I know we all shy away from change in the residential building industry, but what if such a change can greatly benefit both builders and home owners?

What if something can be tweaked to make builders shift their priorities and make supervision numero uno?

If they do make this their number one priority, defects will virtually cease to be built into nearly every new home as has happened for the last 20 years, sometimes with disastrous results. Obviously this care-based (experienced, supervisory) role is also needed at soil classification time.

Under the present regulatory controls, there is a huge cost to the general public and ultimately the economy, when we do not penalize builders who build really poor quality houses, particularly those who are repeat offenders.

For two decades now, the authorities should have ensured that severe penalties were handed out, but because of agendas aimed at protecting enterprise, they have not penalized the builders who supervise poorly – those who accept the poor workmanship being carried out by their tradesmen to the enormous detriment of home owners and themselves.

This problem is exacerbated by growing numbers of home owners selling-on after VCAT settlements, their decrepit homes dolled up for a quick sale without many (or any) of the serious or expensive-to-repair defects being rectified at all. This is because they are (on average) already out of pocket something to the tune of $50,000 (or even more) when settlement is reached, having fought to have their builders rectify their defect-riddled homes.

They are also out of pocket a further $50,000 or more when they buy/sell. And because of the commonplace gag orders which accompany VCAT mediation and compulsory conference settlements, I understand the vacating new home owners are actually not permitted to divulge anything relating to the settlement with their builder.

It may also be difficult to claim newly discovered defects because of complex precedents, particularly as the house was sold ‘as was’ to the new home owner. In these cases, it was “their bad luck” that they didn’t obtain a building consultant report on the defects in the house prior to purchasing it.

But even hiring a consultant can be fraught with peril because most building consultants have too many disclaimers which preclude them from looking at more than 50 per cent of the house, and most don’t even have half a definition of defect.

Based on 500 new house inspections I have conducted on houses built since 1996, I can confidently say that in Victoria at least, there could be something like five cent of the total houses built in that time period which you would call lemons. Many of the remainder are defect-riddled band-aided homes which will regularly require considerable expenditure to maintain because proper rectifications were never carried out, courtesy of the builders who only agreed to ‘fix’ those defects that they could do cheaply.

So the likelihood of buying a relatively maintenance-free home (as you could in the 1970s and 1980s) is no longer the case because of the extremely poor supervision by the builders.

Poor workmanship can easily be avoided by adequate supervision, and a lack of adequate supervision is a failure in the duty of the builder to perform perhaps the most important duty – so it is negligence.

When builders tell their tradesmen what they are going to get paid, short-cutting often occurs as a pay-back because the tradesmen know that as long as they keep it neat and finished on time, they will almost certainly get away with it. They know their supervisor is too busy, and is likely inexperienced. So if the owners don’t realise either, why waste the time doing a thorough job for a mere pittance?

After 20 years of this scenario, short-cutting becomes the norm and poor workmanship is considered acceptable by an industry which seems not to care at all.

So let’s delve into what negligence is all about in order to discover why the writers of the Building Act 1993 and the Domestic Building Contracts Act 1995 thought to absolve builders of the need for professional indemnity insurance and permitted a lesser form of insurance – Building Warranty Insurance (BWI). BWI actually gave consumers some sort of protection until the “last resort” changes in 2002. Since then it has proved to be absolutely useless to most new home owners, and subsequent Victorian Governments have not switched back to the previous scheme.

Basically negligence is a failure of a person to carry out his/her duties. For a builder in the residential building industry those duties include:

  • ordering suitable good quality new materials and protecting them from damage
  • ensuring work is workmanlike and complies with permit documents
  • scheduling the works so as to be completed by an agreed date
  • supervising the work to ensure that defects are not incorporated and that workmanship is of a good quality
  • ensuring the site is safe for the workers and that insurances are in place

Builders invariably have adequate cover when it comes to safety issues courtesy of their all risks insurance. But as regards negligence issues, there seems to be virtually nothing.

The possibility of negligence is why registered building practitioners have professional indemnity insurance (PI) – to cover them (and their clients) for negligence as regards the expertise they have been hired to provide.

But builders have domestic building insurance (DBI, formerly known as BWI), which hasn’t worked in 14 years.

