Is The Era of Private Certification Nearly Over? 26

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Friday, July 3rd, 2015
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Over the last few months, I have addressed a number of interstate conferences and the banter is all about the imminent demise of private certification. If this is correct, how did it get to this?

A trip down memory lane will provide some of the answers. Private certification was established in the early 1990s. By the mid-90s, it was prevalent in all Australian jurisdictions albeit in different guises. The system allowed one to choose either a private certifier or a council building surveyor to issue building permits, carry out inspections and ultimately issue occupancy permits. In some jurisdictions like ACT, certifiers were tasked with the carrying out some of the approval functions but the occupancy permits were issued by government. There were further permutations; in some jurisdictions they were called building surveyors in others accredited certifiers.

Why was the private certification system introduced?

It came into play to speed up the building approval process. Back in the day, before the system opened up (and I’m showing my age here), building permit issue was the sole domain of local government. Builders and owners complained that it could take weeks, sometimes months to get a building permit from a council.

Why, I remember lodging a simple set of plans for a very minor renovation, so I trotted up to the council and noticed that between the hours of 10 am and 12 pm, or 2 pm and 4 pm, I could be graced with access to a building surveyor. It was a good lifestyle job for the civil servants but a tad inconvenient for the rate paying customer. Private certification revolutionised this and turnaround time plummeted as building surveyors competed with one another for building permit revenue.

When private certification was first introduced, the insurance products were fantastic. All building practitioners could get 10-year runoff cover. Based upon the French system, when a building practitioner retired, it triggered automatic runoff. This meant that the retiree was indemnified for 10 years post-retirement and consumers had the benefit of insurance protection for 10 years. It was awesome consumer protection. By the late 90s, however, the insurance industry said “enough.” They complained that the cost of underwriting the scheme was crippling and unsustainable. Fearing an underwriter exodus, the governments did away with mandatory requirement of runoff.

The risk landscape for certifiers began to change. Further, the early 90s Model Act based reforms had intended that all building practitioners were required to be registered across the board. This only occurred in some jurisdictions like NT and Victoria. Other jurisdictions like NSW chose not to insist upon the registration of all building practitioners; they opted for a regime where only residential builders and private certifiers were required by law to be registered and insured. So we had the emergence by the late 90s of profoundly divergent risk landscapes in the eight countries of Australia (i.e. the states and territories). Ominously, risk started to skew in the direction of the certifiers.

Then there was another thing that cut across the bow: in the mid-90s, the ABCB introduced a performance based building code. This allowed building surveyors to sanction alternative solutions – to choose innovative often computer modelling based design scenarios, designed to comply with the objectives of the BCA – in lieu of design proposals complying with the prescriptive or deemed to satisfy provisions of the BCA.

This was all well and good, but it was a huge game changer as for the first time in Australia, building surveyors could issue building permits based upon alternative solution design scenarios that did not comply with the prescriptive provisions of the BCA.

One bloke, one punter if you will, armed with a building surveying qualification could “green light” a development courtesy of an alternative solution that was not of the tried and true prescriptive regulation persuasion. Talk about a radical right-hand turn! Now one had a proliferation of alternative solutions being sanctioned in areas like fire compliance, where sprinklers would be deleted as other methods of fire retardant persuasion were preferred. Invariably, the alternative solutions involving the likes of the deletion of sprinklers were a cheaper option than sprinkler-containing solutions. The risk barometer was ratcheted up against private certifiers on account of the massive assumption on alternative solution base risk.

The Real Game Changer

At about the turn of the third millennium, the insurers chimed back in. Insurance lobbying posses descended upon government insisting that they don’t like to underwrite residential skyscrapers anymore, the risk is too high and we are losing money on multi-unit development claims. They intimated that they would have to “pull up stumps” unless they were freed from underwriting the mandatory legislative requirement for sky-rise multi-storey dwellings. The governments then brought in the “north of three-storey” exclusion. The upshot was that insurers no longer underwrote residential high rises for builders. But here’s the thing: private building surveyors still had to carry general professional indemnity cover for high rise residential monoliths.

