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Chandler: Construction crisis – No minister, it’s broken. Try an iron clad mandated warranty instead

abandoned building

The recent Building Ministers Forum in Hobart was noteworthy for its consistency in for declaring more red tape, more checkers checking the checkers, and avoiding any policies that would make a genuine difference.

Wouldn’t it have been impressive if the forum had mandated that all new residential projects of three storeys or more must be protected by an unconditional 10-year warranty that cover their structure, envelope, basement and waterproofing? And even better if these warranties were not to be a last resort for the industry’s customers and that the responsible body corporates were to be named on the policy from day one.

Such a call would have shown that the acclaimed NSW building minister, Matt Kean, was serious and understood how to get impact.

He instead announced a raft of proposals – such as the nomination of a building commissioner and that all professionals be registered – that looked good in the headlines but were riddled with escape clauses that provide opportunities to blame somebody else for failures.

Where is the iron clad policing and sanctions? We have myriad penalties already in place for dodgy certifiers, who pay their fine, have their misdemeanours listed against their names on the relevant websites, and then go straight back to work.

None of the minister’s measures address the reality of the existing loopholes for industry littered throughout the system, nor the industry-wide nature of the crisis.

A mandatory 10-year warranty over a building would mean it would then be possible to undertake a meaningful enquiry into what needs to be done to achieve transformative change in the NSW construction industry.

Here are some questions that must be answered:

  • How is it that every construction contract has to be so heavily modified in attempts to shift unquantifiable risk to contractors and their supply chains?
  • Why are the current cohort of construction designers and building professionals becoming more theoretical in their training instead of proving their applied capabilities?
  • How can NSW’s fragmented jurisdictions over the construction industry’s many facets be brought under one roof?
  • Why have the productivity achievements in the NSW construction industry been so poor over the last 10 years, and how can this be turned around?
  • How can the current dysfunctional and expensive layering of construction and professional indemnity insurances be re-focused to deliver better outcomes?
  • How does the experience of the Opal Tower residents’ impact on their real property rights
  • How is the regulator monitoring the occupancy and safety issues that arise from Opal Tower now that the developer/builder has repossessed more than  30 per cent of the apartments without any prior formal process or clear outcomes?

Mr Kean has called for the licensing of a range of building professionals, a measure drawing on recommendations of the Building Confidence report delivered to the Building Minister’s Forum in February 2018. Yes, 12 months ago.

He said the NSW government will undertake the largest reform program in the construction industry and declared that, “If you are a building practitioner and you are found to be doing the wrong thing, we will rub you out of the industry”.

We’ve heard this language before

It was used at the federal level to justify the Australian Building Construction Commission. The problem for both is that they fail to specify the benefits

While Mr Keane was attending the BMF, a recent article in The Fifth Estate calling out the unsustainable practices of tendering in NSW was forwarded to his office.

This article was heavily endorsed by readers, with consistent comments

All building defects ultimately relate to price, and the attempt to realise a project or work for something for less than its actual realistic construction cost

This is further exacerbated by poor, and often, misleading tender documentation. Proper documentation communicating the client’s requirements and the requirement to comply with various building codes and regulations, in a simple, usable, and understandable manner with as minimal ambiguity as possible, so that the contractor may take such documentation and physically construct the project, will have much more effect in preventing building defects than greater regulation.

The reply from the minister’s office the same day was:

Thank you for your correspondence to the Minister for Innovation and Better Regulation, about procurement and standard forms [sic contracts] ……This matter falls within the planning portfolio and the treasury portfolio where we have forwarded your correspondence for consideration.

Just a few days later the biggest overhaul of building laws in NSW history was announced.

The decision to appoint a building commissioner was stated to have been months in the making and been based on the report by Professor Peter Shergold and Bronwyn Weir, who spent six months examining building regulatory systems around Australia and found that there are ‘national problems in the construction industry’.

Mr Kean said: “We’ve taken their findings on board and we’re taking strong action to further protect NSW homeowners. In response to the Shergold Weir Report, the government will support the majority of recommendations.”

These include requiring that:

  • building designers, including engineers, declare that building plans specify a building that will comply with the Building Code of Australia
  • builders declare that buildings have been built according to their plans
  • building designers and builders are registered.

The industry has endorsed the registration of building designers and builders. Following the BMF communique, the Australian Institute of Building Surveyors reported to their members:

AIBS reaffirms our support for the majority of recommendations in the Shergold Weir Report but we continue to be frustrated with the lack of action. The longer there are delays in implementing the recommendations, the more concern we feel that the required reforms will not be implemented at all.

