{"id":436805,"date":"2021-05-12T08:50:34","date_gmt":"2021-05-12T07:50:34","guid":{"rendered":"https:\/\/www.constructionnews.co.uk\/?p=436805"},"modified":"2021-05-13T17:49:29","modified_gmt":"2021-05-13T16:49:29","slug":"the-cost-of-re-cladding-a-financial-blow-that-could-prove-worse-than-covid","status":"publish","type":"post","link":"https:\/\/www.constructionnews.co.uk\/contractors\/galliford-try\/the-cost-of-re-cladding-a-financial-blow-that-could-prove-worse-than-covid-12-05-2021\/","title":{"rendered":"The cost of re-cladding \u2013 a financial blow that could prove worse than COVID"},"content":{"rendered":"

Peter Vince had expected the consultancy he founded in 2011 would be growing strongly by now. Like everyone, he had not factored in a global pandemic, but the virus is not the only reason for a cashflow setback he thinks might take four years to clear.<\/p>\n

In March 2020, his modest company was hit with a \u00a3140,000 bill to fix the building where one of his offices is based, a financial blow that could prove worse than the revenue impact of COVID-19.<\/p>\n

Vince is not alone, but the 62-year-old businessman, who served as UK chief executive of Arcadis from 2005 to 2011, considers himself among the lucky ones. Leaseholders across the country face crippling bills to correct construction defects and safety problems they had no reason to suspect.<\/p>\n

The issue has hammered the industry\u2019s reputation in the eyes of the public and created problems for many working in it. Alongside cashflow hits like Vince\u2019s, many in the sector have been forced into personal debt while trapped in unsellable, unsafe properties, punished for the past mistakes of their own industry. Construction News <\/i>examines the issue.<\/p>\n

Just a brick building<\/b><\/span><\/h3>\n

Vince\u2019s Emmaus Consulting moved into its canalside office in Birmingham\u2019s thriving Jewellery Quarter in October 2014. Vince says a normal pre-purchase survey found no issues. The nine-storey building, Islington Gates, which contains 141 apartments and four ground-floor commercial units, was completed in 2004 by Miller Construction at a cost of \u00a325m.<\/p>\n

\u201cWhere our front door is, it\u2019s just like a brick building, so [cladding] never really entered our heads,\u201d Vince says. \u201cWe took a mortgage on it, the bank did a valuation survey, there was no reference at all to the cladding issue. Looking back maybe you think we should\u2019ve been much more conscious of this, but the reality is it has only recently come into the public domain.\u201d<\/p>\n

\n

“Most people can take a hit but if you get punched on the nose in quick fire, you tend to find either your nose bleeds or your eyes are crying”<\/span><\/p>\n

PETER VINCE<\/b><\/span><\/h4>\n<\/blockquote>\n

Emmaus Consulting offers project management, cost management and management consulting across the built environment. Too small to file full accounts, Vince says annual turnover is around \u00a32.5m. In April 2020, in the midst of the first lockdown, the SME received a \u00a370,000 bill \u2013 half of its expected contribution to the cost of replacing timber cladding on the building.<\/p>\n

\u201cThey couldn\u2019t have picked a more perfect storm,\u201d he recalls. \u201cWe were worried about survival because of lockdown, what the clients were going to do, and all this sort of stuff. At that stage, if [the government] had shut construction sites, it would have killed our business.\u201d<\/p>\n

Cladding replacement was not the only cost. Building insurance ballooned by a factor of nine, while the annual service charge shot up from \u00a32,500 to \u00a36,000. Emmaus has not yet settled the bill because the building\u2019s management company has applied for a grant from the government\u2019s Building Safety Fund. \u201cI think we\u2019re in a good position [to get funding] and the management company has done a good job,\u201d Vince says, while awaiting the verdict.<\/p>\n

\"\"

Peter Vince: ‘They\u2019ve got a moral obligation to fund that work if they\u2019re changing the rules retrospectively’<\/p><\/div>\n

If the grant is denied, it would not force Emmaus out of business, Vince says: \u201c[But] it would have a significant impact on cashflow over the next couple of years, when hopefully the market recovers. And we\u2019d have another four years of hard grind until [the directors] can get a bit more than just being an employee.<\/p>\n

\u201cIt would be extraordinarily demotivating for the [directors], and the next generation that\u2019s hopefully going to come through. Most people can take a hit but if you get punched on the nose in quick fire, you tend to find either your nose bleeds or your eyes are crying.\u201d<\/p>\n

Emmaus is also luckier than residents in the same block, who face extra costs to fix fire-break problems on the upper floors that Emmaus has escaped.<\/span><\/p>\n

\u201cThey\u2019ve done nothing wrong \u2013 they\u2019ll all have had surveys done and there\u2019ll be warranties on the properties and here they are having to stump up money that might as well be a million pounds for some of them,\u201d Vince says.<\/p>\n

Saddled with personal debt<\/b><\/span><\/h3>\n

Elsewhere in Birmingham, a quantity surveyor at the opposite end of her career also faces a huge bill.<\/span><\/p>\n