So the rock star status of private certifiers as highly desirable insured defendants went through the roof overnight, particularly in jurisdictions like NSW where, unlike Victoria, certifiers had by default become the only professionals who were by law required to carry mandatory PI cover. For fear of belabouring the point, this made certifiers very, very attractive to plaintiffs. In Victoria, on the other hand, engineers, architects, draftspersons and quantity surveyors are all required to be insured. Needless to say, the risk was spread more evenly.

Not surprisingly, in garden variety lawsuits – multi-defendant legal proceedings, that is – building surveyors increasingly found themselves locked in as co-defendants.

If not as co-defendants, they were joined as third parties and this in recent times has become the bane of the building surveying sector. The insurers began to say “hullo, these guys are a bad risk, they are popping up as co-defendants everywhere” and the London-based underwriters looking from afar began to get a little churlish, bilious if you will, about this antipodean creature called a private certifier (or is it an accredited certifier?)

Premiums went up and more and more certifiers began complaining about the difficulty in getting insurance cover. More and more frequently, one heard of certifiers having to look far and wide for cover to avoid closing shop and going out of business.

The deleterious impact of all of this on the risk profile has continued to coincide with fee cannibalisation and the habit of too many builders or developers screwing certifiers down on price. So we have an unholy coalescence of hefty and increasing premiums and cutthroat fee competition. Anecdotally, there is even talk of the insurance industry pulling out of the market altogether. None of this is surprising.

All of this means that the profession is being poleaxed every which way and the risk profile of the private certification sector has become increasingly dire. Compounding the problem is an ageing demographic, for the green shoots of youth are not coming through. Whenever I address a building surveyor conference, 80 per cent of the audience members look like me: male, bald or gray or both. Not surprising, we are all well north of 50 and take my word, 50-something is not the new 40-something.

More and more certifiers are telling me that the writing is on the wall. Unless there are some profound changes, this relatively new profession may be in its twilight. This has led to the rumours that now abound about it all returning to local government. That may be well and good, depending on your point of view, but remember: in the post-GFC world there have been cutbacks to the funding of compliance departments. Latvia’s supermarket roof collapse that killed many people was in part because of the post-GFC austerity measures on account of the disbanding of the national building inspectorate. A return of the approval function to local government will not be a cure-all.

Furthermore, builders and aspiring home owners should be on notice that that which is taken for granted – swift permit delivery – may be coming to an end.  And for those who have for so many years screwed surveyors down on their fees, let’s see how the numbers will stack up when one is holding a development for an extra few months on account of permit delays in councils due to human resource constraints.

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26
  1. kim lovegrove.

    It is important for building surveyors to chime in and come up with suggestions on how the regime can be improved, recommendations as it were. Building surveyors are on the receiving end of too many speculative legal proceedings which is having a very deleterious effect on risk profile. But unless the profession in concerted fashion "ups the anti" on holistic and balanced reform ideas I very much doubt whether things will improve. So use this forum to come up with some ideas and to crank up the conversation.

  2. Paul Brush

    1994-2015 the landscape has certainly changed for Building Surveyors. Like you Kim I was around when this system was introduced for all the right reasons. However for all the best intentions and unforeseen factors as you highlighted the system is at best struggling with so many parties at loggerheads. There is no unified motivation to deal with issues but considerable self preservation which is understandle but of no benefit to the consumer.

  3. Bill Holliday

    Well, it's happening already. The certifier for the building site up the road went broke and now the local council has had to step in as the certifier.

  4. Paul Cott

    I think that a return to purely local goverment involvement in the area would be a retrograde step. An informative article though and one which provides much food for thought in a relevant area that potentially affects many.