Meanwhile, construction of buildings around the nation continues every day without any of the identified and much-needed controls being applied… Australians who own, live, work and visit our buildings deserve nothing less.

It’s our stated position that there must be a consistent, federally co-ordinated approach, with funding support for owners to rectify their buildings. Leaving the responsibility solely to owners, and ultimately insurance companies, to fund rectification works will put further pressure on PI insurance.

The reality is there will be no national solution

The reality is that there will be no national solution to these issues. The federal government has demonstrated through the seven ministers who have had portfolio responsibility for these issues that they rank low in the scheme of priorities.

The Fifth Estate recently reported on a call to use the Opal apartments as a lens to look at the wider issues confronting the construction industry. The article called for an NSW focused “Rowena Orr-like” enquiry. The wider issues raised were not part of the Shergold Weir report’s terms of reference.

The article, called for an NSW focused Rowena Orr like enquiry.  The article questioned the reasoning for not put the regulator under the same microscope as the financial regulators in the recent banking Royal Commission? But this is unlikely.

What was the reasoning to not put the regulator under the same microscope as the financial regulators in the recent banking Royal Commission?

Both the NSW state and national political cycles are in full swing. It is likely the industry will face new ministers in both theatres. The construction industry is not a centrepiece in the current political conversation. It is unlikely to become so, unless even more stresses are exposed in the construction industry in NSW and nationally.

The Terms of Reference for the Building Confidence report were “safe” for bureaucrats and politicians. The report placed no stress or urgency upon them. By contrast, the stress on Opal apartments residents and reportedly thousand of other apartment owners across the state, who have been let down by the system, remains enormous.

These residents are supposed to be mollified by the minister’s announcements, but they won’t be.

Here’s a challenge for the new Building Commissioner:

  1. Publish a list of priority actions and list the governance areas that will be amended.
  2. Set benchmarks to indicate progress and accountability.
  3. Set out a plan to make the regulatory system future-fit.

For example, describe how new technologies may provide digital passports for all registered construction and design professionals, including those who are in charge of workplace safety and construction waste depots, and require all registrants to log their projects, and any non-compliance records, so that these follow them for five years.

And here is another of the challenges that needs to be considered if the minister is serious: many of the residential developments that are now causing stress for their residents have been built by an increasing cohort of what could be described as self-performing developers”.

These developers usually have a holding company that hosts a series of project-specific development entities. Generally, they host a related party building company.

These developers shop around for the cheapest design and engineering firms to do their work. They descope the level of documentation they need for a full resolution of design before work starts on-site. This may meet the code, but much more detail is required.

They then let their building company sort out the missing details as construction proceeds. There is often no record of the final product. These developers will then pay a 2 per cent defects levy in NSW, that then becomes their get-out-of-jail card if the going gets tough for their project specific entity, or related party builder, or both.

A fee of 2 per cent is a minor cost in the development equation. Who will pick up the pieces and pay for the balance, often much greater than 2 per cent? How will confidence be built?

No minister, this won’t work

The announced reforms don’t go far enough to fix these practices or make these projects safe.

How will the public be convinced the cards are not still stacked against them? And how will the trail of defective work and the costs of rectification of past mistakes be addressed?

The warranty idea

The insurance industry is best placed to manage the 10-year unconditional warranty proposal by rationalising their current fragmented offerings. It could price design and construction risk based on qualifications, experience and track record.

A higher value will automatically be placed on technical know-how – not just theoretical knowledge.

And if one of these parties lets the system down, they will pay the price and carry it around on their digital passport. All the Building Commissioner will need to do is to set the high bar for registration and hold the records.

Minister, that is how the wrong doers will get rubbed out. Your way won’t.

And the, and the bureaucrats, politicians and the public will start to feel safe.

The NSW construction industry still needs a roots and branches enquiry, as many more failures will be revealed.

The Opal apartments should provide one lens for this to occur, and ensure its residents are not forgotten.

The Berejiklian government has a moral responsibility to take this lead as all this happened on its  watch. It’s no-good blaming former governments when it has been in the chair for six years.

This is an NSW challenge and should not be masked by other jurisdictional failures, differences or priorities.

David Chandler is a construction industry practitioner and an adjunct professor at Western Sydney University.


Spinifex is an opinion column open to all, so called because it’s at the “spiky” end of sustainability. Spinifex may be inconvenient or annoying at times, but in fact, it’s highly resilient in a hostile environment and essential to nurturing biodiversity and holding the topsoil together. If you would like to contribute, we require 700+ words. For a more detailed brief and style guide please email editorial@thefifthestate.com.au

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