The 27-year-old woman, who does not work for Emmaus and asked not to be named, bought a small flat in March 2018, with an annual service charge of \u00a32,000.<\/p>\n

Subsequently, her building was found to have combustible cladding and fire-break problems. In April 2020 she received an invoice for \u00a310,000, and a few months later another for the same sum.<\/p>\n

\u201cIt was my first home, I was so excited; I was the first of my friends to buy my own place,\u201d she recalls. \u201cThe first six months, it was great \u2013 but then those bills started to come.\u201d<\/p>\n

She says she first learned of the issues at a residents\u2019 meeting two years ago. \u201cSome people thought it might cost a few thousand pounds, [but as a QS] I knew it was going to cost a few million.\u201d<\/p>\n

Some \u00a316,000 of her \u00a320,000 bill related to cladding costs, with the remainder to pay for insurance and a waking watch \u2013 people physically patrolling for fire.<\/p>\n

\n

AN ONGOING TARNISHING OF THE INDUSTRY\u2019S REPUTATION<\/strong><\/h3>\n

UK Cladding Action, a body set up to represent leaseholders caught up in the cladding debacle, says the government\u2019s policy on remediation means ordinary people are effectively bailing out billionaire developers, thanks to construction\u2019s \u201cstrong lobby\u201d.<\/span><\/p>\n

The Fire Brigades Union has said the sums set aside show the government \u201ccares more about their friends and donors in the housing and construction industry than residents trapped in dangerous buildings\u201d.<\/span><\/p>\n

In February, Birmingham Ladywood MP Shabana Mahmood raised the plight of residents living in the Islington Gates building, which contains Emmaus Consulting\u2019s office, in parliament. She said: \u201cBusinesses, developers and construction companies responsible for putting these buildings up should face some consequences if they do not step up to remedy the defects that they are responsible for. Such businesses should not be able to bid for and receive public sector contracts.\u201d<\/p>\n

She cited Galliford Try, which acquired Islington Gates builder Miller Construction in 2014, as an example of one such company. Mahmood accused it of failing to engage with leaseholders and questioned whether it should be able to bid for projects on the West Midlands Combined Authority framework as a result.<\/span><\/p>\n

A spokesperson for Galliford Try tells CN<\/em>: \u201cThe records at Miller Construction show that the building received all of the requisite completion certification at the time, including building control approval. We recognise this is a significant historic issue for the industry as a whole, and we hope that a constructive solution will be secured to assist the residents and homeowners facing these difficulties.\u201d<\/p>\n

A Ministry of Housing Communities and Local Government spokesperson said: “The government is bringing forward the biggest improvements to building and fire safety in 40 years. This includes a comprehensive \u00a35bn plan to help protect hundreds of thousands of leaseholders from the cost of making the tallest buildings with the most dangerous cladding safer.<\/p>\n

“Leaseholders in lower-rise buildings between 11 and 18 metres, with a lower risk to safety, will be protected from unaffordable costs of cladding remediation with a generous government-backed finance scheme, with remediation payments capped at \u00a350 a month.”<\/p>\n<\/div>\n

The first invoice arrived on the same day she learned her salary would be cut due to the virus crisis. She had to borrow to pay the bill, which was due within 30 days, taking out a large personal loan to pay for defects on a property that is already mortgaged. \u201cNo normal person has \u00a320,000 in their bank that they can just transfer away,\u201d she says.<\/p>\n

As well as the financial impact, the resident says she no longer feels safe in her own home.<\/p>\n

\u201cEvery minute we\u2019re waiting [for work to be done] we\u2019re paying for this waking watch. But at the end of the day we\u2019re in a flammable building and sometimes I forget that we\u2019re in a building that\u2019s potentially so dangerous. It is [worse] working from home at the moment, you just can\u2019t get away from it,\u201d she says.<\/p>\n

The QS says her building owner has applied for government funding to cover the cost of remediation and, if it is successful, she believes the \u00a310,000 she has paid so far will be reimbursed.<\/p>\n

Her story is not unusual among leaseholders.<\/p>\n

Fighting the demand<\/b><\/span><\/h3>\n

In Manchester, a 28-year-old who works in HVAC sales bought an apartment in the city\u2019s Green Quarter. In 2019 he tried to sell it, but the buyer\u2019s mortgage was blocked by two different lenders over safety concerns.<\/span><\/p>\n

The building is Britton House, a 20-storey block completed by Carillion in 2008, and initially he thought lending issues would be swiftly resolved because there is no ACM cladding.<\/p>\n

\n

“Businesses, developers and construction companies responsible for putting these buildings up [\u2026] should not be able to bid for and receive public sector contracts”<\/span>\u00a0<\/b><\/span><\/p>\n

SHABANA MAHMOOD MP<\/b><\/span><\/h4>\n<\/blockquote>\n

However, surveys had uncovered missing fire breaks and non-fire retardant insulation, not compliant with regulations at the time. As a result, the flat he had paid \u00a3180,000 for in 2016 had been given a new valuation by lenders: zero.<\/p>\n

