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By
Brian Noer
Nov 2004
In the recent past the US homebuilding sector has been served by three separate regional regulatory bodies. The introduction of one central agency to develop standardized codes is offering market manufacturers the benefit of sales which are nationwide (or even international) in scope, as well as allowing major national homebuilding companies to profit from greater efficiencies in the areas of standardization and economies of scale. Brian Eriksen Noer reports for InvestorIdeas.com,
November 16th, 2004.
There’s a New Code Council on the Block
The International Code Council (ICC) is a body which develops a series of building safety and fire prevention model codes for the homebuilding and commercial sectors. The ICC is the offspring of three regional model code organizations in the United States, the International Conference of Building Officials
(ICBO), Building Officials and Code Administrators (BOCA), and Southern Building Code Congress International
(SBCCI). Originally established so that communities and States would not be required to develop new codes from scratch, the three organizations had been producing their own model codes for decades. In practice, communities would adopt a model ordinance written by one of the three code organizations, at which point the code would become law.
Over the years it became apparent that three regional US bodies developing model codes would not be as efficient as one central authority, which led to the development of the ICC. The ICC produced its first model building code in 2000.
“The development of some codes, the fire code for example, turned out to be bigger projects, while other ones, such as the plumbing code, were very similar to information aggregated from the three existing codes,” explained David Bowman, manager of codes with the ICC.
“The building code regulators combined forces,” Bowman continued, “by forming code drafting committees for each of the fourteen code sectors, and then deciding which of the existing provisions did the best job. It was an open, consensus process, which involved a degree of modification to the existing codes. The codes that resulted can be adopted throughout the nation, without regional limitations. When code officials, architects, builders, manufacturers and other members of the construction industry all work with a consistent set of requirements, the benefits can mean better code enforcement, reduced construction costs and improved public safety.”
Not all States have adopted ICC codes. The State of Illinois, for instance, has never had its own state-wide code. But 48 states have adopted one or more of the International Codes at either the state or local level. If communities have not adopted an ICC code as law, they may either be codeless, or they may have developed their own set of unique regulations.
The city of Chicago, for example, is still contemplating utilization of a hybrid of ICC and existing original codes. And the State of Michigan has developed its own laws, which consist of modifications to current ICC model codes.
For manufacturers of homebuilding sector products, conformance with ICC model codes is a voluntary
program operated by an independent subsidiary of ICC called ICC Evaluation Service, Inc.
(ICC-ES). Products undergo a series of evaluation procedures and tests by accredited laboratories, resulting in an evaluation report, which manufacturers can utilize to prove code conformity.
The Market Responds
So how does this affect the homebuilding sector? “More of the larger companies, like Centex, Pulte Homes, and DR Horton, who are clearly gaining market share,” explained Robert Curran, Senior Director with Fitch Credit Ratings, “are looking to standardise more of their business. They look for suppliers who fit into the broad standardisation issue, geographically speaking. Company management are always emphasizing scale issues in conference calls.”
The major homebuilders, who are multi regional or national in scope, are obviously always looking for ways to save money, in terms of efficiencies or economies of scale. This can come down to something as basic as window size. “Obviously you would have multiple versions,” said Curran, “but if you could have those sizes authorized and then sell them throughout, for example, the Southwest as well as the Pacific Northwest that could be very advantageous in terms of building material purchases. Homebuilders could purchase more of that standard size of window and get longer runs for the buyer. This type of standardization can be something that could differentiate you (the materials supplier) from your competitors.”
Standardization of this type is exactly what the unification of the code branches will allow for manufacturers who are willing to be compliant with the new national codes.
Blazing New Trails
One such company is International Barrier Technology (IBTGF:OTCBB; IBH:TSXV), who manufactures the Blazeguard brand of fire resistant wood panelling. Barrier is currently in the process of building a fifteen thousand square foot expansion of total production capacity, at a cost of 2.7 million dollars, to their plant in anticipation of growth in volume from the ability to participate under this code and eventual national sales.
Barrier has reviewed the acceptance criteria and found Blazeguard to be in compliance for their intended market applications, which is one of a series of steps towards eventual code compliance. “There has to be a standard upon which a product is measured to ensure that it meets all new code requirements,” explained Barrier’s President Dr. Michael Huddy. “The ICC did not have acceptance criteria for our type of product until October 8th when the committee voted to accept those criteria. The acceptance criteria which were developed were based on our existing legacy reports from BOCA and SBCCI. This set the stage for Barrier to convert those existing legacy reports into ICC acceptance.”
In order to receive a compliance report from the ICC-ES, companies are required to present test data from accredited laboratories (technical evaluations of building products, components, methods, and materials) to ensure that products perform the way that they are supposed to. The evaluation process culminates with the issuance of reports on code compliance, establishing to building code officials that products and systems meet code requirements, and where that product can appropriately be used. New reports are issued for one year, after which they are re-examined and may be reissued at one or two-year intervals.
“It’s not that we couldn’t have sold our product nationwide before,” continued Barrier’s Huddy. “We could have gone to any State and met with the building code officials and run through all of the test data that we have done to date and prove to them that we meet code requirements, and then establish that on their specific project our product could be used. But once you have the report, the whole individual presentation becomes moot. You sidestep the entire process. You can hand them the report saying that the ICC have already inspected our product on your behalf and this is where and how it can be used.”
By qualifying for and having the ICC-ES evaluation compliance report, manufacturers open up the entire country for nationwide sales, and potentially for international sales, if and when other countries adopt these model codes.
Huddy was energized about the growth prospects for his company. “We are encouraged and excited about the prospects of being able to market on a global basis under the auspices of the new international building code and the vehicle upon which we intend to ride to accomplish this objective is our pending ICCES (ICC Evaluation Service) report. We plan to have start-up sometime in the second quarter of the calendar year. This will more than double our existing capacity, it will improve our efficiency and increase product uniformity and quality.”
As for future ICC code developments, the process never ends: new 2005 amendments to the existing ICC model codes are in the works. “We just sent the book out with nearly 2000 proposed changes,” said the ICC’s Bowman.
Brian Noer
Brian Noer has a degree in Business and Economics from the University of Western, Ontario. His career in the financial markets spans fifteen years and several continents, including: Manager with The Bank of Montreal in Canada, Associate Analyst with the structured finance group at Moody’s Investor Services in the UK, and Editor for several financial trade magazines in the UK for both Thomson Financial Publishing and Euromoney PLC (titles include Thomson’s trade magazines “The International Securitisation Report”, and “Capital Market Strategies”, and Euromoney’s “Asset Finance International”). Brian recently joined the InvestorIdeas.com portal team as a Writer, Editor and Research Associate.
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