  5. Brett Bates

    Whilst not a building surveyor/certifier I unfortunately fit that demographic as a builder. Good overall analysis and trip down memory lane. What Kim fails to describe is that the good old council only days precluded an avenue to sue them even when they made a tremendous stuff up. Pre BCA the old Ordinance 70 provisions were a prescriptive and interpretive nightmare and council surveyors had no skin in the game to work harder, faster or smarter although many could be persuaded to be more co-operative by a brown paper bag now and then. The root cause of the problems in building construction sector is not being addressed. It is the demolition of the TAFE system and the privatisation of VET where any person wishing to be a builder can now pretty much purchase the qualifications they once had to study hard for. If we had excellence in terms of only licensing builders that have the requisite knowledge and skills to perform works professionally then there would be less emphasis on third party compliance checks. By the way, the "north of three-storey'' exclusion referred to for HOW insurance is generally known as 'Harry's Law'. I'll leave that one for you all to work out.

  6. Ian Childs

    I know that my PI insurer requires that any certification that I rely upon from others is covered via Professional Risk or Contractors All Risk cover, so find it misleading that a PCA, who would have these same requirements, would not have this "risk spread" unless they were inept enough not to insist upon it.

  7. Stephen Kip

    Kim,

    Thanks for the great article. My thoughts are really clear, we did this to ourselves. Many of us have been discussing and trying to resolve the poor direction of Building Surveying for more than a decade and I have personally written to the Victorian Regulator and the national AIBS office for more than 12 years about the emerging problems. But some regulators around the country did not take control and did not provide strict procedures around separation of design and approval, or undertake sufficient auditing. When the private building surveyor became overtly part of the design team (including doing alternative solutions), we signed our own death certificate. It is exceptionally sad that such an innovative and promising concept has come to this, but I fear it is already too late.

  8. kim lovegrove

    Salient feedback, the conversation needs to get more traction, more momentum so please share the piece and your comments with colleagues. The article was designed to get the conversation going. Is it too late guys? or can the policy makers stem the tides of disquite? if so what do they need to do? Gather your thoughts and chime into this commentary stream to see whether it can be used as a resource for food for thought. Its always better to fix something than to throw it out as that, which replaces the 'throw out' is often a 'brave new world' which can harbour unintended consequences. So good Sirs and good ladies please give us some of your ideas, your pearls of wisdom as it were- constructive, creative and innovatice ideas with an emphasis on the holistic. The linked in BCA

  9. Jahan Trevena

    A Victoria-centric version of this article would have prudently mentioned the knee-jerk reaction to the VAGO reports in making criminals out of all private building surveyors. Heavens forbid that we are able to hold onto levies for up to one month, but no comparison or mention that all businesses hold GST in their bank accounts for 3 months.
    I'm not as pessimistic to say that the system is broken, only that it needed tweaking to being it back online, but apparently this view is naive according to my peers, who I admit, would know better.

  10. kim lovegrove

    Continued…… I was about to say …the linked in BCA group has over 4000 members it would be great if the members of that group could "pump up the volume" and inundate this commentary stream with aforesaid pearls. Great to hear from you Kippy and thanks for your feedback.

    • Stephen Kip

      Kim,
      Thanks for pushing for discussion on this, here are my thoughts on the start of a solution. We need primarily cultural change, not significant legislative reform. A profession that expects the regulator to control their behaviour is not really a profession. Across the nation we have at least 8 regulators (and several other quasi-regulators). Building Surveyors need a single, united and strong voice during these difficult times, but there isn't one. The Australian Institute of Building Surveyors has consistently refused to deal with the big issues and continues to be a collection of partisan industry practitioners across divided State borders.
      The two big issues we need to pursue are; separation of design and approval, and increased (and improved) inspections. These are consistently the matters that the community and the press criticise. Building Surveyors who want to be a consultant on the design team and who do not want to do more inspections, are misguided and probably in the wrong job. For example, one of the largest areas for domestic building defects or faults occurs in wet-areas and balconies, but we do not have a mandatory inspection requirement in most jurisdictions. This is clearly not acceptable to the community and whilst not fixing the skills problems raised by others, will have a significant impact, and will create more work and income for building surveyors. The AIBS does not have a consistent national view on either of these points that they can give to regulators. Surely the AIBS should be encouraging members (via a Practice Note or similar) to offer extra inspections to consumers, and should be lobbying governments to create stronger laws in this area. Independent audit and enforcement tools do work, look a speed cameras, we all complain about them, but they do have an impact. This is not the only solution though and if these increased inspections subsequently highlight the other ancillary issues such as skills shortages and poor product compliance then building surveyors would be hailed as the good guys, not part of the problem. When the crime rate goes up, we shouldn’t solely blame the police, but extra surveillance and enforcement is part of the solution. Building surveyors are primarily law-enforcers, not consultants and until we collectively understand that, we will continue to be criticised when industry standards do not meet public expectation.

