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If residential building contracts for new homes, units, apartments and home additions are unfair, then the Domestic Building Contracts Act 1995 got it very wrong.

And because new home owners have to fight their builders - first at compulsory conciliation, and then following a less than desirable outcome, in VCAT - over workmanship issues (their basic rights), then the Domestic Building Contracts Act 1995 (DBC Act) needs to change.

The changes needed are so simple, it is hardly believable that they have not been incorporated long ago.

The first and most important thing needed is to define "defect" sufficiently via the implied warranties listed in Section 8 of the DBC Act, so that there can be no doubt as to what all the implied warranties associated with a domestic building contract are. This definition will need to embrace manufacturer minimum requirements, inferior substitutes to what was contracted, and time related issues. This is something the Act fails miserably to do.

Then the status of each defect will be clear. No more arguments.

The scope of works necessary to rectify each defect (as distinct from band-aiding each defect) will also be adequately catered for, because every portion of work carried out will need to be likely to reach a reasonable life expectancy.

We also need to change just one more thing, and with this one more alteration, we will virtually remove the need for home owners to visit VCAT at all, particularly over workmanship issues.

We just need to add a correct definition of specification to embrace workmanship clauses that include the intricate work of each trade - the work that tradespeople need to perform to comply with minimum standards and manufacturers’ minimum requirements. This will ensure everyone knows what has been short-changed or poorly done simply by reading the specification.

Specifications used to be in the realm of architects 30 years ago, but now for over 99 per cent of house projects, that is no longer the case.

Now builders are in control of specifications, and they were sick and tired of being pulled up by architects and owners over what they considered to be trivialities.

These specifications can include a variety of issues. Here are some examples:

  • the sub-floor vents in the brickwork are over 1,500 millimetres apart
  • there are quite a few timber off-cuts left under the timber floor
  • supports are missing under the lead flashings around the chimney
  • the brick joints are too fat in several locations
  • there is no soil over the rubble in the agricultural drain trench
  • the mesh for the front verandah concrete is too close to the formwork
  • the top and bottom edges of the front and back doors are not painted or primed

During the 1970s, 1980s and early 1990s, builders were made to supply three full copies of the standard project specifications (including the workmanship detailed small-print clauses), before municipal building surveyors would stamp the permit documents.

The "Painting" section in these specifications in 1977 ran to 67 lines (including headings). In 1985, it was 53 lines. By 2005, it was just 11. Now all you are told is that painters have to carry out their work in a tradesmanlike manner.

The now-missing detailed clauses in Standard Specifications were reduced from about 1982 onwards, because the writers were being pressured to whittle down the detail in the workmanship clauses. Was this done mainly to dumb down home owners, so that builders were no longer pestered?

When building surveyors were privatized and the revised standard building contract appeared in 1993, contracts defined specification as fully describing the materials to be used, without any requirement regarding workmanship. So workmanship clauses continued to dwindle until virtually no specific detailed workmanship clauses remained.

What the signatories to Standard Specifications didn’t realise was that the removal of the detailed clauses that defined difficult work would result in today’s commonplace scenario where inexperienced supervisors unknowingly accept what tradesmen do as ‘standard.’

Shoddy tradesmen are quite happy to short-change materials and skimp over detailed difficult sections of work (but keep it neat), because they have had their hourly rate whittled down by the large-scale builders in exchange for continuous work. The jobs may be completed a little faster, but at enormous cost.

Governments notice that prices are not escalating out of control due to fierce competition between large building firms. Privatized relevant building surveyors and privatized (certifier) building inspectors do their bit by not kicking up a fuss about the poor workmanship or the increased number of mistakes, so as not to slow the works. It’s in effect quasi-cronyism.

How else can you explain the fact that on well over 100 houses built between 1996 and 2006 - houses that I inspected soon after the issue of certificates of occupancy - those houses averaged over $ 80,000 worth of defects in them at today’s prices. More than a handful of those approved houses were lemons with well over $150,000 worth of defects. And all were approved by the supervisors, certifier building inspectors, and astoundingly by building consultants. Lemons, once a rarity in the 1980s, are fairly commonplace today.

Builders only like changes that free up their world. The two minor changes to the Domestic Building Contracts Act proposed here will do more than that. They will save builders billions of dollars each year in Victoria alone; they just don’t realise it.

And these changes will only require builders to change one thing. They will only need to improve their supervision to what it was 30 years ago. We need to get the message out there.

This one change by builders will virtually stop disputes over poor workmanship and inferior substitutes, saving Victorian builders most of what they spend fighting their home owner clients each year. These are savings in the order of an estimated $2.5 billion (having deducted the cost of improved supervision). This amount is just a little less than the amount paid by home owners fighting for what they perceive is their right to have their defect-riddled homes brought to a reasonable standard.

