Unscrupulous operators in Victoria’s construction sector continue to undercut legitimate builders and erode consumer confidence, an industry leader has warned.

Nine years after legislation was introduced in 2016 to prevent owner-builder provisions from being exploited by unlicensed builders (see below), Housing Industry Association (HIA) Victorian Executive Director Keith Ryan has warned that concern about unscrupulous operators remains.

Speaking at HIA’s Industry Outlook Breakfast in Melbourne last week, Ryan warned that unscrupulous operators remained ‘a tale of precaution’.

During his presentation, Ryan acknowledged the impact of the 2016 reforms.

He presented a chart based on data provided from the Victorian Building Authority (VBA – now the Building and Plumbing Commission or BPC).

The chart showed that the share of building permits for residential builds that were issued for owner builder projects declined from between 15 and 20 percent of all permits issued in the years leading up to the reforms to close to five percent over recent years.

However, he said that anecdotal evidence suggests that unlicensed operators are still active.

In fact, Ryan suggests that some operators who previously used owner builder permits as a front for unlicensed building have shifted to other means of operating (illegally) such as licence lending (see below).

“About a decade ago, the government started listening to complaints from builders about owner-builders being fronts for unregistered building practitioners who were building shockingly constructed homes and taking market share off reputable builders who were doing the right thing, getting registered, having a licence, providing insurance to their customers and building to code,” Ryan said.

“The government listened and they did bring through some changes.

“And you’ll see there on that chart that there has been a pretty big drop in the percentage of building permits issued to owner builders.

“So at first glance, you probably think, okay, the government did a great job. They brought in some laws about nine years ago. Owner builders are no longer an issue. More precisely, the people behind them are no longer such an issue.

“But I’m a great believer in not just looking at stats. You also have to listen to your members, listen to the industry and figure out what’s really happening.

“We still get plenty of complaints from members about competing against unregistered builders. We still hear stories of builders who have been looking at doing a job and finding out that potentially jobs are being done by an owner builder with someone who they’ve seen around other sites managing the job for them.

“So that story doesn’t fully match up with what we’re hearing …

“…Yes, owner builder numbers are down, but I suspect that the fundamental problem which drove those before the new laws nine years ago is still there.”

(since tighter requirements were introduced in 2016, the number of owner builder permits being issued has fallen.)

Big reform underway

The warning comes as Victoria is undergoing a significant program of reform which is designed to improve building regulation and rebuild consumer trust in the state’s building industry.

Significant measures include:

• Creation of the new Building and Plumbing Commission (BPC) to bring together the functions of the Victorian Building Authority (VBA), Domestic Building Dispute Resolution Victoria (DBDRV) and the domestic building insurance arm of the Victorian Managed Insurance Authority (VMIA) into a single consolidated watchdog for all building regulation.
• New BPC powers to direct builders and developers to fix defective work for up to ten years after the issuing of an occupancy certificate.
• A new first-resort warranty insurance scheme to cover projects up to three-stories in height.
• A new developer bond for developers of apartment buildings which exceed three stories. This is an intermediate step whilst the government seeks to develop a 10-year insurance product for apartment buildings.

Previous concern about owner builder exploitation

As mentioned above, Ryan raised concerns in his address about unlicensed and/or unscrupulous operators.

In the past, there has been concern that these actors were able to operate by exploiting the owner-builder regime.

An owner-builder is someone who takes responsibility for new home construction or existing home renovation work that is performed on their own land. This is as opposed to relying on a registered builder to oversee the project on their behalf.

In order to be an owner-builder, property owners must obtain a certificate of consent from the Building and Plumbing Commission.

To do this, they need to complete an owner-builder eLearning assessment and undertake induction training as well as meeting other eligibility requirements.

The objective of the owner-builder regime is to provide a formal pathway through which property owners can act as their own builder should they wish to do so.

This provides those property owners with greater control over their project, greater flexibility and potential cost savings by avoiding the need to pay a builder’s margin.

In the past, however, there have been concerns about the owner-builder regime being exploited as a front to enable unlicensed builders to operate within the domestic building industry.

This concern exists as owner-builders can obtain building permits without requiring formal registration as a registered builder.

The concerns were heightened by the relatively large number of owner-builder permits that were being issued as referred to above.

Because of this, the Victorian Government tightened requirements for owner-builders in 2016.

These changes included:

• Reducing the frequency with which an individual owner-builder may be granted a building permit from once every three years to once every five years.
• Requiring owner-builders to live in their home once completed.
• Extending the compliance and enforcement powers of the VBA (now BPC) to cover owner-builder projects.
• Raising the threshold for the minimum value of building work for which an owner-builder requires a certificate of consent from $12,000 to $16,000.

The reforms were introduced along with other changes that created new offences for working without a building permit, enhanced the VBA’s powers to issue directions to fix non-compliant work and updated laws to clarify when a building surveyor could not act due to conflict of interest.

