Observations – Lacrosse + Opal so far
Despite the wailing of design consultants about the implications of the Lacrosse judgement and the Opal Tower engineering report, the importance of a viable Design and Construct constructor in these cases has proved critical to a way forward.
Nonetheless, the experiences and the processes that apartment owners have endured is unreasonable in a modern construction industry. It is evident that better design management skills, risk management and trustworthy performance assurance capabilities are needed to define the quality and resilience of future construction,
The capabilities that are required in construction today, as buildings become more complex, require a more experienced and accountable construction workforce. Policy makers and regulators have yet to envision the necessary capabilities that they and the industry will need. They have yet to invest in the smarter, future-fit governance infrastructure required to assure public confidence,
Building construction confidence requires more than additional red-tape and checkers. It requires an in-depth understanding of all the issues, and their root cause, to understand the thousands of defective dwellings that lie beneath the tip of the iceberg that has been exposed.
Avoiding defective construction in future is one matter. We must also redress the backlog of existing non-compliant materials such as fire-cladding, structural defects and waterproofing in recently completed buildings.
The facts – Lacrosse
At about midnight on Monday 24 November 2014, a resident of apartment 805 returned home from work. Apartment 805 is a two-bedroom apartment on level 8 on the east side of the tower. The resident was one of six living in the apartment at the time. He went out to the balcony to check if his clothes were dry and to smoke. He left his cigarette butt in a plastic food container that served as an ashtray, sitting on the timber topped balcony table.
At 2.23am, the smoke detector in the hallway just outside the front door to apartment 805 activated and generated an automatic alarm to the Metropolitan Fire Brigade. When the first fire crew arrived on scene at 2.29am, a fire was travelling rapidly up the external wall cladding and spreading onto the balcony on each level. The fire had already climbed to level 14. Six minutes later the fire had reached the roof of the tower above level 21. All 400 residents were evacuated safely. There was extensive coverage of the cladding fire, the VCAT ruling and of a similar fire at the Neo200 apartments on the 4th February this year.
Legal action in the Lacrosse matter involved 211 applicants (the owners) and five key respondents. The first was LU Simon the builder, the second and third were the building surveyor and his employer the Gardner Group, the fourth was Elenberg Fraser architects and the fifth was the Thomas Nicholas, the fire engineer. His Honour, Judge Woodward, ordered that the damages payable to the owners by LU Simon be apportioned between the Gardner Group (33 per cent), Elenberg Fraser (25 per cent), Thomas Nichols (39 per cent) and LU Simon (3 per cent). His Honour based the reasoning for his decision on Part IVAA of the Victorian Wrongs Act, 1958.
The developer of the Lacrosse apartments went into liquidation in February 2017 and the business was wound up on the 24th of April 2018. No respondents from the developer were called at the hearings.
In the case of the Lacrosse judgement his Honour Judge Woodward awarded damages as follows:
Of the total of at least $12,765,812.94 in damages claimed by the Owners, $4,851,937.19 is agreed. The balance of at least $7,913,875.75 can be divided into three parts:
- costs of reinstatement of property damaged by the fire that are not agreed totalling $1,243,634.10;
- additional insurance premiums that are disputed totalling $701,270.16;
- compliance costs, including the future cost of replacing non-compliant cladding and associated costs totalling $5,968,971.49 that are subject to ongoing negotiations; and unquantified future costs relating to the recladding works, the status of which is unclear.
His Honour, went on to rule that of the costs of reinstatement that are not agreed totaling $1,243,634.10, a proportion of those costs totaling $194,414.01 are not proved to my satisfaction. I invite further submissions from the parties on the loss of rent claims totaling $854,194.16’ he said.
There appears to be no claim for, or recognition of other potential damages which may relate to the diminution of value of the apartments since the fire or in the future. There appears to be no claim for, or recognition of other potential consequences of the fire such a personal stress and the impact of these matters on owner finances or related losses. The Opal Towers residents have yet to negotiate this journey. The answers may differ in NSW.
The facts – Opal Tower
The Opal Tower is a 36-story high-rise residential building of 392 units, located in Sydney Olympic Park. On Christmas Eve residents reported a large “bang” sound, reportedly of internal origin, at level 10. Residents were evacuated for safety reasons, and many were subsequently allowed to return to the building following an independent engineering report commissioned by the NSW government
The engineer’s report identified a number of points where construction differed from the engineering design and or standards. At least two areas of the as-built structure in the opinion of the independent engineer did not meet all of the requirements of the Australian Standard, AS3600 for concrete structures and therefore did not meet the requirements of the National Construction Code (NCC) Volume 1. The Opal Tower was constructed by Icon constructors and the engineering design was carried out by WSP engineers under a similar Design and Construct contract to that used for the Lacrosse Apartments.
