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We continually hear Australian Federal and State Governments stating how important it is to protect banks and protect private enterprise. Big business and the rich seem to have been extremely well protected for as long as I can remember as the gulf between rich and poor continually widens.

Recently small businesses were granted useful concessions for depreciating assets.

Yet despite these protections, many small businesses, and certainly sub-contractors, are not well protected in their contractual arrangements.

To achieve the protections thought necessary for business, governments have used hidden agendas including:

  1. The fewer consumer rights, the better
  2. The looser the rules, the better
  3. The fewer protection laws, the better
  4. The fewer official whistle blowers, the better
  5. The less auditing of business, the better

This is particularly true for the largest industry in the economy: the building industry.

But many small businesses are not being well looked after, because a substantial number of bigger building companies are holding back payment from their sub-contractors well past contracted time limits.

Based on what was revealed in the 2015 Senate Inquiry into Construction Industry Insolvency and recently by The Invoice Market, the amount held back for excessive times from sub-contractors at any given moment is at least $15.4 billion (close to $3 billion of which never gets paid). This is because more than 2,000 struggling building companies go into liquidation each year. That’s a way-too-high risk rate of nearly 20 per cent!

So why not simply require that all contracting businesses be audited more often or put money into trust funds to short-circuit most bankruptcies?

It would be so beneficial to so many businesses, not to mention consumers.

Governments have allowed the average excess in payment times to increase from 30 days to 50 days in a decade, and yet have not done anything to halt it -perhaps to be seen as not over-regulating enterprise?

After the 2003 Cole Royal Commission, state governments instituted the Security of Payment Acts to help smaller businesses combat this problem. Unfortunately, desperate sub-contractors are loath to employ these acts for fear of being black-listed and the large costs.

The result is that large building firms (quite often passing on the withholding of payment by their own clients) hold money back for unreasonable periods of time, just because they can. The higher up the chain you go, the easier it seems to be to break the rules.

In the residential building industry in 2014, about $3 billion was spent by new home owners in pursuing their builders, each attempting to make their builder rectify defects built into their homes.

I contend that at least an additional $3 billion was also spent by the aforementioned new home builders, in negating their ‘once valued’ home owner clients. I can only imagine that this was because these builders were (wrongly) advised by their solicitors that it would be a substantially more economical path to take with the motto ‘fight, and to hell with rectifying’ the defects they failed to stop being built into their homes.

Many such fights occur in VCAT (the forum for unfairnesses being played out to their bitter end) provided you get past the Victorian Government’s latest initiative: a compulsory first stop for disputes called conciliation. This step was introduced, it seems, solely to try to put off home owners going to VCAT at all.

What they are also creating is thousands of new homes with an array of defects waiting to fail prematurely and cost each of their owners thousands of dollars, courtesy of builders band-aiding instead of rectifying the defects.

The government’s motto to ‘expedite’ disputes (or simply make them go away for daring to attack businesses) works courtesy of just a few critical dumbing-down measures worked into the legislation, codes and standards.

Most VCAT results are also accompanied by ‘the deathly silence’ (gag orders) associated with any deal eventually accepted by home owners who didn’t win outright (well over 95 per cent of them in fact). And so the vast majority of outcomes are kept secret – even the favourable ‘wins’ because of wrong legal advice that it is more economical to bluff and fight.

And all of these disputes could have been simplified so much, if the residential building industry had not been dumbed down by just a few (I contend carefully considered) distortions:

  • inadequate standard building contract definitions of defect and specification
  • an incomplete definition of defective work in the Domestic Building Contracts Act
  • a series of Codes for the Inspection of Buildings (AS4349) that makes a total of six separate attempts at definitions of various grades of defect. Even all together, they do not give the slightest hint of what a defect actually is as regards a new under-warranty home.

The result is that hardly any building consultant or building supervisor or certifier building inspector seems to know, what a defect actually is, what the difference between band-aiding and rectification is, or what maintenance consists of. This is because they do not even realize that the re-doing of a short-cut the same way (after it had already failed in a short period of time) is actually a band-aid.

