Falling Confidence in Victoria Residential Construction 8

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Monday, May 25th, 2015
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Privatisation of building surveyors and building warranty insurance has not all been rosy. In fact, it may have quite a bearing on the current loss of public confidence in builders and the building process.

In Victoria, when building surveyors and building inspectors (as distinct from building consultants) were privatised in the early 1990s, the permit process sped up considerably. Builders went with a building surveyor of their choice and a mutual dependency developed. Truss designs (for instance) were deferred until well after commencement of house construction and this further streamlined the building process. It was a big plus for the industry, and building costs were reduced accordingly due to the time saved.

But this privatisation seems to have had no small part to play in some sizeable problems, not the least of which seems to have been the very dependency of some building surveyors (and their chosen building inspectors) on some of their builders and vice versa.

For each and every new home, the building surveyor (and any builder with sufficient local knowledge) has the power to override inadequate soil reports (for instance) and resultant structural designs for house slabs, so as to avoid the possibility of gross movements in those house slabs and resulting disastrous distortions of the building fabric.

I believe a large number of outer western Melbourne homes have been affected with slabs being out-of-level by as much as 150 millimetres. News of this eventually became public, and down went confidence.

I distinctly remember in the 1980s, on a number of occasions, local council building surveyors overriding soil reports to the dismay of all concerned, most of all the builders. Now it seems many are suffering because one or more parties involved in the permit process erred on the side of expediency to keep delays to a minimum and building costs down for the sake of the sacrosanct contract agreement price.

Melbourne and Sydney are large cities, and it is not uncommon for building surveyors or builders to be over 50 kilometres from the area. This means they are unfamiliar with local conditions such as high wind areas, soil types and appropriate drainage, for instance.

Recently, VCAT ordered a pull-down of a house with a slab floor way out of level, and in the wash-up it was noted that one of the most important Australian Standards – AS2870 – afforded too much leeway and was too lenient in its requirements for slabs being constructed on soil types approaching ‘E’ classification but loosely labelled ‘P’ classification in soil reports.

What I did not see in the report that I read, was that the building practitioners involved in the permit process totally ignored Appendix D of Code AS2870. Why not inform the public?

I have personally been involved in two cases where such ignoring occurred to the great detriment of the homeowners – and eventually the builders, after the VCAT disputes. The information was actually present in the code but was able to be bypassed by the soil report writers. The same also occurs in foundation expert evidence, in my experience.

Soon after the privatisation of building surveyors and building inspectors by the Victorian government began, there was also a spate of gross breaches of building contracts encountered in the residential building industry. The reasons are as yet unclear as to why there were so many gross breaches. Perhaps it was partly due to the industry being far too busy on too many occasions.

There were so many gross breaches that there is a very large government audit of (possibly all) Victorian building surveyors. We must wait and see if that will be sufficient to rid the industry of breaches of contract. Many such breaches bypassed building surveyors altogether, but there are bound to be some projects where breaches of duty did occur. I hope and feel certain that these cases are exceptions.

Gross breaches seemed to swamp the Building Practitioners Board to the extent that there were rarely cases of extremely poor workmanship (for instance) featured in the monthly reports of the then Building Commission publication Inform. Quite a few houses were so poorly constructed that most were fought over in VCAT, with enormous legal costs the result, not just for the owners, but the builders too.

Changes need to be made to avoid these disputes from continuing. I think a proper definition of defect (for instance) would go a long way to ridding the industry of much of the arguing over so many grey areas. If the parties on each side of a contract had to agree on what was and what was not a defect, then you could only argue about rectification costs. Maybe the current inadequate legislation (particularly portions involving definitions and certain wording in building contracts) could be tweaked to remove the inherent grey areas for the good of everyone in the industry.

In the short term, the lack of any authority over-seeing the general quality of workmanship in the residential building industry would have aided the minority of builders who failed abysmally to keep to standards. But I feel this was ultimately to the detriment of the industry as a whole, via a growing lack of confidence in builders as the stories of poor workmanship spread via word of mouth, the media and the internet.

What must the public be wondering when they get the news that $3 billion was spent in a single year in Victoria by home owners (and no doubt a similar unstated amount by builders defending their claims) after fighting in VCAT over claimed defective work?

Perhaps the quality of workmanship has fallen. Why else would public confidence in builders be so low? It seems a reasonable assumption. And if the quality has fallen, perhaps many people in the industry have been treating the word standard as being simply what tradespeople do, even with the obvious short-cutting involved and despite what we were all taught.

After all, if building supervisors accept the work, and another job beckons, then it must be OK. That thought process can happen in boom times, especially when the checks and balances are inadequate. Looming completion dates can turn into too much haste, and result in poorer standards.

Building Warranty Insurance was also privatised over the same period until the Housing Guarantee Fund ceased. However, in 2002, after the collapse of HIH (part of FAI Insurance), the Victorian Government decided to go along with the requirements of the remaining insurer(s) to the great detriment of the whole industry, certainly for builders and home owners.

Now that insurers are virtually removed from the situation, (until the home owners have pursued their builders to an agreed settlement or insolvency) what use are they apart from situations where the builder has walked away or become insolvent?

This situation is certainly not satisfactory to home owners. Nor is it satisfactory to builders as a whole, and yet the government will not revert back to the past role of insurer acting as ‘policeman’ which once seemed to hold in check legal costs which now seem almost out of control. As ‘policeman,’ insurers were able to control quality by making offending builders improve or leave the industry. Common law gags in VCAT also permit the minority of builders taken to VCAT to re-offend it seems. Perhaps the Victorian Building Authority could insist that the Building Practitioners Board audit builders who frequent VCAT as a priority for the good of all builders.