  11. M Kalajzich

    The biggest problem was the non-separation between the planning controls and the building controls.
    Developers and owners were obtaining planning and building approval and then applying for section 96 variations which invariably meant changes to the original panning approval. These changes were never notified to adjoining owners, and in some cases affected traffic management.

  12. Anne Paten

    Private certification is useless, the 'long-established conflict of interest' recently VAGO-confirmed for the umpteenth time. For consumers, the problem isn't 'swift permits', but unattainable minimum quality, safe buildings.
    The 'surveyor is a God' reigns, 'approving' super defective 'new buildings' the norm – MEGA BILLIONS $$ from silenced consumers. As for risk, catastrophic detriment to hundreds of thousands of owners every year is testimony to who is perilously at risk – definitely not surveyors!
    "Awesome consumer protection" to zero protection by 2002! All we know is 'Last Resort' insurance was introduced to double the builders' incomes and fill insurers' coffers. It worked, the 'insurance risk' a con. Re surveyors' legal ramifications, few consumers can afford litigation, PI is nigh impossible to claim, let alone collect and all cowboys protected.
    Re Latvia, we need but look at Australia – buildings collapsing daily, 85% of new stratas defective in NSW , much the same % in Vic, and 300,000 defective domestic buildings in Vic annually. What doesn't stack up – appalling regulatory failure, no discipline or deterrence, lawyered up cowboys – consumers ignored!

  13. Maurice Hinton

    Interesting read and just about an identical situation in NZ except we are less fortunate in that our law is jointly and severally liable which means the last man standing carries the can and in most cases that is the Certifier or Council
    What is required is for all parties in the industry to be accountable/liable and for them all to carry insurance
    In NZ our Licence Building Practitioner regime is a joke as there is no insurance requirement for Licenced Practitioners and in order to get it off the ground anyone was accepted and licenced
    The whole system needs a review and some fine tuning as there is definitely a place for private BCAs and competition in this sector

  14. Vin O'Brien

    Interesting article Kim covers many of the key issues, paints the picture in its current dark patina, but what of the regulator, a consistent lack of focus and care has also been a major factor in the apparent pending demise of the private surveyor. The Commission and now the VBA have failed in key aspects of their duty, leaving the surveyor dangling on the edge of disaster.
    From the first day there were issues that needed either fixing or clarification but all incarnations of the regulator failed to address any, preferring to spend their time creating new problems.
    Also the growing black truth within the VAGO reports into the Victorian system that a surveyor is the new clerk of works has at no time been reproached by the VBA or its predecessor. Each report tightens this wrong assumption and gives it more validation, piling more responsibility on the surveyor and strengthening the insurers desire to walk away.
    Going back to Councils issuing all permits is not a viable option, most private surveyors would opt out rather than go back into Council, besides Council’s would not want it back.

  15. David Madeira

    Thanks Kim, Interesting read. I'm 34 so I hope to be still issuing permits for a very long time. I don't think it will ever go back to Council as the consumers wouldn't stand for it with this fast pace world we live in. Yes consumers want to be protected but they also want speed and going back to a red tape system will not be the way. So what is the reasonable balance? What are the Builders responsible for? What are Building Surveyors responsible for? How can an owner builder build without any insurance? What consumer protection is available for the purchaser from an owner builder? I'd be interested to see what would happen if we got rid of mandatory inspections and that every trades person on site was a registered practitioner and that the consumer actually knew what a Building Surveyor is or does? The solutions are there and the fees have to reflect for the work we do.