When it comes to the warranties listed in the building contract, they seem to be able, in the vast majority of cases, to wriggle free of their obligation to comply with those promised warranties, courtesy of the existing virtually worthless DBI.

When the government-run Housing Guarantee Fund Limited (HGFL) was insurer, the insurer had the power to make the offending builder toe the line. When repeat offenders came to light, I believe they were refused insurance for a period. But that was a long time ago, and the HGFL is gone.

Since July 2002, DBI has greatly lessened the risk for insurers by dint of their not being required to be involved in disputes until the home owners have pursued every avenue possible and the builder had either died, fled the country or gone bankrupt.

But the other side of the coin is that repeat-offender builders are now not known to the current insurer, courtesy of common law permitted gag orders used in VCAT compulsory conference/mediation forums forcing home owners to keep quiet about their stories if they wish to reach settlement.

Insidious gag orders were put there to protect business, and there will be great resistance to changing this.

So as regards the fairly useless current warranty insurance (DBI), let’s just keep the useful bits – the walk-away builder and bankrupt-during-construction builder options, but at vastly reduced rates.

Let’s also require that builders obtain PI as is required for other registered building practitioners.

With PI for builders, there will be (at long last) heavy insurer scrutiny as to their credentials and their financial situation. Like any insurance, one failure and it’s up a price level. Three failures, and bye-bye insurance.

This should greatly improve the systems governing registration of builders – another improvement we have been desperately in need of for decades.

So why won’t the government institute this fair reform or revert to the system that prevailed in 1996, where the insurer acted as policeman (first resort)? There has to be something we are not being told, such as hidden pressures.

The industry is assured of continued growth because of successive federal governments insisting on maintaining sufficient immigration to ensure that the GDP is around four per cent as thought necessary by the great economist Maynard Keynes. So there is really no need for power broker fear tactics behind the scenes.

In 2013, the Victorian Ombudsman stated that builder warranty insurers paid out less than one per cent of the total premiums paid.

So to the Victorian government: please change DBI back to what it was in 1996 or institute PI reforms so new dwelling owners are no longer hung out to dry.

And at the same time, why not do what you ‘forgot’ to do in the recent reform and fully define defect and specification? It’s time to be fair to consumers!

  • Mark, the caravan is moving on. Governments have proved impotent in regulating and ensuring compliance in the construction industry. Governments are the captives of powerful industry interests who have extraordinary influence especially at election time. Consumers cannot muster that influence. The rest is wishful thinking. Governments are failing the public interest on so many fronts that they are now so caught in the headlights that they do not know which way to jump.
    But they will need to sort this as the public has had enough.
    I agree with your take on the embedded defects in the Victorian housing industry – this accords with my own recorded observations of the defects that were built in and certified in Victorian BER school buildings. Again too many conflicting interests to influence change. The Warranty Insurance Schemes are a sham. Governments have created the monster that now directs them. The industry associations clip the coupon for the sale of warranty policies and have got rich along the way.
    The industry has effectively dumbed down the standards to what is now termed 'minimum' and the plethora of new construction methods now tests 'deemed to comply' alternates with those minimums. Its all part of sustaining a shakey future for as many builders as possible who get away with a 'ute and a mobile phone'. Not all but enough to effect the industry's brand. I see sufficient disruptions on the near horizon that will spoil the status quo. Contractors underestimate the power of customers in a modern economy. They now can look for new ways to go around the the failed institutions that have pained them for so long. Just ask the taxi industry, the banks and the insurance companies. So just sit back and watch this space.

    • Spot on comments Mr Chandler. Cant wait to see the UBER style solution please make it happen quickly before there are none of left in the industry!
      Government, So called trade groups, legal fraternity & insurance industry should be just shot into space & we all should hang our heads that we allow them to get this out of control. Bring me the head of the clown who gave us self certification & compliance. Bla………

    • Very well said David.

      I think the caravan might have a puncture or two at present, but wouldn't it be good if those who wrote the current law for DBI were removed so that we can get a fresh start. I suppose the government does not want to return to what we once had (and insurance that worked to rid the industry of rogue builders), for fear of looking non-progressive. I think consumers are building towards a mini revolt… can't come too soon in my opinion..

