Worse Case Scenario versus Risk & Combustible Cladding on Buildings

BackgroundThe start of 2019 has seen much media attention to various incidents resulting from, arguably, negligent decision making.One such incident was the recent high-rise apartment building fire in Melbourne that resulted in hundreds of residents evacuated.The fire is believed to have started due to a discarded cigarette on a balcony and quickly spread five storeys. The Melbourne Fire Brigade said it was due to the building’s non-combustible cladding exterior that allowed the fire to spread upwards. The spokesperson also stated the cladding should not have been permitted as buildings higher than three storeys required a non-combustible exterior.Yet, the Victorian Building Authority did inspect and approve the building.Similar combustible cladding material was also responsible for another Melbourne based (Docklands) apartment building fire in 2014 and for the devastating Grenfell Tower fire in London in 2017 that killed 72 people with another 70 injured.This cladding material (and similar) is wide-spread across high-rise buildings across Australia. Following the Docklands’ building fire, a Victorian Cladding Task Force was established to investigate and address the use of non-compliant building materials on Victorian buildings.Is considering Worse Case Scenario versus Risk appropriate?In a television interview discussing the most recent incident, a spokesperson representing Owners’ Corporations stated owners needed to look at worse case scenarios versus risk. He followed the statement with “no one actually died”.While we agree risk doesn’t work for high consequence, low likelihood events, responsible persons need to demonstrate due diligence for the management of credible critical issues.The full suite of precautions needs to be looked at for a due diligence argument following the hierarchy of controls.The fact that no one died in either of the Melbourne fires can be attributed to Australia’s mandatory requirement of sprinklers in high rise buildings. This means the fires didn’t penetrate the building. However, the elimination of cladding still needs to be tested from a due diligence perspective consistent with the requirements of Victoria’s OHS legislation.What happens now?The big question, beyond that of safety, is whether the onus to fix the problem and remove / replace the cladding is now on owners at their cost or will the legal system find construction companies liable due to not demonstrating due diligence as part of a safety in design process?Residents of the Docklands’ high-rise building decided to take the builder, surveyor, architect, fire engineers and other consultants to the Victorian Civil and Administrative Tribunal (VCAT) after being told they were liable for the flammable cladding.Defence for the builder centred around evidence of how prevalent the cladding is within Australian high-rise buildings.The architect’s defence was they simply designed the building.The surveyor passed the blame onto the Owners’ Corporation for lack of inspections of balconies (where the fire started, like the most recent fire, with a discarded cigarette).Last week (at the time of writing), the apartment owners were awarded damages for replacement of the cladding, property damages from the fire and an increase in insurance premiums due to risk of future incidents. In turn, the architect, fire engineer and building surveyor have been ordered to reimburse the builder most of the costs.Findings by the judge included the architect not resolving issues in design that allowed extensive use of the cladding, a failure of “due care” by the building surveyor in its issue of building permit, and failure of fire engineer to warn the builder the proposed cladding did not comply with Australian building standards.Three percent of costs were attributed to the resident who started the fire.Does this ruling set precedence?Whilst other Owners’ Corporations may see this ruling as an opportunity (or back up) to resolve their non-compliant cladding issues, the Judge stated they should not see it as setting any precedent.

"Many of my findings have been informed by the particular contracts between the parties in this case and by events occurring in the course of the Lacrosse project that may or may not be duplicated in other building projects," said Judge Woodward.

 If you'd like to discuss how conducting due diligence from an engineering perspective helps make diligent decisions that are effective, safe and compliant, contact us for a chat.

Why your team has a duty of care to show they've been duly diligent

In October and November (2018), I presented due diligence concepts at four conferences: The Chemeca Conference in Queenstown, the ISPO (International Standard for maritime Pilot Organizations) conference in Brisbane, the Australian Airports Association conference in Brisbane (with Phil Shaw of Avisure) and the NZ Maritime Pilots conference in Wellington.

The last had the greatest representation of overseas presenters. In particular, Antonio Di Lieto, a senior instructor at CSMART, Carnival Corporation's Cruise ship simulation centre in the Netherlands. He mentioned that:

a recent judgment in Italian courts had reinforced the paramountcy of the due diligence approach but in this instance within the civil law, inquisitorial legal system.

This is something of a surprise. R2A has previously attempted to test ‘due diligence’ in the European civil (inquisitorial) legal system over a long period by presenting papers at various conferences in Europe. The result was usually silence or some comment about the English common law peculiarities.

The aftermath of the accident at the port of Genoa. Credit: PA

The incident in question occurred on May 2013. While executing the manoeuvre to exit the port of Genoa, the engine of the cargo ship “Jolly Nero” went dead. The big ship smashed into the Control Tower, destroying it, and causing the death of nine people and injuring four.

So far the ship’s master, first officer and chief engineer have all received substantial jail terms, as has the Genoa port pilot. It seems that a failure to demonstrate due diligence secured these convictions

And there are two more ongoing inquiries:

• One regards the construction of the Tower in that particular location, an investigation that has already produced two indictments; and
• The second that focuses on certain naval inspectors that certified ship.