  16. JD

    "swift permit delivery – may be coming to an end." As a private certifier working for a Council I can tell you these comments are very misinformed.

    In this regard, the "swift" permit delivery is due to the Dept of Planning 2008 reforms which expanded Complying Development. This form of development allows for fast permits to be given without the red tape by Council or private certifiers. Removing private certifiers will not remove Complying Development. Council can still issue swift Complying Development permits. The average time for Council to approve a Complying Development application in NSW is 17 days opposed to 68 days for a Development Application.

    It is also worth noting private certifiers do not need to report on the number of dates it takes for a Complying Development application to be approved, so any "swift" private certifier approvals are based on opinions and not raw data.

    • John Royce

      Everyone we appear to have reached the bottom.
      The building permit system doesn't deliver,
      The insurance regime doesn't deliver,
      The alternative solutions don't deliver,
      Unhealthy relationships between RBS's and other practitioners abound,
      Enforcement e.g. rooming houses is an unworkable mess (too many fingers in the pie and dyslexic legislation)
      The regulator has failed
      The BPB is a failure
      Self certification is a farce
      There is little left to can – forgot
      Builders don't deliver what consumers pay for!
      I just can't understand why all the fuss?

      Would you send your child to a doctor that was incompetent or acted unprofessionally?
      Builders are so bad that no-one will ensure them at any level. So, why be forced to employ them?

      Think about that.

  17. David Kubler

    Following on from the Docklands fire and the complex liability issues relating to those insurance claims, I am expecting that the insurance market place may drive the industry at a far greater pace than legislative changes.

    If unit owners cannot obtain insurance cover or the premiums become prohibitive, developers will soon find their projects impossible to on-sell. I imagine developers, in-turn will quickly require of their builders and design team more prudent behavior/documentation and lower risk approaches to some aspects of the building's design.

    Similarly, and by the sound of Kym's original article, a building practitioner's PL/PI insurance is skyrocketing due to poor industry practice, an "auto-correction" should occur within the market place.

    There is a very strong anti-red-tape philosophy in development governance driven by both State and Federal Government (Productivity Commission) ethos. It must be demonstrated unequivocally that self-certification is an abject failure before this mantra would be wound back.

    I support alternative solutions and this is the only way to allow progressive and innovative building designs. Just need to remove the horrendous risks.

  18. Scott McGufficke

    Kim,
    The first step in problem resolution is problem recognition and in private certification we probably need to recognise that 'perceptions' are, unfortunately, reality. We need to address the perceptions and about who is responsible for what by introducing empirical evidence into the debate. Where are the current Australian studies and data to support the 'perceptions' of gross negligence by licensed builders, the loss of life and property damage caused by building failures, the improved productivity and consumer confidence in mandatory inspection regimes or the effect of state and local governments failure in applying competitive neutrality principles to the conduct of the 'business' of building surveying? Where are the facts and figures to drive the debate and upon which meaningful reform can be based? We need to 'prove' building surveyors and accredited certifiers are essential to the development and building industries rather than 'assume' carports will start collapsing if a pier hole is not inspected. We should be proving that buildings 'must' be inspected because the evidence provides a statistical correlation between building safety, lower costs and reduced complaints.

  19. Glenn Chambers

    I read with interest Kim's article and the numerous comments. I operate in the ACT which by comparison to most is a small jurisdiction with its own inherent problems with the government regulator, one being the lack of engagement and facilitation with all stake holders. To use an analogy problems are dealt with putting the ambulance at the bottom of the cliff instead of the fence at the top. However I believe the most common issue in the ACT is the same elsewhere, no clear understanding by construction professionals and the community of what the role of the private certifier is. Quite often the industry pays scant regard to the certifier and treats them like another of their consultants, by wanting them to sign similar contracts for appointment. Once it is clearly understood that a certifier is undertaking a community role, delegated to them by the government, as part of its consumer protection function, the better. I note comments by some that inspection of critical components of construction is not mandatory. So if government took back the role how would they fair any better. Inspection stages should be mandated to provide a level playing field necessary in a commercial setting.