The whole concept of time (the requirement that each component of building work is built so that it is able to reach a reasonable life expectancy) has been totally ignored by Victorian Government legislation and in Building and Consumer Authority publications. All have publicly failed to adequately define the word ‘defect.’

The reason that larger building companies have ‘maintenance’ teams is that it’s cheaper to band-aid the symptom of the underlying defect (even several times), than it is to actually rectify the defect. It gives a dumbed-down public the impression that builders care, when quite the opposite is closer to the truth.

That is what I call dumbing down. Hardly anyone knows what a defect actually is, and yet that is what virtually every dispute in the residential building industry is about.

Rather than create a fair playing field where everyone has a clear idea of what a defect actually is, governments have deliberately dumbed us down in order to protect enterprise, and at such an enormous cost to the community.

If there was a correct definition of defect and builders simply rectified what they stuffed up instead of fighting their clients, builders would end up financially better off.

What’s more, this dumbing down is increased further by the aforementioned codes stating that a series of ludicrous disclaimers are reasonable for building consultants to adhere to in the name of safety and reasonable access. These disclaimers virtually preclude building consultants actually getting to the locations where so many defects have been built into the homes they are ‘inspecting’ and these undiscovered defects will cause great future detriment, even economic blight.

It is imperative that consultants (where it is reasonably possible), carefully get inside and around the bulk of the roof space, get on and walk around on the roof and get under timber floors where clearances of 400 millimetres (not 600 millimetres) exist, or the structure of the house cannot be adequately reported on.

Since the public whistle blowing by the Auditor General and the Ombudsman (during 2011-13), both of whom were sacked soon after exposing as a total farce domestic building warranty insurance (DBI) and builder registration, there has been no urgent pressure by their successors, despite the problems continuing unabated since their predecessors’ revelations. Expect less criticism of general failures in the industry from now on.

And so the dumbing-down process continues.

As regards the so-called consumer protection authorities Consumer Affairs, the BPB, the VBA (and the Building Commission before it), it might actually have been better (for building consumers as regards building disputes), if they had never existed.

Home owners have for years been seriously dumbed down, led astray by the advice given by the authorities, and sworn to silence about their results in VCAT.

Would-be home owners, when signing contracts for new homes, will not be informed as to most of the possible pitfalls associated with building their dream homes.

And those who end up with many defects in their new homes will not be told that to win a dispute they must avoid the authorities and first obtain the services of an expert building consultant with a full definition of defect.

And building consumers will not be told that most will fail in their attempts to have the defects in their homes properly repaired because their building consultant had an inadequate definition of defect and because of this was not expert.

It’s outrageous that our governments and building authorities have done this to the Australian public.

 
  • Another hard-hitting expose from Mark Whitby. Why is there such complacency in the industry?

  • Can fully agree on all aspects, Mark. Been to Vcat in behalf of many! Most Difficult!

  • One of the problems small business has with regards to an insolvency of a debtor is its position in the line of creditors. A bank or other entity can take charge of the assets of the insolvent company prior to the company becoming insolvent. The assets include the stock and the debtors ledger.

    This means that the small business is gazumped by an entity that has better knowledge of the financial affairs of the insolvent entity prior to its collapse than the unsecured creditor.

    A company that is heading towards insolvency will tend to delay payment to its unsecured creditors who may have no option but to continue supplying goods and services despite the risk of a collapse.

    It would be a good idea to legislate so as the debtors ledger and the stock cannot be used by a company as collateral to secure debt from a lender. This would mean that at least the debtors ledger and the stock would be available as assets to repay unsecured creditors in the event of a company collapse.

