for anyone who was present. That is why builders need a system to record, resolve and archive issues as they happen on site. Systematic evidence gathering is key to legal protection for the builder, and for the client. 

Building warranties may be purchased for up to twenty years in some cases though ten or twelve years is the industry standard, and the cost of the warranty goes up substantially beyond twelve years. Commercial building warranty insurance typically covers a longer period. 

What happens during a building warranty period?

If defects appear during the building warranty period the builder would be expected to do whatever is required to rectify them. Once the building is occupied even a simple leak can become an expensive drain on office staff and site staff affecting other projects, and reputational risk, not to mention the disruption and impact experienced by the homeowner.  

Beyond the building warranty period, the owners may have NHBC cover in place, or their own insurance would cover repairs but insurance for a building less than ten years old is expensive. This is why any builder who tries to avoid supplying a builder warranty will not only put their business at risk, but also make their product significantly less attractive to any potential clients, who will almost certainly refuse to purchase the house unless it comes with a standard ten-year warranty or at least an NHBC warranty package. 

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Why offer a building warranty?

The BBC reported a rise in complaints about new build houses in 2019. Builders are expected to deal with snagging issues within the first two years after construction, but a longer-term building warranty, such as that offered by the NHBC, can protect builders against longer-term complaints. Conversely, the NHBC mentions that warranty claims continue to decrease, but insurance is critical to protect against unforeseen issues that emerge. Large commercial buildings and bespoke construction increase risk variables, leaving builders perilously exposed unless they have a building warranty in place. 

In essence, a building warranty is a safety net for construction firms. Should an issue occur within the first ten years of the life of a building, clients expect builders to solve these issues. If the fault is with HVAC, plumbing or equipment failure, you might need expensive third-party contractors to resolve those specialist issues. Should structural issues arise, rebuild costs may easily run into thousands, delaying new projects and putting a strain on teams and resources. Knowing that the structural defects warranty will pay out for the cost of remedial work will release a considerable amount of this strain. 

From homeowners to property developers and commercial owners, building warranties are an expected part of the service. The building warranty is there to protect both the builder and the client. 

 Get it right first time and avoid high premiums- how construction warranty management software will help

The real aim is to avoid claims in the first place. If your projects attract multiple claims, you can be sure that future insurance premiums will reflect this. The key to avoiding high premiums is to ensure high-quality construction. 

This is where PlanRadar comes into its own. The app-based digital documentation and defect management tool tackles quality control at its core, right there on the construction site. PlanRadar provides a single source of truth for every element of construction, from digital plans to audits and site inspections to defect logging and resolution. 

A full suite of quality control templates is available for customisation by managers, accessible by site inspectors through any smartphone. Managers can log inspections for a full audit trail. Users communicate any defects or safety issues so that they become part of an action list. These tickets are then assigned to a team member and tracked until resolved. Any worker can flag an issue during their day-to-day work that might cause a delay or a change. Every defect that users capture and resolve is one less problem that could bite you post-handover. 

If an issue is identified by the client after handover, the defect can be traced back to this process. You can then adjust quality control procedures to prevent incidents from occurring in the future. This process of continuous improvement can help to drive down high insurance premiums and protect the business against reputational damage. 

If an issue arises years after handover and any legal disputes follow, you can supply evidence of workmanship and defect resolution using PlanRadar’s audit trail. 

Manage snags the PlanRadar way

In the March 2021 edition of the National New Homes Customer Satisfaction Survey (CSS) compiled by the Home Builders Federation, 95% of new-build homeowners reported snags to their builders. The management of these snags, although expected, takes time, and takes personnel away from other projects. 

You can easily resolve snagging issues using PlanRadar. It holds all project information in the cloud-based system, keeping it accessible at the touch of a button. Contractors have everything they need to resolve the issue. They can append pictures and send messages via the task and digital floorplan to help cut straight to the center of the problem. 

Although a building warranty is an important and necessary investment, if you are looking to limit your risk, real risk management starts during construction. By using defect management tools, like PlanRadar, construction firms can identify problems and fix them long before handover. They can also manage any post-handover snags easily and quickly. Above all, you can record every audit, inspection, defect, and remedial action and provide a full audit trail in case of any disputes in the future. 

Limit your risk immediately with a free PlanRadar 30-day trial. 

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