The organisation BCRA has been up in arms about unfairness in the industry for some time. I trust the Victorian government will see fit to make worthwhile changes to help restore fairness to building contracts and the VCAT process very soon. But the recent proposal for greater powers for authorities by the previous Victorian Government must never occur. We have sufficient controls already, but have simply lacked the correct application of those powers.

In just over 20 years, the removal of some of the valuable checks and balances of the pre-privatisation era seems to have had a major part to play in the lowering of the standard of work being constructed, and with it public confidence in the residential building industry has fallen considerably. It’s a pity all of this has progressed unabated for so long.

By removing the grey areas in building contracts and current legislation by some thoughtful tweaking, I say that we can not only raise standards, but can greatly reduce the need for building disputes; and this will be instrumental in the return of public confidence in builders and building processes to the level it once was.

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8
  1. Anne Paten

    Congratulations Mark! It is so refreshing to read your excellent appraisal of the domestic building industry, and in particular your very many good reasons for the community's lack of confidence and trust in the domestic building industry. As you commented, privatization of building surveyors and the junk insurance are most definitely two of the major problems. However, as you also noted, a lack of oversight by the Building Commission and VBA is without doubt the major contributing factor. Without a rigorous regulatory regime, what are termed 'building disputes' are a natural consequence. These, on top of the costs of building, are devastating for owners.

    VCAT's role has hindered rather helped consumers who have sought redress and hoped for a fair and just outcome. As you highlight, those who re-offend or those who are serially offenders are not punished. There are no public warnings about such practitioners and owners are left with no possibility of making informed choices about the decision, which for most people involves the biggest investment of their lives. There is a long way to go and it is heartening to see Mark adopting a positive and balanced contribution to this issue.

  2. beverley-jane

    Spot on! As prey to this hazardous industry & its 'regulators' (term used loosely), only amnesia may persuade me to throw away security & family's finances by building again! I continue to discourage anyone seeking to achieve security via building a home. After 8 years +, liquidating to escape $70 000+ in refunds & contract breaches, our 'builder' found guilty both criminally & by VBA, already deregistered, he received 2 yr suspension + hearing costs as disciplinary action:
    – The Building Practitioners Board found the practitioner guilty of three allegations in relation to the construction of a dwelling in –. The
    practitioner failed to comply with Regulation 1502(a) of the Building Regulations 2006 in that he failed to carry out his work in a competent manner and to a professional standard in that the building had approximately 140 identified defects and the first floor and ground floor were not constructed in accordance with the contract drawings.
    The practitioner also replaced a stairwell balustrade with a wall contrary to the contract drawings without first obtaining a variation signed by the owners as required by section 37(2) of the Domestic Building Contracts Act 1995.

    • Mark Whitby

      Hi beverley-jane,

      You sound as though you have had one of those 'gross breach projects' PLUS poor workmanship on top of that. That's tough indeed. I say keep fighting and stand up for your rights. Careful though…

      You probably already know that our Common Law system was set up to protect enterprise… and one of the tools used is the gag

      Gags are a large part of the VCAT process (via its act I do not doubt). You cannot divulge what was said in a mediation or a compulsory conference.

      It would be a huge fight to remove the gag overlay of our legal system, but I say keep trying!

  3. Malcolm Findlay

    Generally I agree with these comments, however you have not given any credit to the upgrade of the VBA Tolerances & Standards Guidelines.
    This document does give some clarity to "defects" and how they are measured and defined.
    There will always be some defects that are outside these quantitative guidelines that have to be dealt with as separate issues.

    • beverley - jane

      No amount of regulation, tolerance parameters, registration criteria or penalty provision is of any value unless it is enforced & shown to be enforced. In fact, absence of effective control, dangerously hoodwinks consumers into a false sense of security where they mistakenly credit registration /regulation with an element of trust and competence.
      Recalcitrant players in this industry along with too powerful 'member associations' who protect these incompetents with ongoing membership & legal assistance further damage the industry, dragging honourable & competent members along with them.
      Ably assisted / abetted by insurers who, for the sake of a dollar, provide ongoing insurance to builders with track records of incompetence. Track records not available to consumers.
      Further, when a so called professional practitioner can devastate the finances and stability of a family through incompetence & outright dishonesty & then legally avoid accountability time again via liquidation, it is sheer negligence of consumer protection.
      To ridiculously anticipate that a builder of many years will be motivated to undertake additional training before applying for re-registration is a fairytale.

    • Mark Whitby

      Hi Malcolm,

      I believe there are a large number of defects outside the guidelines. And that is one of the reasons why I am writing these articles.

      But I think it is time to reveal to all and sundry the enormity of the dumbing down of our industry, so that the building contract can have a degree of certainty about it that makes for a fairer playground for all players.

      By the way, I have personally been associated with alleged defect items denied in VCAT due to the guidelines and taken to the Supreme Court and over-turned. However I note that the revised guide still fails to inform the public of the results of those decisions.

      However I do agree that the new version is quite an improvement from the 2006 edition just the same. And it does give clarity on many defects.

  4. William Puls

    A most timely warning, following up on the pretty worrying revelations found in the book, Defect, also by Mark. More grease to your elbow, Mark!!

  5. Mick

    I have seen it all.

    The big boys (Industry Organisations) got what they wanted.

    Kennett privatised the permit / inspection system for them, and now we have what they wanted.

    Live with it, its NOT going to change.

    I am getting out of the industry and leaving it to implode on itself.

    No one cares anymore.

    Get the construction going, get the contract money owing, and let VCAT sort it out.

    Our building system.

    Goodbye and cheers.