The recent passage of "fix it" laws in nearly a dozen states has given home building companies at least a partial line of defense against the threat of questionable defect liability lawsuits. But for a number of home builders, the next step, they say, is embracing third-party private building inspections.

Mick Pattinson is one of those builders and among the most passionate advocates for outside examinations. Pattinson is president of Barratt American, in Carlsbad, Calif., and the immediate past president of the California Building Industry Association. He's also the man who led the fight to give builders in the Golden State the absolute right to repair.

"It's made a huge difference at our company," says the ex-rugby player from England. "Our quality is as high as it's ever been, and it's getting better."

Others, too, sing the praises of the process that's also known as peer review and forensic documentation. "The best offense is a good defense," says Spencer Holmes of Holmes Homes, which now hires an outside inspector to go over every one of the 300 houses the firm builds in its Salt Lake City market area.

"It helps me sleep at night; it's sleep insurance," agrees the risk management officer at a major national builder, who asked not to be identified for personal and company reasons. His firm will put the 7,000 or so houses it will produce in California this year under the peer review microscope. And if the process works as expected, it could be instituted in every division nationwide.

Cultural Shift

Versions of California's "notice and opportunity to repair" law, which also created functionality standards and introduced arbitration into the dispute process, have been adopted as far east as Florida. The trend toward third-party inspections, however, appears to be largely a West Coast phenomenon.

For one thing, house designs tend to be more intricate in the Golden State and, therefore, more difficult to build, according to the builder who didn't want to be identified. But equally as important, the West in general and California in particular seem to be the epicenter of defect litigation against builders.

Twenty years ago, builders in California or anywhere else would not have welcomed outside inspectors on their projects. Back then, in fact, builders routinely denied third-party inspectors, hired by customers, access to their houses. Even today, some builders don't like them on their sites, believing that it creates an unnecessarily adversarial relationship between them and their customers.

For the most part, though, the business is far more receptive now to private examiners, says Joe Cummings, vice president of technical services at HouseMaster, the nation's largest chain of independent inspectors, based in Bound Brook, N.J. And in a few instances, says Cummings, builders are asking HouseMaster affiliates to examine their houses before they are turned over to buyers.

Big builders, though, are turning to forensic specialists -- firms such as Quality Built in Poway, Calif.; La Jolla Pacific Ltd. in Irvine, Calif.; and West Coast Property Consultants in San Diego -- which take a systems approach to quality. These firms, among other things, perform plan reviews to make sure design specifications conform to local code and industry standards and verify document compliance with plans and manufacturers' installation recommendations.

"There's no great groundswell for our services yet," says Quality Built's CEO Stan Luhr. "But the prudent, forward-thinking builders are embracing the concept. There is definitely a cultural shift under way."

Second Set of Eyes

Though the various inspection programs differ in detail -- and can be customized to fit a particular builder's needs -- they each offer most, if not all, of the following elements:

  • Plan Review -- A second pair of architectural and engineering eyes analyzes construction documents to identify built-in design flaws that could lead to problems or even building failure. The idea is to avoid ambiguity, make certain the plans are well-thought-out prior to construction, and, if necessary, recommend alternatives. Aesthetics are off limits, as are cost and character of the project. Rather, the unbiased review team looks for inconsistencies, clarity, and purpose, all in an effort to eliminate potential defects -- before they occur. Some of the more common finds: cladding and weatherproofing inconsistencies; incorrect flashing; missing or misleading details; and even product conflicts.

  • Training -- To help raise awareness among subs as well as staff, instructors explain how buildings fail, highlight the most litigation-prone assemblies, illustrate proper construction practices, and offer solutions for common problems.

  • On-Site Inspections -- In what is described as a "true, independent analysis" of construction quality, expert field inspectors monitor and document construction progress every step of the way. For example, Quality Built claims it examines more than 700 checkpoints from the pre-pour to the roof installation. Moreover, a third of the items it checks are installed incorrectly, according to Luhr. The inspections verify compliance with applicable building codes, architectural drawings, and manufacturer's specifications and installation instructions. Inspectors also provide periodic progress reports along with photographs and other documentation.