  • There are many ways to overcome problems. Often the right way is the easier & cheapest way.
    I know that if I want less criminal activity in my community the easy and the right thing to do is make sure the young have work and get paid enough to house and feed themselves. Hungry people will steal eventually.
    If we want better outcomes in the building industry we need to train the very first people who arrive on the site, by at least creating an effective apprenticeship system. Building a house on foundations constructed by the most uneducated and unskilled people and then tell me you are surprised by the quality, I will say you deserve all you get.
    In no time we increased building activity without first increasing training of people.
    Considering the situation in training we are doing extremely well; unless you are one of the people in the western suburbs on very reactive soil and your shower water disappears somewhere under your concrete floor but not in the drains and your house is collapsing around you.
    Australia has made great progress by creating cultural changes. In many ways as a society we are very progressive; we need to do more.
    In the past money was spent by Government bodies like the Railways, the Gas & Fuel, Melbourne Board of Works and Hospitals to train people. Private building companies who wanted skilled labour trained their own. The nice young apprentice from a good family with manners and a willingness to learn became an assistant to the estimator and then was promoted to a Supervisor and further.
    As a community we need to show respect to the people with skills in every area to attract the young and ethical people. The building industry should not be the second last place before joining the foreign legion or anywhere else they need stupid cannon fodder.
    When was the last time we saw Apprentices been awarded metals for high skill levels in the media. Buildings are completed without a celebration or even a thank you by the community in any way to the people involved.
    I have photograph on my desk of the Japanese Emperor in 1966 placing a Gold medallion around the neck of a skilled carpenter. The Emperor was a God that a mortal could not even be allowed to look on to his face. The Carpenter on his knees and head bowed with the Emperor a little higher bowing to him and placing the gold chain and medallion around his neck; with words “you are a treasure of the Nation”.
    We need to learn from our past success in many fields in Australia. Our real heroes are not people who roll rubber balls along the ground or splash water quickly.

  • Mark, a very good article, and David well said as you are both on the money.

    If I may I believe I can contribute some facts supporting your positions. The Last Resort BWI that came into being on 1st July 2002 was concocted and introduced by the Housing Industry Association and Royal Sun Alliance who later became Vero and it was supported by Minister Hockey Federally, and the Victorian and NSW State Governments and these facts are confirmed in their own words during their press conference in Melbourne on the 29th September 2003 of which I have the transcript and happy to share to with you.

    Since the introduction of the BWI in 2002 there isn't an insurer that will provide a PI policy product to a builder!

  • Mark I agree 100%, why is it other industries have to take out PI but builders just get away with poor work and the consumer suffers on one of their greatest and what should be the happiest times of their lives. I recommend people should look for that solid established home and do reno's. At least you know if you have got good bones if it's still standing and no significant movement. Someone is being paid off to ignore this point and no guessing who it is!!

  • I think the medicine will be worst than the disease , All of our regulated standard are the bottom end of the ladder & the larger part of the public want cheap cheap cheap . You get what you pay for . As a 69 yr old builder who use to build a house with a wheelbarrow full of tools , watch today's builder build brick veneer crap that is flat out lasting the warranty time & needs a truck load of tools & a large group of PI Professionals that cost heaps , & run a mile if something go wrong . There is no money left to buy long lasting building products . It is our standards & regulations that stink so stop flogging the builder . lift the standards & the good builder will come & the home owner will be happy . So be careful of what medicine you prescribe .

    • I thank you for your opinion David, but I think you have the wrong end of the stick somewhat. I agree with you that you get what you pay for bit. You might be interested to know that what I am proposing will give the old style builders a better chance to compete once more… or at least experienced builders could be used for the most important job in the building project… the supervision. I am actually having a go at the lack of quality supervision… particularly by large building companies who use under payed and overworked inexperienced personnel to carry out this vital job. The reason I think that there is no money left for the smaller builder is the fact that suppliers cut costs according to volume. That is a big problem. And you will have also noted that two options were given as to insurance I hope.

Lovegrove Solicitors – 300 x 250 (expires Dec 31 2017)