For the Victorian Building Industry alone, that’s a total savings of $5.5 billion dollars per year - money that could be put to good use elsewhere.

Recent compulsory conciliation reforms are simply going to put off even more home owners than did its predecessor, the BACV, causing more defect-riddled homes to be left in a decrepit state. The change requiring owners (not the builders) to employ relevant building surveyors seems very likely not to advantage home owners if the builders tell their clients that their price is conditional on getting their preferred building surveyors.

Without these minor changes, defects in new dwellings will be left to create considerable future damage to the economy - something governments have not given much thought to.

Governments will have seen a ‘band-aid’ industry spring up and marvel at all the extra work created in the building industry. But along with the enormous dispute costs, it may virtually double the price of housing, and we simply cannot afford that.

One could argue that these changes will give new home owners too much knowledge (which has denied them for decades) and that this will make life inordinately more difficult for builders.

But the experienced supervision will actually give owners more faith in their builders. And we shouldn’t forget that it is the duty of every builder to supervise to the extent necessary to ensure that defects are not built into their homes.

And think of the advantages: by increasing experienced supervision at critical stages, defects will not be covered over by subsequent layers, which compounds those defects (from cheap or free to redo at the time) into issues that are quite expensive tasks to rectify later.

If builder associations would get their collective heads around these two simple changes, it would become very clear that from then on, builders would be far better off, because disputes on workmanship would no longer be necessary.

Even for existing disputes, builders would still be better off rectifying their clients’ houses - as opposed to band-aiding them - than they would be paying the enormous fees charged by their negating experts and negating lawyers.

Talk about great for the economy.

And talk about an enormous benefit to the community with the virtual removal of disputes over poor workmanship and alternative solutions. There would also be much less wastage of materials, increasing the building industry’s overall sustainability.

Once this message has sunk in; why would anyone besides negating lawyers, negating building consultants, and band-aid specialists want it any other way?

These are two crucial reforms for new home owners and builders. It’s a win-win situation.

Let’s make it happen before thousands more home owners and builders get hurt.

 
  • A good analysis of the Victorian experience pretty much replicated in NSW. Surely a root and branch review has to have the professional credentials and qualifications of those being given a 'licence' to build as a starting point? I've banged on this topic for over a year but the truth is the levels of training required to obtain a building licence have been far more diluted and are far more consequential than your reference to the specification for painting works. After all, the legislation says that the BUILDER is responsible in the first instance. Dumb, unqualified non-professional persons are being issued with licences. What else can we expect with a system so corrupted by the free market ideology that encourages private training provider businesses to 'sell' as many quick building qualifications to their client as they possibly can?

    • I fully agree with you Brett, that the registration systems are so lax that many calamities will, and do, occur despite the best efforts at documenters and specification writers.

      But you didn't mention the definition of defect… which on its own can take care of quite a few of those calamity situations as I proved in the dreaded VCAT forum dozens of times.

      A robust insurance scheme similar to that of the HGFL days (pre-2002), where the insurer was the policeman and the scheme was First Resort will soon sort out the poor registration problems, just as proper definitions of defect and specification will rapidly bring builders to the realisation that supervision is of paramount importance in avoiding disputes… not negation.

  • Mark but if we have standards and specifications we will close the 5.5 Billion dollar year building dispute industry down. Won`t that put a lot of lawyers out of work?

    • Indeed it will Diarmuid,

      But instead of wasting the money of the home owners and builders, that money can (and will) be spent on other ventures. The negating lawyers and their so-called expert building consultants (a large part responsible for this exploitation of the ill-defined word defect), can move into useful areas of law and inspections and compete the rather high prices in these fields down. And wastage of materials will be far less as a result… keeping the price of housing down.

  • I agree Mark. An insurance scheme should cover the unexpected outcomes – that's the premise of insuring anything – including the construction of a building. When an insurer gets their teams of actuaries to come up with an algorithm to calculate risk versus premiums the resultant must be that the insurance company wins – every time. Thats business. The classic example with our absurdly stupid Home Warranty Insurance that have morphed into the Home Building Compensation Fund here in NSW was that a seemingly proactive response to strip builders of their licence if they failed to follow rectification orders issued at Tribunal (then CTTT now NCAT) that would render them legally as non-trading entities and satisfy requirements for warranty insurance to be accessed. Guess what the insurance companies did? They bailed out of the HOW insurance scheme altogether. Talk about a no confidence vote in the quality standards of licensed builders in NSW! If insurers wont insure you (or rather the work you do) as too big a risk there is a significant problem. NSW Minister in charge of our OFT Victor Dominello seems intent for his department to concentrate on big issues like making it harder for potential real estate agents to get a licence (who cares!) and maintaining occupational licensing requirements for our hairdressers. Meanwhile 'Rome' burns as our 'Nero' fiddles with the laxest builder licensing qualification standards in the country. No wonder the insurers ran away from the table.