The independent engineers and others engaged by Icon and the Opal Towers owner’s corporation, in conjunction with WSP, have agreed in principle to a rectification plan, which was had not been independently certified by the time the report was published. The independent engineers have recommended that all designs and construction associated with the rectification be checked and certified as safe for building occupancy by qualified independent structural engineers. Icon have worked continuously on securing and remedying the project.
The Opal Tower developer, Ecove is undertaking another project at Olympic Park. The extent that the Sydney Olympic Park Authority may have been involved as a codeveloper with Ecove is yet to be confirmed. There appear to have been no formal legal proceedings initiated at this stage by any of the parties to the Opal Tower development, albeit all would be under the guidance of their lawyers and professional indemnity insurers. The Opal Tower residents are at the beginning of the journey for compensation for costs and damages that may have arisen as a result of the reported structural problems. They have already raised their concerns about the destructive impact these problems may have on the value of their properties.
The challenges for policymakers and regulators
What lies beneath the tip of the iceberg of the thousands of defective apartments is not fully visible. For many, simply being heard is next to impossible. The Owners Corporation Network reported on the extent of the defective apartment problems in NSW at the 2017 Senate Inquiry into Non-compliant Building Materials. This inquiry paid particular attention to the use of combustible cladding materials being used in the Australian construction industry. Industry and fire authority concerns pointing to the hazard of these claddings dates back to 2010. The escalation of concerns such as this in the regulatory framework would seem to be justified. Further investigation of why considerations to ease restrictions on the use of aluminium composite panels (ACPs) that followed may also be warranted.
A spokesman for one of the major suppliers of ACP’s has estimated that over 15,000,000 m2 of these materials have been installed on Australian buildings. Many of these uses are deemed to comply with the NCC, but clearly – in the case of Lacrosse and many others – they haven’t. Governments in NSW, Victoria and the ACT have developed registers of buildings suspected of being, or proven to be, non-compliant. Local municipal authorities must issue notices to comply to those buildings’ owners as soon as they become aware of these instances. The cost of compliance will be huge and be beyond the capacity of these owners.
In the case of Lacrosse, there are approximately 4,000 m2 of ACP to be replaced. Based on the awarded damages of $5,968,971.49 the replacement cost may be in the order of $1,489/m2. These costs will vary depending on the design solution to achieve a satisfactory replacement alternative and the complexities of access to many architecturally challenged buildings. The disposal costs of this material and the carbon footprint involved with both the discarded original material and its replacement seems unconscionable. Where will it go?
Replacing just one-third of the estimated ACPs used in Australia that require replacement may exceed $7.5 billion. How will less high-profile owners deal with this?
What is the moral and public policy solution if governments have known about these risks since 2010? And spare a thought for the first responders who have to deal with these buildings in an emergency. These issues are not canvassed in the Senate report or the recent Building Confidence report prepared for the Australian Building Ministers Forum. In this context, governments may need to step-up in the same way as the New Zealand and ACT governments did with leaky buildings and Mr Fluffy.
The Fifth Estate has discussed the challenges policy makers must address in the way buildings are procured and delivered in two recent articles. The first addressed the current weaknesses in the way construction industry clients procure buildings using both the Build Only (BO) and Design and Construction (D&C) methods. The second introduces the growing prevalence of what are described as ‘self-performing developers’ who shop their engineering and construction out to the lowest tender and hide behind the two per cent defects levy payable in NSW as a get-out-of-jail-free card.
Unfortunately, the owners of less visible and dramatic residential dwellings affected by these issues have virtually no voice in making their case for restitution.
But they vote.
And in the end, just as in the case of New Zealand’s Leaky Buildings or the ACT’s Mr Fluffy, a solution must be found. It is issues like these, and others identified in the recent FifthEstate articles that are the challenges for policy makers to address.
A far more wide-ranging construction industry inquiry is justified. This is why only a 10-year insurance warranty for residential apartments covering the structure, envelope, basement and waterproofing for new-builds from 2020 is viable.
David Chandler is a construction industry practitioner and an adjunct professor at Western Sydney University.
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