Building Control – From Monopoly to Free Market to Hindsight 7

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Wednesday, July 20th, 2016
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Building control law reform and building regulatory developments post-1993 – what worked, what failed, what was learnt and what wasn’t learnt.

The National Model Building Act was drafted by of the Chief Parliamentary Counsel of NSW at the behest of the AUBRCC, the predecessor of the Australian Building Codes Board.

The NMBA became the law reform blue print or template for much of modern day building control in Australia in that it introduced:

  • Proportionate liability
  • 10-year liability capping
  • Compulsory insurance
  • Private certification

At the same time, NZ had introduced a performance based building code and had amended its own Building Act absent the above NMBA reform innovations. Australia used the NZ performance based code as a template for the generation of the performance based building code – the Building Code of Australia that came into being in the mid-1990s.

The conclusions that I proffered with regards to the NMBA legacies were as follows:

Both countries in the early-1990s embarked upon a deregulation drive. Australia focused more on the concept of deregulation with safeguards and had greater regard for utilitarian holistics. NZ, meanwhile, experienced a massive system failure – the leaky building syndrome (LBS), the impact of which still reverberates today.

NZ has paid a terrible price measured in terms of billions of dollars and sadly some lives lost due to leaky building suicide for failing to have sufficient regard to regulatory safeguards and holistics. The LBS has cost the country billions of dollars and culminated in the proclamation of legislation to establish a Weather Tight Homes Tribunal that is still is in existence and was purpose-crafted to adjudicate over leaky building homes disputes.

Both countries witnessed the demise of certain bureaucracies – both the Building Commission of Victoria and the NZBIA fell. Both bodies were born of early-1990s law reform initiatives, good intention and optimism (as is so often the case with reforming civil servants), both were charged with regulatory oversight, but they both in inglorious circumstances were disbanded and their jurisdiction wrenched back into mainstream governmental and overarching departmental control.

In NZ, private certification came and went very quickly, whereas in Australia (albeit in a variety of guises depending upon the jurisdiction) it has survived to date.

A number of stakeholders in both countries came to recognise that the reforms went too far and in some instances not far enough and these are some of the lessons that should be learnt are as follows:

Classic free market principles should not apply to building surveyors in terms of that which they charge as they are performing a critical statuary function. Experience has shown that the free market often ensures that he who charges the least gets the gig, hence the term fee cannibalisation. This “professional” predilection that is characteristic of some members of the certifying profession has culminated, according to the sceptics, in an economic approach being deployed to the time devoted to tasks such as building inspections.

The use of performance based building codes married with the building surveyor’s power to issue building permits that are assessed with reference to performance or objective based criteria rather than prescriptive criteria was an ill-conceived cocktail, fraught with downsides and could create an environment where cutting cost “incentivisation” ran the risk of anaesthetising the public safety imperative.

When one introduces a privatised option for building control, then one must have very robust safeguards in place to ensure that the certifier cannot compromise his primary fiduciary obligation – the protection of the public. One of the ways to do this is to ensure that certifiers are audited annually, on at least one occasion each year. This is precisely what occurs in the legal fraternity where lawyers hold client monies in trust.

When one deregulates one must ensure that the utilitarian dividend to the public is not compromised which requires one to embrace the law reform mantra of “deregulation with safeguards.” Yes, deregulate – and yes this will improve efficiencies and yes it will reduce the cost of construction. But only deregulate if the regime introduces robust probity mechanisms such as:

  • Mandatory annual auditing of key building regulatory service providers. In this regard, look to Japan for the best practice. Note that the Japanese in their Building Act have criminal sanctions for the most heinous of building related regulatory misdemeanours. Some would say that this is a bridge too far, over the top as it were, but not the Japanese who canonise the virtue of public protection.
  • Ensure that the insurance and liability apportionment “holistics” are on song. For best practice, look to the proportionate liability and compulsory insurance regime in Victoria. This coupling has endured and unlike private certification has generated no controversy. Do not score highly the residential warranty regime for builders in Australia, however, as this regime has attracted a great deal of ire on the part of consumer advocates.
  • For best practice in long tail liability, look to Victoria with its 10-year liability regime, but recognise that that concept is French in derivation.