    Deficiencies are noted in a punch list format and are reviewed on the inspector's next visit to make sure they are corrected.

  • Project Documentation -- Upon the project's completion, a comprehensive closeout report is assembled on a single CD. The final turnover report includes all supporting documentation, from photos to progress reports, that can be used to defend against future claims.

Is all this necessary? Absolutely, says attorney Jeffrey Masters, co-chairman of Cox Castle & Nicholson's development risk-management practice group. "We believe strongly that builders must be more proactive in taking defensive steps to reduce their risk."
Several Drivers

A number of factors are driving the trend toward forensic peer review. One, of course, is the never-ending quest to build a better house. That was Holmes' "big motivation" in Salt Lake City, and it was Pattinson's, too, if for no other reason than fewer defects mean fewer callbacks and -- perhaps most important -- fewer problems down the road.

"It's more important than ever to improve our quality and deliver a trouble-free house," says Pattinson, the Barratt American president. "We started by doing only a sampling, but we quickly realized we needed to do all our houses. So now we do every house on every job, single-family and multifamily alike."

To some extent, insurance and warranty companies also are pushing the movement. Warranty firms are doing so by requiring documented inspections at several stages of construction before a house will be accepted for coverage. And insurers are doing so by mandating peer review before backing a builder and his wares.

Click here for the 10 most frequent construction defects in production housing. Mike Hopson, vice president of construction for Zurich North America, in Houston, puts it bluntly: "There are certain types of residential exposure -- such as attached for-sale housing west of Kansas -- that we would not underwrite today without third-party forensic inspections."

"We think professional reviews are the ultimate quality control," adds Carol Fleischman, president of the Arrowhead Group's managed insurance program. "It's difficult for [builders] to watch everything that's going on; they need all the help they can get."

The realization that project superintendents, often considered the last line of defense against shoddy workmanship, cannot keep up with all the demands on their time may be difficult to accept. But between meetings and follow-up, scheduling snafus, and missed deliveries, supers are simply stretched too thin.

"They're overloaded with too many houses at one time," says customer service expert Carol Smith, of Home Address, in Monument, Colo. "They physically can't watch them all. The rule of thumb used to be 12 to 15 houses max, but 20 or more is common today, and that's just too much."

Indeed, during a session on field supervision at June's Pacific Coast Builders Conference in San Francisco, supervision didn't even make the list of a good project manager's most important traits. Integrity topped the list, followed by scheduling, follow-up, planning, time management, and so on. But the function of actually checking behind subs to make sure they did their jobs correctly was noticeably absent.

Job superintendents "can only be in so many places at one time," says Michael Casey, the immediate past president of the American Society of Home Inspectors. "We visit new houses five or 10 years after they're built, and from what we see, the level of quality control leaves much to be desired."

Curtailing Liability

It is, of course, "down the road" that builders get sued. And not just in California. In July, for example, a Chicago-area condo association accepted a $2.26 million out-of-court settlement in a case claiming defective workmanship and roofing materials. "Builders do not have proper quality control," claimed the condo's attorney, who won a $1.6 million settlement in a similar case 18 months earlier.

The last thing builders want to do is build a defective house. There's simply no incentive to do things wrong. They don't want to constantly be repairing this and that, for it distracts from what they do best. And they certainly don't want to end up in a courtroom.

Obviously, there's always the chance a builder will be sued, no matter how good a house he builds. But by adopting a program like Quality Built's, according to CFO Beth Michaelis, builders can reduce their vulnerability considerably. At a cost of $650 per house on average, builders can cut their risk exposure 50 percent to 90 percent by identifying and correcting the 10 most frequent construction anomalies, says Michaelis, who puts the typical risk quotient at $35,000 per house. "The savings depends on where you start out on the quality curve, but we feel like we're saving builders thousands."

Those kinds of savings may ultimately bring about more corrective remedies than the "fix it" laws ever envisioned.

Learn more about markets featured in this article: San Diego, CA, Los Angeles, CA.