In the wake of natural disasters, the rebuilding effort is virtually always an overwhelming endeavor. It’s common sense, really – over a small amount of time, a large number of homes, businesses, and other structures are battered by the elements. When so much damage occurs at once, it’s only natural that a backlog of work will build up. But what if there was a way to speed up the process?
The Damage in California is Unprecedented (and it’s not over yet)
Here are some numbers from the October 2017 fires in Northern California:
44 people died
190,000 acres burned over 5 counties
14,700 homes damaged or destroyed
Insurance claims have topped $9.4 billion
At the time of this writing, there are 5 more fires currently burning in Southern California, several of which are threatening (or have already affected) the greater Los Angeles Area. The final impact of these fires remains to be seen.
Is Production-Scale Rebuilding the Answer to Rebuild Fire-Damaged California?
When a natural disaster has the scale of destruction like the California wildfires, post-disaster recovery efforts utilizing “normal” construction practices are rarely strong enough to keep up with demand. After all, with whole streets, neighborhoods, and even entire towns totally wiped out, how could normal construction ever keep up? Throw in the fact that bad actors and “fly-by-night” construction firms are also drawn to recovery zones, and the rebuilding process can become a nightmare.
In the wake of these massive disasters, property owners sometimes consider an innovative construction process that can really speed up the recovery timeline for the affected communities: Production-Scale Rebuilding. But does this methodology really help the recovery process, or is it more hassle than it’s worth?
What is Production-Scale Rebuilding?
Basically, it’s just rebuilding neighborhoods or communities as unified groups rather than home-by-home. Production-scale rebuilding involves pulling together multiple construction companies, crews, and other resources to rebuild whole streets or even entire communities in one organized, simultaneous effort (as opposed to each homeowner hiring their own contractors to rebuild their own, individual house). Pooling together resources could allow for economies of scale to be realized.
Ideally, the entire rebuilding effort is centrally managed by a selected group of homeowners that represent the interests of the entire group that lost their homes. The bottom line is that the recovery work should be more efficient allowing people to get back into their homes faster. Santa Rosa County’s Coffey Park neighborhood is considering whether to use production-scale construction methods to rebuild from the October 2017 fires.[/box]
Production-Scale Rebuilding: Origins and Potential Issues
Production-scale rebuilding has been utilized before in California – in the wake of the 2003 Scripps Ranch fire in San Diego, 80 families banded together to hire a single contractor to rebuild their homes. Because such a disaster often levels entire neighborhoods (if not whole communities) at once, neighbors all need the exact same type of work done. Rather than siloing each property and improving an area one home at a time, production-scale rebuilding offers an approach where neighbors can band together and have their properties rebuilt collectively by attacking all of the properties’ at the same time.
If the concept is still uneasy to grasp, think about how fast neighborhoods pop up when done pursuant to a single development plan rather than by individual owners building homes one at a time. That’s what we’re talking about with production-scale building. However, since the properties are owned by individuals rather than one developer, some issues can pop up.
Potential Issues with Production-Scale Building
Scenario:
Imagine this – a neighborhood of homeowners impacted by the October fires decides to band together and reap the benefits of production-scale building. All of the neighbors come to an agreement on terms, timeframes, and price with a contracting outfit. However, at some point along the project, one of the neighbors falls behind and can’t make payments. Or maybe one of the owners is dissatisfied with the quality of the work while the remaining owners are perfectly content. If the production-scale building agreement between these homeowners and the GC don’t prepare for such a situation, you can imagine the chaos that might ensue.
For Owners
We’re not trying to be Debbie-Downers here, but until we reach Construction Payment Utopia, it’s important to be wary of risks associated with a consolidated approach to rebuilding. When there is no unity of ownership among houses being built pursuant to an approach such as production-scale building, serious problems can arise with construction payment.
For construction businesses, relying on other parties is the norm. General contractors rely on subs and suppliers to perform as contracted, and those subs and suppliers in turn rely on payments to make their way down the chain. While industry collaboration among different construction companies in the field is common, individual property owners are rarely called upon to work together during a project. As a result, protections that are in place for problems when collaboration goes awry on the production side (such as lien rights or retention) will not be available to homeowners to hold each other accountable.
A problem created by one property owner could quickly snowball into a problem for all. It’s bad enough that sometimes on a project, a single owner is forced to pay for the same work twice. When an owner may be on the hook for someone else’s bill, things get even hairier. Luckily, as we’ll mention at the bottom of the next section, California provides the ability to lien separate properties under conditions like this (subject to certain circumstances, of course).
For Construction Businesses
There are plenty of benefits from production-scale building for contractors, subs, and suppliers. By adopting such a project, the revenue lost from downtime between jobs and transporting all of the tools, equipment, and materials to another job site would be minimized. Dozens of “jobs” could be completed without having to negotiate, contract, or move locations.
There are risks involved here, too. When working on a standard development project, direction is typically coming from one voice. Disputes are brought to one party, sending notice is (relatively) simple, and if it comes down to it, only the information for one property owner will (typically) be necessary to file a lien. Throw multiple owners into the mix, and the disputes, notices, and required information will multiply. If there’s a payment dispute with one property owner, but the contract for production-scale rebuilding covers multiple properties, how will disputes be settled?
In California, under § 8446 of the lien statute, a claimant may record one claim of lien on two or more works of improvement, subject to some conditions. First, the works of improvement either have (or are reputed to have) the same owner, or the work was contracted for by the same person for the works of improvement whether or not they have the same owner. So, on projects utilizing neighborhood representatives, a claimant may be able to record one lien claim if owed for several of the properties. However, the claim of lien must designate the amount due for each work of improvement. If the contract is for lump sum payment, a claimant can estimate the distribution of the amount due for each work of improvement based on the proportionate amount of work provided for each.
A claimant will still be able to protect themselves if these circumstances aren’t present, but it will involve more legwork since multiple claims will be required. Even if only one claim is required, notices will likely need to go to each property owner. California’s AB534 will adjust this requirement for common interest development associations, but unless the project qualifies as a “planned development” under the Davis-Sterling Common Interest Development Act and the Commercial and Industrial Common Interest Development Act, those new notice requirements will not apply.
The Verdict
So what’s the bottom line? Are production-scale rebuilding projects more trouble than they’re worth? That’s up to you.
But desperate times call for desperate measures. When entire communities are decimated by disasters, the approach to rebuilding will likely have to stray from standard techniques to maximize efficiency and pick up the pace of rebuilding. Innovative methods like production-scale building should not be avoided just because they pose problems – even the most standard of projects can present issues. However, risks should still be minimized where possible. Agreements for production-scale building should account for the possibility of disputes and should create specific plans of action for payment disputes, concerns over quality, and any other problems that may pop up.
Essential Reading and Resources
We have a two important articles for you to read concerning disaster recovery construction work:
The Playbook for Disaster Recovery Construction Projects
The Payment Perils for Property Restoration Companies
We also have a free resource available for you to download, “The Disaster Recover Cheat Sheet.” Please click the button below to download your copy.