It's important to realise everyone involved -- the bridge crew, the ship’s engineer, ship certifier, marine pilot, and the port designer -- all have a duty of care that requires, post event, they had been duly diligent.

Are you confident in your team's diligent decision making? If not, R2A can help; contact us to discuss how.

Engineering As Law

Both law and engineering are practical rather than theoretical activities in the sense that their ultimate purpose is to change the state of the world rather than to merely understand it. The lawyers focus on social change whilst the engineers focus on physical change.It is the power to cause change that creates the ethical concerns. Knowing does not have a moral dimension, doing does. Mind you, just because you have the power to do something does not mean it ought to be done but conversely, without the power to do, you cannot choose.Generally for engineers, it must work, be useful and not harm others, that is, fit for purpose. The moral imperative arising form this approach for engineers generally articulated in Australia seems to be:

• S/he who pays you is your client (the employer is the client for employee engineers)
• Stick to your area of competence (don’t ignorantly take unreasonable chances with your client’s or employer’s interests)
• No kickbacks (don’t be corrupt and defraud your client or their customers)
• Be responsible for your own negligence (consulting engineers at least should have professional indemnity insurance)
• Give credit where credit is due (don’t pinch other peoples ideas).

Overall, these represent a restatement of the principle of reciprocity, that is, how you would be expected to be treated in similar circumstances and therefore becomes a statement of moral law as it applies to engineers.

How did it get to this? Project risk versus company liability

Disclosure: Tim Procter worked in Arup’s Melbourne office from 2008 until 2016.Shortly after Christmas a number of media outlets reported that tier one engineering consulting firm Arup had settled a major court case related to traffic forecasting services they provided for planning Brisbane’s Airport Link tunnel tollway. The Airport Link consortium sued Arup in 2014, when traffic volumes seven months after opening were less than 30% of that predicted. Over $2.2b in damages were sought; the settlement is reportedly more than $100m. Numerous other traffic forecasters on major Australian toll road projects have also faced litigation over traffic volumes drastically lower than those predicted prior to road openings.Studies and reviews have proposed various reasons for the large gaps between these predicted and actual traffic volumes on these projects. Suggested factors have included optimism bias by traffic forecasters, pressure by construction consortia for their traffic consultants to present best case scenarios in the consortia’s bids, and perverse incentives for traffic forecasters to increase the likelihood of projects proceeding past the feasibility stage with the goal of further engagements on the project.Of course, some modelling assumptions considered sound might simply turn out to be wrong – however, Arup’s lead traffic forecaster agreeing with the plaintiff’s lead counsel that the Airport Link traffic model was “totally and utterly absurd”, and that “no reasonable traffic forecaster would ever prepare” such a model indicates that something more significant than incorrect assumptions were to blame.Regardless, the presence of any one of these reasons would betray a fundamental misunderstanding of context by traffic forecasters. This misunderstanding involves the difference between risk and criticality, and how these two concepts must be addressed in projects and business.In Australia risk is most often thought of as the simultaneous appreciation of likelihood and consequence for a particular potential event. In business contexts the ‘consequence’ of an event may be positive or negative; that is, a potential event may lead to better or worse outcomes for the venture (for example, a gain or loss on an investment).In project contexts these potential consequences are mostly negative, as the majority of the positive events associated with the project are assumed to occur. From a client’s point of view these are the deliverables (infrastructure, content, services etc.) For a consultant such as a traffic forecaster the key positive event assumed is their fee (although they may consider the potential to make a smaller profit than expected).Likelihoods are then attached to these potential consequences to give a consistent prioritisation framework for resource allocation, normally known as a risk matrix. However, this approach does contain a blind spot. High consequence events (e.g. client litigation for negligence) are by their nature rare. If they were common it is unlikely many consultants would be in business at all. In general, the higher the potential consequence, the lower the likelihood.This means that potentially catastrophic events may be pushed down the priority list, as their risk (i.e. likelihood and consequence) level is low. And, although it may be very unlikely, small projects undertaken by small teams in large consulting firms may have the potential to severely impact the entire company. Traffic forecasting for proposed toll roads appears to be a case in point. As a proportion of income for a multinational engineering firm it may be minor, but from a liability perspective it is demonstrably critical, regardless of likelihood.There are a range of options available to organisations that wish to address these critical issues. For instance, a board may decide that if they wish to tender for a project that could credibly result in litigation for more than the organisation could afford, the project will not proceed unless the potential losses are lowered. This may be achieved by, for example, forming a joint venture with another organisation to share the risk of the tender.Identifying these critical issues, of course, relies on pre-tender reviews. These reviews must not only be done in the context of the project, but of the organisation as a whole. From a project perspective, spending more on delivering the project than will be received in fees (i.e. making a loss) would be considered critical. For the Board of a large organisation, a small number of loss-making projects each year may be considered likely, and, to an extent, tolerable. But the Board would likely consider a project with a credible chance, no matter how unlikely, of forcing the company into administration as unacceptable.This highlights the different perspectives at the various levels of large organisations, and the importance of clear communication of each of their requirements and responsibilities. If these paradigms are not understood and considered for each project tender, more companies may find themselves in positions they did not expect.Also published on:https://sourceable.net/how-did-it-get-to-this-project-risk-vs-company-liability/