Australia’s construction industry will face further insolvency challenges over the near term, a leader in commercial credit reporting has warned.

In a statement, Master Builders Victoria CEO (Interim) Michaela Lihou expressed shock and anger at the company’s behaviour, which left hundreds of families without insurance cover despite them having paid a deposit on their home.

“As a registered builder Porter Davis was aware of their obligations to lodge those insurance documents, which their customers had paid for in good faith, with the VMIA (Victorian Managed Insurance Authority,” Lihou said.

“For them not to follow such a basic procedure and leave hundreds of trusting families in the lurch is absolutely reprehensible.”

Lihou’s comments came as the Victorian Government last week stepped in to assist around 560 of the new clients of collapsed builder Porter Davis who had faced the prospect of losing their entire deposit because the company had failed to take out Domestic Building Insurance on their behalf despite being legally obligated to do so.

Under Victorian legislation, builders are required to obtain domestic building insurance prior to taking a deposit in relation to the construction of a home.

The insurance covers the property owners from incomplete or defective work in cases where the builder or tradesperson who performs the work either dies, disappears or – as is the case with Porter Davis – becomes insolvent.

In Porter Davis’ case, however, the company had not taken out insurance for new builds until planning permits were obtained – something which could occur weeks or even months after customers had signed their contract.

As reported in The Sydney Morning Herald, Porter Davis customer Richard Williams had paid a 5 percent deposit of $40,000 as he signed a new home contract in February.

When he asked about insurance, Williams was assured by Porter Davis staff that he was in fact covered.

He was shown a certificate of currency for construction liability and was told that this covered him and his partner for domestic building insurance – something which turned out to be untrue.

Last week, the the Victorian Government announced that it would compensate those consumers who were left in this and similar situations.

Under the scheme, Porter Davis customers who are without domestic building insurance cover will now be treated as if they had the cover which the company had been obliged to take out on their behalf.

Refunds will be paid up to the legal maximum deposit payment under the Domestic Building Contracts Act of 5 percent.

The Department of Government services will work with the Victorian Managed Insurance Authority to verify and approve claims and to deliver compensation for deposits as soon as possible.

The Victoria Building Authority is also investigating Porter Davis for potential breaches of the law.

Lihou stressed that practices which have been observed by Porter Davis are not common throughout the industry.

“At a time when our members are facing many challenges and working hard to support their clients, their staff and their businesses, revelations like these about Porter Davis’s apparent disregard for their clients, unfairly taints our hard-working industry, which frankly deserves better,” she said.

“… Thankfully we know very well that this is not representative of the whole industry.”

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