When you’ve got builders bidding for jobs on no margin and making up profit by ‘value engineering’ important design elements, claiming variations and screwing down on subcontractor and material costs, you are going to have challenges in building quality.
This, according to leading construction lawyer Bronwyn Weir, is one of many causes which lie behind Australia’s current building industry problems.
Speaking at the Australasian Fire and Emergency Services Authorities Council summit held in Melbourne during late August, Weir – who together with Professor Peter Shergold co-wrote the Building Confidence report prepared for the Building Ministers Forum in 2018, outlined several problems which are contributing to the current building mess.
These are as follows:
1) Owners Corporation Issues
Whilst this may be an unusual issue to start with, Weir talks of challenges in mobilising owners where rectification is required as growing numbers of people move into high-rise,
With many buildings in Melbourne’s Docklands precinct, Weir says more than half of the owners are foreign residents who live outside the country. Among those who reside in their apartments, financial positions and capacity to pay for rectification differs, as does understanding of defects and the need to rectify buildings.
Because of this, obtaining agreement for rectification works where defects occur can be difficult.
In Victoria, Weir says the government simply found it easier to pay for the works themselves.
2) Lack of Maintenance Regulation and Enforcement
In the Neo 2000 building where residents were forced to evacuate earlier this year after fire raced up the tower, apartment owners prior to the incident had paid around $30,000 per year to numerous contractors who were responsible to service essential safety measures.
However, in a recent presentation before the Australian Institute of Building Surveyors, Melbourne Fire Brigade Commander Mark Carter described a myriad of issues including defective fire alarms, a lack of fire rated doors and a flat battery inside the building’s crucial fire indicator panel.
Examples such as that, Weir says, underscore concerns about a lack of enforcement regarding post- construction maintenance. Whilst many states have regulations around this, Weir says who is performing the maintenance and what is being done is often not clear.
3) Phoenixing and Insolvency
A major problem, Weir says, involves phoenixing and insolvency.
With many multi-residential buildings, she talks of a model of development which is based around special purpose vehicles which are voluntarily wound up after the development in order to avoid any future liability.
This raises questions about who will pay for defects and who will pay amounts owning in the event of insolvency.
4) Lack of Design Detail, Unrealistic Margins and Unfair Payment Practices
Next, Weir describes problems around three inter-related areas including a lack of upfront design detail when contracting, unrealistic margins and unfair payment practices.
As is well-known, contracting margins in building are tight. In some cases, Weir has worked with large contractors in Queensland who bid for jobs with zero margin on their initial price.
Where this happens, builders seek to claw back margins and make money either through variations and back charges or by screwing down on prices.
The latter can occur either through value engineering or through pressure on subcontractors to work faster and reduce prices.
Value engineering is particularly common in ‘design and construct’ contracts where only a small proportion of the design is determined prior to the contract being put out for tender. This creates opportunities for builders to ‘value engineer’ aspects of the design in order to reduce the cost of program delivery and can lead to design decisions being driven primarily by cost rather than quality and safety.
Aforementioned pressure on subcontractors, meanwhile, creates the groundwork for ‘shortcuts’ and compromised workmanship.
5) Approval System and Documentation Deficiencies
Next, Weir talks about inadequacies in the approval systems which are seeing poor quality buildings being approved without adequate documentation.
This leads to design detail being left for builders to make up on the go and creates further opportunities for the value engineering and compromised design.
6) Design changes not being approved
Too often, Weir says design changes are made without being approved.
This creates opportunities for materials to be substituted without oversight.
7) Limited on-site Inspections
Across most states, Weir describes a lack of transparency around who is performing on-site inspections, what inspections are occurring and how they are occurring.
In some states, no inspections are required on high-rise buildings during construction at all.
Rather than inspecting, Weir describes paper flows of declarations which parties have signed without any guarantees about adequate staff supervision or compliance.
All this, combined with aforementioned documentation deficiencies, creates situations whereby what is handed over does not match what was intended to be approved.
8) Lack of building Product Supply Chain Transparency
Many parts of the building product supply chain, Weir says, are lacking in transparency.
Whilst suppliers might claim that their product complies with an international standard, whether or not this is actually the case is often difficult to verify.
9) Lack of oversight regarding product testing
Further to the above, Weir says some products are being marketed as complying for something for which they have not in fact been tested or may not have been adequately tested.
Rarely, Weir says, does anyone ask to see the tests. When test results are sighted, people do not read the fine print on conditions of use.
10) Manufacturers role in Australian standard development
Whilst the process of Australian standard development is robust, Weir says there can be issues as the content of these standards is driven by technical committees on which representatives of manufacturers and industry sit.
This means committees can be subject to vested interests who resist change when standards are questioned.
11) Shoddy Installation
However effective a product may be or otherwise, Weir says its performance is influenced by whether or not it has been correctly installed.
On many occasions, she says compliance is jeopardised by incorrect installation done by poorly trained installers.
12) Possibly compromised role of government
Finally, Weir says the role of government is complicated.
Whilst some states have separate bodies to regulate construction such as the Queensland Building and Construction Commission and the Victorian Building Authority, she says regulatory bodies in other states are intertwined with departments in various ways which are not always clear or transparent.
What’s more, she points out that governments have conflicting incentives.
First, consider government’s own finances. For state and local governments, every new set of apartments which are built and sold is more stamp duty for state governments and new sets of council rates which will come in each year. Federally, the income tax generated from the 346,628 businesses and companies which operate throughout the construction sector (ABS data as of June 2018) in Australia and the more than 1 million people who work in the sector as contractors or employees is massive.
Add to this the impact of construction within the broader economy and it becomes clear that governments at various levels have incentives to maintain a strong economic performance for the sector.
Whilst policy makers generally do want to protect safety, some may fear that excessive action on regulation will place these economic/financial benefits in jeopardy.
This, Weir says ‘does, in my view, cloud the decisions of the cabinet table in terms of how much regulation and restriction that we want to put on that economic benefit.’
Culture Change Needed
To address all this, Weir says change is needed both in regulatory practice and industry culture.
On the former issue, Weir says regulation must be better aligned with modern industry practices and must be proactively enforced.
As well, all players must lift their game and act according to the public interest. Industry groups, for example, need to promote better practices and culture among their own members.
Australia’s building industry has many challenges.
To address these, all players need to lift their game.