  20. Charles Litho

    We who have worked under the Council Monopoly and the Private system, do not have any doubts that the present system is far better by a long way. The petty stupidity and corruption of the past can be avoided by choosing a professional private building surveyor. It does take more than passing an exam to be good at what one does in any field of work. There are private Building Surveyors who are Australias real heros, as they contribute to productivity, and, look after all parties in the application.
    I am under the impression in the past issuing Council permits was not a priority; keeping every body employed was the driving force as there were often not enough jobs going in the building industry.
    How many people remember the State Government putting a limit on how many days a Council can take to issue a permit and on the 28th day a letter requesting additional information would be send out for all applications, even the most the simplest application.
    Absolute power corrupts absolutely one way or another, give power to the open free market to improve productivity. Every area of Council work needs to be de-regulated and privatised.
    We must maintain the free and open system.

  21. Ross Thomson

    In Vic when the model act and privatised system was put to us it was to provide applicants with an alternative option to by pass under resourced council roadblocks, it was not to effect fundamental change to the way permit applications were checked or inspections conducted yet 20 years later the bar is being lifted to beyond what has ever been achievable from the statutory role. A fixed up version of our current system is absolutely worth retaining, it would be a travesty to leave the community with VCAT as the primary means of ensuring building compliance, the cost and legalistics are a hearbreak for owners as compared to the permit system where design and construction defects are routinely identified on a daily basis and either avoided or made good for virtually no cost and no fanfare. How do we fix it, start with legal liability, our practitioners who do not design or build and only go on site for limited time at certain construction stages cannot continue to be held jointly accountable for every defect found in a building. Also the Act, Regs and BCA must be amended and simplified, Aust Standards are best practice docs, too detailed for call up in BCA.

    • Ross Thomson

      Further to previous comments, re statutory immunity. If a BS has been found to approve a non compliant design it would be a matter for the relevant practitioner board but if a builder has not followed the permit docs and the defects are not identifiable through normal inspection processes then the BS/BI should not be involved in court proceedings other than as witness. Kim I can give you a list of Act And Reg amendments required as of now -given to AIBS at their 2013 Future Summit (incl a reg to require every council to provide a bldg. permit service). Re simplification of technical provisions, standards that are too detailed for Reg call up incl Timber framework, Slabs and footings, Glass in bldgs, Bushfire constn, Masonry structures – all standards should summarised with only the summary in the BCA. Bushfire standard could be a 2 page spreadsheet in the BCA with the only Standard ref being the attack level assessment process. Even current BCA provisions require simplification, eg, EE provisions way too complicated, refer ceiling insulation adjustments, rooflights, wall shading and external glazing (a ridiculously complicated verification method purporting to be DTS).

  22. kim lovegrove

    The commentary stream in this 24 comment response was fascinating, people really put their thinking hats on when they chimed in to the conversation. Stephen Kip's comments in themselves were worthy of a top sourceable article in their own right. Policy makers could well find some of the comments far more informative if not diagnostic than the article. Join in folks because the debate still rages, it hasn't gone away.

    • mark whitby

      Even more basic thinking than has been inspired by this article is that of specifications and those who specify materials… namely the manufacturers, the architects and/or builders… of for instance the Lacrosse disaster and the multitude of similar specified claddings awaiting similar fates.

      It is the human factors associated with the specifying at fault as much as the non-thinking decision-making of a few building surveyors who did not ask for the pertinent information lacking in the documentation… the same lack of documentation that would have saved these disasters from occurring.

      They are not privatised and will always be specifying no matter what system of building surveyors is presiding.

      What of these ignorant people still out there practicing???