  • Mark, in building parlance, you’ve hit the nail on the head! No splitting hairs, or in this case wood. There is NO PROTECTION FOR CONSUMERS, this now the case for 30 years. As you correctly say, the ‘system’ is unashamedly propped up for big business! But you have to be around years, if not decades in order to learn the how and why of this big fat CON!
    Most shamefully, all our Governments, the pollies and their ‘advisors’, and the hundreds of thousands of bureaucrats pulling the strings KNOW this fact. All begging at the table of big business are indulged – with a lot more than crumbs falling from this table! These 'players' are also fully informed on the devastating outcomes for more than1 million Australians seriously impacted every year. They know they have created an almighty disaster on a scale never before seen in this country. But they could care less.
    You say that this is outrageous, but I would suggest that it is beyond outrageous and label it as extremely heinous.
    The myth of imaginary ‘consumer protection’ has been cleverly crafted as the façade to hide the reality. It is what the Donald would call ‘fake news’, a kind of mythical ‘fairy floss’ which once the floss has evaporated exposes the iniquitous fairy.
    The nonsense of the myth has been contrived to hide the propping up of the fake consumer protection – and significantly to conceal the massive risk from the prospective client group – effectively all our 24+ Million people! It was devised by the Government’s bureaucracies under direction from the consortium of Big Business, and it is delivered via an amalgamated, highly organized and strategically savvy Biz-Bureau team.
    As you point out Mark, the ‘dumbing down’ is an integral component of the ‘strategy’, ‘trumped up’ to provide exceptionally unfair advantage for big business to ‘win’ big time, and simultaneously to present the ‘con’ of consumer protection – herein the necessity to hide the hidden agenda!
    Of course no consumer rights exist in the real world and the ‘law of no liability’ – or the law of no consequences – makes nonsense of any supposed ‘rules’, laws, standards or rights.
    You highlight that the same applies to subcontractors. Yes they, just like consumers, are isolated, exposed and utterly defenceless. Through a lawless industry, both groups are forced into the ‘arena of disputes’ – this now a fully-fledged industry in its own right. It is a ‘beast’ which has to be forever fed. Like the Christians thrown to the lions 2000+ years ago, these ‘people’ will forced to fight the fiends – and as preordained, with no forewarning, no weapons and no means of escaping this 21st century beastly ‘game’, they will become the brutalized victims.
    The VCAT 'system' is at the heart of the beast – to detail the horror stories played out in this pretend legal forum would require a whole book. Suffice to say that it is the medium set up to damage big time, to hurt all the ordinary, hard-working Australians that are the backbone of this country. As a few honest lawyers will inform, VCAT was designed: "TO MAKE SURE OWNERS ALWAYS LOSE!"
    Each New Year, 1.5 million Australians (home owners, subcontractors and workers) will be thrown to the lions’ den. But this will remain a 'secret' – because as you say Mark 'whistle blowing' is prohibited – it is a truly criminal offence promising pitiless punishment. The ‘game’ of building to make mega riches for the few is now so dehumanized and so entrenched that the way it plays out is perceived as ‘normal’.
    All the beneficiaries on the gravy train thrill to the chase with the lust of the lions. It's an addiction of the twin drugs – pleasure and power. And once aboard no one wants to ever get off this train! After all in this post-truth world, one of amorality and ignoble corruption, ruthlessness has become routine. For the 'winners', they simply no longer care about anyone but themselves – as they take their 'selfies', they chant: "it's all about me, me and me".

  • The use of secured trusts to quarantine subcontractor payments has been recommended for years. We have got it back on the agenda in QLD and through Nick Xenophon with the SOP amendment to the recent ABCC Bill.
    The use of phoenix trading and pre-packaged liquidation as you indicated costs subcontractors $3billion/year and the tax payer $1 billion. The $15.4 you referenced does not get paid. On average between 7 and 10% of all subcontracts are wrongfully withheld using a "take it or leave it approach" or conjured up defects. Anne Paten could provide the significant cost to home builders. Coupled it makes Australia's largest shame. The industry is wracked with corruption starting inside our regulators. The stranglehold on the industry by peak industry groups must be broken..
    We cant justify a RC into one side of a corrupt industry , then provide legislation to suit one side – that is a complete misuse of political power. Trouble is those who know, can speak out to make a difference don't have the will or the courage. The best example of "a man of straw" is the new senator for Victoria and the best example of political donation was the ABCC Bill. Debilitating and an indictment on our democratic process. Until the debilitating influence exerted over the entire industry by peak industry groups is removed and their back door dealing is exposed the industry will stay the same. How ironic that the ABC Commissioner was a big loser in a recent federal court matter.

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