  • Cant disagree with anything said here. The clear and concise definition / quantification of a contract which includes the specifications accompanied by a prepared Bill of Quantities for larger/ commercial projects would make everybody's responsibility clear. As correctly indicated that process is not new. In the commercial sector disputation is used in conjunction with convoluted and unfair contracts to withhold funds from industry small business. The disputation process has been taken over in QLD by the regulator and the same is being proposed in South Australia. The experience in QLD has been a disaster for those seeking payment for work done or compensation for defective work. Builders are advised to use insolvency to avoid defective work / payment responsibilities and litigation. The seriously flawed and unacceptable conditions that small business and consumers endure in the building and construction industry are provided by the lobbying of builder associations who simply do not speak for the majority of the industry.

    • The situation seems dire in most States… all with their separate (we know best) regimes to (it seems) keep it unfair (if necessary) for consumers… not realising that builders and tradesmen in turn are also severely affected by dispute practices.

      Then there is the seeking liquidation approach you mention which sounds almost criminal… but that is what the Corporations Act seems to permit.

  • Thanks Mark, this is so educational and eminently rational – a rarity in building. No doubt that is why the changes you refer to were never incorporated. Of course defects need to be defined, but I suspect that the 'builders' already know what are minimum standards! As you say, if defined it would be harder to walk away and blame the owner – or to bully and create a fight. This arrangement suits 'builders' and their buddy surveyors. They hold all the cards – and by this time have robbed all the owners' of their money! Re Specs as you highlight, with the builder in control, not putting in sub-floors and passing over fat mortar joints is par for the course – just see my 'building'. And again my painting – one coat and we paid extra to have three! As for the tradies, they are paid so little – often nothing – so one can see why their work is so poor, and so many unskilled from labour hire have no skills!
    You mentioned privatization of surveyors – this marked the beginning of the end. With so-called 'builders', most of whom don't 'build', surveyors certify work approved when not, often without a visit! All are unjustifiably making a mega fortune – it seems no incentive there to change. And sadly, it's owners who are the biggest losers – and the workers who so often are underpaid or not paid. As for ADR, this is great for those who make money, but it is owners paying once again, and then years later to try and 'rectify' – often 2, 3 or 4 'builders' later( if not broke sooner), the owners will be penniless and forced to sell or declare bankruptcy. Defective work creates much more 'building' – the more defective work the better for all in building and 'disputes'. Re supervision? Costly and a spoiler for all on the gravy train!

  • Mark, you make it simple and it certainly seems very simple. So why is no one doing anything? The first problem would seem to be having unfair contracts and how could this have become the law? Then defects are a problem when the definition should be clearly spelled out. Again how did this happen? I can believe the average of $80,000 of defects, and this means that many owners were much more seriously affected. The privatizing of surveyors is a big problem and may be the biggest problem. So as you say the poor owners who have forked out all the money then are in for a big fight, one they will not win when they have already parted with their money. You are right. It is or should be about the community but it seems not. Worst of all is all those people who are hurt and not their fault. Good on you Mark. So simple and so sensible. Why is no one listening?

    • Thanks Val… It does seem that no one wants to listen (including new home owners unfortunately)… and that is disturbing indeed. You may be right that privatisation of building surveyors and building inspectors is an enormous component of the problem… at least for those in dire situations regarding a multitude of breaches of regulations, inferior alternative solutions and the like.

      I wonder at the great loss of knowledge that local building inspectors and local building surveyors had as regards historically high wind areas and the past buildings, trees and dams prior to the development of broad areas of land for housing. But I think most of these problems can be dealt with by just the few changes I suggest. The best we can do it seems is to spread the word.

  • Thanks Mark for your article. I'm wondering if a slightly beefed up version of the Guide to Standards & Tolerances that could form part of the contract would suffice? Whilst we may look wistfully at the good ol' days when we had the State Bank Specifications, prescriptive specifications are only going to struggle with constantly evolving materials and techniques. And as for manufacturers' recommendations; who remembers when a certain manufacturer of a fibre cement board recommended "dishing" the breathable sarking on a stud wall? We then ran into the problem of the insulation wall batt pushing it back onto the back of the board effectively voiding the manufacturer's warranty. I think one part of the solution is to educate soon to be building owners of the quality/cost/time formula (you can have any 2, but not all 3). Moreover, by placing some of the onus of quality on the owner, say, through a homeworthy certificate scheme (triggered at the time of selling or leasing), then builders will be able to differentiate their product and effectively compete with the likes of an owner builder.

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