In terms of law reform philosophy or “scientific method” as it were, I was at pains to make the point that a responsibly strategic and forward-thinking approach needed to be applied to law reform and I opined that when fashioning new building controls one needs to bring to bear a mindset to bear that is akin to that of the master chess player. One looks to the future, one thinks through the consequences of each proposed change/move as the legacy of same will be reminiscent of a game of chess where the wrong move will generate unintended consequences.

And for policy makers one asks this question: Am I the policy maker effecting a change that will one day “check mate” my constituents or am I effecting a change that will culminate in success?

Success in this case can be defined as utilitarian regulations that improve construction efficiencies with the attendant benefits of lower cost outcomes along with the paramount complements of an as built product that is kind to the consumer and the general public. The later objective after all is the raison d’être of enlightened and responsible building control.

When the World Bank invests in law reform or microeconomic reform initiatives in developing countries, it needs to be convinced that the reform manifesto, as it were, is very well thought through.  For there to be confidence in this aspiration, due diligence will establish that the reforms once enacted, will more or less guarantee the desired outcome so that there will be no unintended consequences as ill-conceived reform can actually be a regressive step both economically and socially and at worst can compromise the public interest.

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Discussions
7
  1. Kim lovegrove

    This synopsis of recommendations came from a paper that I presented at a World Bank event organised in collaboration with the Global Facility for Disaster Reduction and Recovery and the Doing Business Teams of the World Bank a fortnight ago in Washington DC. The World Bank does a phenomenal amount of humanitarian work in this paradigm.

  2. James O'Donnell

    Good article Kim. Your “game of chess” analogy is appropriate to the forward thinking approach that should be applied to building control policy for micro-economic reform proposals in not only developing countries but also countries that purport to embrace best practice. There can often be a chasm between best practice rhetoric or best practice evangelism and the “road tested” as built reality the New Zealand Leaky Building Syndrome maelstrom that has cost the country billions of dollars is very, very sobering. If reformers are considering a privatisation of building control they must consider the strengths and weaknesses of what other nations have implemented before any deregulation is undertaken. Deregulation should not come at a risk to its ultimate purpose, namely its fiduciary obligation to the protection of the public. It’s encouraging to hear that the World Bank is very proactive in the disaster recovery and the disaster resilience coverage in third world countries.

  3. Ian Bertram

    Hindsight is wonderful. Perhaps Kim, when you wrote the Building Act in 1993(?) you should have included a requirement for the building commission (as it was then) to carry out yearly audits. In 20 years of private practice I was not audited once.

  4. Barry B.

    Great breakdown of why gung ho deregulation is a menace to consumers.

  5. Brett Bates

    If you want to think strategically you need first ask the question are the people who are being given a licence to construct our various types of built environment assets adequately educated, trained and uniformly tested before the regulatory authority grants them an occupational licence to do so?
    The focus on 'checking' which is fundamentally what the so called certification or in old style parlance – building surveyor – role involves is really a QA conformance process. It is meant to find mistakes. If the 'builder' was as stringently regulated in terms of having to qualify themselves to be given a licence to practice as say a doctor or legal practitioner, there would likely be little need for someone else to check their work standard on every project they construct. In other words let's plan to eliminate mistakes being made in the first instance. At the moment, we are going backwards by trying to put the cart before the horse.

  6. Stephen Kip

    Hi Kim,

    Great article, you have hit the nail on the head. 'Deregulation' of technical requirements (i.e the performance-based BCA) was a significant national reform by the ABCB, which has achieved much success including reduced construction costs and innovative (and often safer) buildings. Unfortunately a reform of this magnitude also required tighter 're-regulation' of practitioners (a State/Territory issue), including guidelines, ethical standards, audits and substantial enforcement. That this did not happen says a lot about the federalised (and fractured) nature of building control across Australia and the lack of nationally consistent administrative provisions to support the BCA. hopefully we can rein this back in before its too late.

  7. Brian Thorrington

    I am a New Zealander and love my country. I do not love the maelstrom that is the Leaky Building Syndrome. Billions of dollars have been spent on this debacle that was inspired by building regulations that provided the fertilizer for a major system failure. If there is one way to turn lemon into lemonade it is to learn from the past and to ensure that the mistakes of the past are not visited upon those who occupy the future. So yes policy makers and law reformers must be very careful about importing that which is heralded as being best practice from far away lands without having a very high level of confidence in the fact that the public and the industry being better off. The "leaky" tarpaulin covered buildings that punctuate the Auckland city sky line are a constant reminder of the sadness that has been visited upon a great many of my fellow Kiwis.