\u201cYou can\u2019t sell, you can\u2019t move on with your life, you can\u2019t carry on, you\u2019re just kind of trapped,\u201d says the owner, who must still pay his own mortgage plus \u00a3160 per month towards the building\u2019s waking watch.<\/p>\n

Worse news arrived in January, when he was notified of remediation costs he is liable for: \u201cWe got a letter saying that because I\u2019ve got a certain square footage of apartment, we will be paying \u00a324,000 this year.\u201d He adds that owners of smaller apartments will need to pay \u00a318,000. \u201cIt was almost as if they didn\u2019t realise how much money people earn,\u201d he says. \u201cTo be asked to pay \u00a324,000 on top of our normal outgoings for a year was just laughable; like they didn\u2019t get how much that money was to people.\u201d He says residents are \u201cfighting\u201d the demands and calling for the government to make those responsible for the defects foot the bill.<\/p>\n

\"\"

MP Shabana Mahmood addresses the plight of residents of Islington Gates<\/p><\/div>\n

A bid has been submitted to the Building Safety Fund, but the flat owner says it is unlikely to cover all the costs. As the Housing, Communities and Local Government Select Committee has noted, there is nowhere near enough money in the fund to fix every high-risk building in the country.<\/p>\n

MPs on the select committee said in June 2020 that residents should not have to pay to make buildings safe, and recommended instead that upfront costs should be covered by government, which should seek recompense from \u201cthe construction companies, architects, suppliers of faulty products, approved inspectors and any others who are found to be responsible for fire safety defects\u201d.<\/span><\/p>\n

In February this year, the government announced an extra \u00a33.5bn in building-safety funding<\/a> for cladding remediation on buildings over 18 metres in height. However, the move was widely criticised for only covering a fraction of the work needed across England (see box, below).<\/p>\n

What now?<\/b><\/span><\/h3>\n

For Vince, the industry must learn from past mistakes. However, he says it is not solely to blame, citing the deregulation of building control and approved inspectors, and decreased use of clerks of works. \u201cIt created a race to the bottom, of who could give a certificate for the least involvement,\u201d he says. \u201cYou put all those situations together and you get major issues.\u201d<\/p>\n

He adds: \u201cI do have some sympathy for the contractor, and developer, on our block because when that timber cladding was put on, it absolutely complied with building control. So they did nothing wrong there, but you ask anyone at Islington Gates whose fault it is, and they\u2019ll say the contractor.\u201d<\/span><\/p>\n

He notes that problems with \u201cbasic stuff like cavity barriers and fire breaks\u201d are less easy to forgive. But where faults were considered compliant at the time, he is adamant that the government should pay. \u201cThey\u2019ve got a moral obligation to fund that work if they\u2019re changing the rules retrospectively, otherwise it\u2019s not fair,\u201d Vince says. \u201cIf they don\u2019t, a whole segment of the property market will grind to a halt.\u201d<\/span><\/p>\n

The HVAC salesman stuck in an unsellable flat also blames the deregulation of building control, but sees bad practice in the industry as a primary cause. \u201cI don\u2019t think it\u2019s the taxpayer\u2019s responsibility to pay this entirely. Our building didn\u2019t comply with regulations at the time of construction and was never built to the actual designs,\u201d he says. \u201cIf it was [built properly], it would be fine. We wouldn\u2019t have all these problems now.\u201d<\/span><\/p>\n

(Top image credit: Manchester Cladiators)<\/em><\/p>\n

\n

WALL OF SILENCE<\/b><\/span><\/h3>\n

More than 2.1 million people work in the UK construction sector, according to the ONS<\/a>, and as of June 2020 more than 11,300 buildings<\/a> in England alone were thought to have combustible cladding. The odds are that many people in the industry are victims of cladding remediation costs, but few have so far spoken out.<\/span><\/p>\n

CN<\/em> often faces fear of reprisals when investigating serious issues, such as racism or onsite safety. Witnesses are scared of losing their livelihood, being blacklisted or shunned for speaking up. CN<\/em> protects identities in such cases, but many people contacted for this story would not go on record at all, even anonymously.<\/span><\/p>\n

Some feared jeopardising an application to the government\u2019s Building Safety Fund, a concern that arose after Sunday newspaper claims that bids for funds were subject to gagging orders. The government has repeatedly said that non-disclosure agreements in this area do not apply to individual leaseholders.<\/span><\/p>\n

But many, it would seem, still cling to the hope that keeping quiet will help their cause.<\/span><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Peter Vince had expected the consultancy he founded in 2011 would be growing strongly by now. Like everyone, he had not factored in a global pandemic, but the virus is not the only reason for a cashflow setback he thinks might take four years to clear. In March 2020, his modest company was hit with …<\/p>\n","protected":false},"author":53981,"featured_media":437186,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false},"categories":[531,533,581,559],"tags":[40052],"yoast_head":"\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\t\n\t\n\t\n