Originally published in Property Casualty 360°
When constructing new buildings overseas, do you build to local regulations or some other guidelines? Does the country where you want to build have strong construction regulations? If building codes exist, when were they last updated and are they enforced?
The answers to those questions and more could mean the difference between business resilience and a major disruption to your business if a catastrophe strikes.
Consider this: As companies grow and expand throughout the world, they are often faced with constructing a new building in a country where they have little experience or may not have a deep understanding of the customs and building codes of this region.
Knowledge is power
Failure to understand international building code differences could put your company at a competitive disadvantage. For example, if you manufacture a just-in-time key component in a building overseas that has not been constructed to rigorous codes such as those found in the U.S. and a catastrophe strikes that facility, where does that leave you? It may lead to a costly disruption of your supply chain and your business.
Here in the United States, building codes are updated every three years. Unfortunately, that is not often the case in other countries around the world. In fact, there is a significant disparity in building codes from country to country, and how often those codes are updated. In India, for example, prior to publishing the updated national building code this year, the last update was performed 11 years ago!
Don't let tragedies force change
For many countries, the impetus to change building codes stems from tragedies such as nightclub fires, earthquakes and factory fires.
An example is the recent tragic event at Grenfell Tower in London. At least 80 people were killed as the result of a fire. The building, constructed in 1974, had been renovated in 2016. However, the updates did not include the addition of automatic fire sprinklers. The cause of the fire is reported to be a refrigerator in a fourth-floor apartment. There were no sprinklers to control the internal fire and the fire spread and reached external openings. Once ignited, the highly combustible new building cladding allowed the fire to spread rapidly up the outside and ultimately through the entire building.
Research shows that having fire sprinklers in a building is the number one way to limit a catastrophe from a fire, but sprinklers are not mandated in the building codes of many countries in Europe, Asia and South America.
Constructing a new building in another country can be quite a challenge. Businesses must be educated regarding each country's codes including how, in many cases, they are vastly different than the standards of the country with which they are most familiar. Identifying and implementing the best possible standards and codes – regardless of the country's requirements – is crucial.
Best practices abroad
There are several critical questions to consider when constructing a building internationally.
Does the country where you are considering constructing a new facility even have a building or fire code? Does the code focus on life safety, property preservation or both? What is the standard? Are the codes enforced? When was the code last updated?
To save upfront costs, many businesses construct buildings to the local codes and standards of the country where they are building. But companies building overseas should be asking whether it makes sense to build to local code, or whether the smart investment is building to last above and beyond the code, even though it may cost more for construction. In other words, when you're building overseas, are you being penny wise but pound foolish?
"In other words, when you're building overseas, are you being penny wise but pound foolish?"Christopher Wieczorek, Ph.D, FM Global Vice President and Manager of International Codes & Standards
Improve, enhance, update
Catastrophes such as earthquakes, hurricanes and floods have brought the issue of building code quality and enforcement to the forefront in the minds of construction and risk managers. But must we wait for a tragedy?
In 2010, my company, FM Global, one of the world's largest commercial property insurers, created an internal International Codes and Standards team. This team is working within several countries in an effort to develop, improve, enhance and update their national building codes.
For example, the team has focused on a rare opportunity to advance fire and sprinkler protection within the national building code in India, ultimately helping companies protect themselves against devastating fires. In Brazil, we're supporting the work of the Parliamentary Fire Caucus to develop the country's first national fire code, which should be released by the end of the year. This will be a significant outcome for the nation.
There is also work being done by the team in Europe to erase misconceptions about sprinklers, their cost and their value as a loss prevention tool. In the U.K., for example, building and fire regulations have long been primarily constructed around life safety, with little consideration to property protection. Our goal is to increase the amount of consideration given to property protection. Partnerships are being formed with local governments, industrial groups and firefighter organizations in the United Kingdom, France and Germany to promote sprinkler usage and provide information about the economic and life safety benefits of sprinkler protection.
Fire loss looms large
In 2016, there were two major fires in meat processing facilities in Germany, both causing more than 100 million euros in damage. Those fires prompted FM Global to conduct a study of international fires in the food industry. The study found there were 88 fires over a five year period (2010-2014). The study also identified 11 major food industry fires in the last ten years which all had more than 10-million euros in damage, and three, including the two last year, with more than 100-million euros in damage.
More striking than the sheer number of fires was the impact of sprinklers on the overall damage to the facilities. The average damage in a factory with a well-designed and fully functional sprinkler system was 580,000 euros. In contrast, for factories lacking sprinklers or where the protection was inadequate, the cost was 8,450,000 euros–nearly 15 times more.
Codes and standards need to be revised to reflect the benefits that sprinklers provide when it comes to preventing and minimizing the losses from fires when they occur. But most importantly, you must understand the building code in the country you are building–is it up to the standard you need? And, if you're constructing new facilities overseas to lax local codes rather than to a stronger "built to last" standard be aware of the potential consequences. Your decision may provide you an initial cost savings, but when catastrophes strike, those initial savings on construction may be far exceeded by the costs to your business resiliency, reputation and ultimately the loss of your competitive advantage.
Christopher Wieczorek, Ph.D. is vice president, manager of FM Global's international codes and standards group. He has led efforts to provide education and data to countries throughout the world where FM Global's clients are establishing themselves and engaged in new construction.