As mentioned above, the changes led to a reduction in the number of owner builder permits that are being issued.

This has led to a belief that many of those who were previously exploiting the owner builder regime to illegally run businesses as unlicensed builders are now having more difficulty in doing so.

Dodgy operators still active

Despite this, Ryan says that unscrupulous operators are still active.

Potential illegal and unethical practices which are being employed by these operators could include:

• Unlicensed building, where builders who are neither registered builders nor legitimate owner builders illegally perform domestic building work.
• Licence lending. This is an unethical practice whereby a registered builder allows someone else (typically unregistered) to use their credentials to carry out work – typically in exchange for a fee. This allows the unregistered person or company to obtain permits, insurance and contracts despite not themselves holding a valid builder registration.
• Fraudulent insurance documents. This occurs where builders produce falsified or non-genuine insurance documents in order to obtain building permits without having purchased the required domestic building insurance. This leaves consumers without the protection to which they are entitled under the Domestic Building Contracts Act.
• False/dodgy inspection reports. This is a practice whereby registered building inspectors issue reports without having conducted adequate inspections of the work in question. In some cases, this includes inspectors in question have not even physically been to the site.

Several high-profile cases have been highlighted by regulators and the media.

Last year, an intelligence-led investigation conducted by the VBA (now BPC) found that Aycon Construction & Building Services Pty Ltd had carried out domestic building work without the required insurance across multiple building sites.

It found more than 150 building permit applications were supported by a false certificate of domestic building insurance (DBI).

Essentially speaking, the company had not been purchasing the required policies – which are required under law in order to undertake domestic building work which is valued at greater than $16,000.

Rather, it had simply been showing pieces of paper to building surveyors and having permits issued.

The company and its nominee Seyit Ayranci were fined a total of $250,000.

In addition, Ayranci had his registration cancelled and has been disqualified from obtaining registration for the maximum three years.

That this was allowed to happen is not acceptable, Ryan said.

Granted, it is not unreasonable to expect that a building surveyor may be occasionally caught out by the odd fake insurance certificate.

However, it is not acceptable that the company was able to obtain permits for such a volume of homes without surveyors enquiring about how the relevant insurance was being obtained.

He says that the building surveyor was either extraordinarily naïve or – more likely – was ‘extremely flexible with customer service’.

Another area of concern is building inspectors.

Here, Ryan cites statements by the State Building Surveyor regarding the results of BPC reviews of building activity management systems data. The review concerned building permits and inspections which have been linked to them.

It found that some individual inspectors had supposedly conducted up to 60 inspections per day. This had been done using what Ryan mockingly described as their ‘extraordinary skill set’.

These inspections had supposedly been conducted across locations ranging from Mildura to the Mornington Peninsula and the Surf Coast – all in a single day.

Clearly, Ryan said, some inspectors are either simply doing drive-by inspections or are not visiting sites at all.

As mentioned above, Ryan also suspects that many unlicensed builders who were previously exploiting the owner builder regime may have turned to other illegal means of operation such as license lending.

Strong enforcement needed

To address these issues, Ryan says that ongoing enforcement efforts are needed.

Whilst the recent legislation changes may improve consumer confidence, Ryan stresses that these to be supported with strong and effective enforcement.

In particular, the BPC will need to be vigilant in searching out unregistered builders, licence lenders and people who borrow licenses.

These people will need to be held to account and forced out of the industry.

With regard to inspectors, Ryan says that building surveyors will also need to be vigilant.

Granted, he acknowledges a challenge in this area as individual inspectors typically perform work for multiple building surveyors.

Accordingly, it may not be immediately evident to an individual building surveyor that one of their inspectors is magically performing 60 or 120 inspections per day.

However, Ryan cautions that it is only a matter of time before the BPC cracks down on this area.

When this happens, surveyors who engage inspectors who are performing an unrealistic number of daily inspections may be hauled before the regulator, questioned and potentially sanctioned.

In response, Ryan says that surveyors should be not alarmed but should be nonetheless alert.

In cases where inspectors seem to be remarkably quick and overly customer friendly, surveyors may wish to consider whether a risk may be present.

Good builders want ‘ratbags’ out of the industry

In his address, Ryan says that good builders are sick and tired of unscrupulous operators.

“They (unscrupulous operators) are never going to be completely removed, but if their activities can be severely curtailed, that can only be a benefit to the builders who are doing the right thing, who are getting registered, providing insurance for their clients, going back and fixing things if they go wrong and being available.

“Why should they be forced to compete against those who choose to ignore – indeed go out of their way to ignore – the laws that are there to protect consumers and give everyone confidence?”

“At the end of the day, I know from talking to a lot of builders, our members, that they want their clients to be happy when the handover takes place and when they’re living or occupying their home.

“They don’t want to be having their great work put into disrepute by these ratbags who choose to break every law they can.”

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