The Victorian Auditor General’s message could not be clearer: the building industry is in severe and critical crisis.

The Victoria’s Consumer Protection Framework for Building Construction investigation found that Builders Warranty is too expensive, and it’s ineffective as well. This supports the “CHOICE” position of 2008, when they stated Builders Warranty Insurance (BWI) was a set of junk policies making a mockery of consumer protection.

In this, the 54th investigation/review of the controversial Builders Warranty Insurance (BWI), the Auditor General found the framework was ineffective, too expensive, widely misunderstood, overly complex, and did not deliver in the area of registration, compliance and consumer protection.

Builders and consumers have known for the past 13 years that their system was badly broken, but the builders' cries have continually fallen on deaf ears.

Trade Associations are supposed to be the builders’ voice to governments in terms of policy, regulation, compliance, and they should also put forward views for the betterment of the overall industry. Disappointingly, this has not been the case, as has been exposed by the Auditor Generals findings.

The Victorian Managed Insurance Authority (VMIA) even failed to adopt a business plan to deliver the BWI and, according to the Auditor General, has wasted some $21 million that could have been available for its intended purpose: consumer protection.

VMIA/government is the only provider of this warranty insurance, so why are brokers needed? Furthermore, the biggest warranty insurance brokers/agents are the two industry trade associations. What a conflict of interest.

This public policy regime of consumer protection was introduced on 1st July 2002 by Royal SunAlliance and their broker who stated, “Today’s announcement is not only good for builders, its also great news for new home buyers and renovators.”

How could anyone make such a statement when they knew the facts?

Sadly this regime manages the industry from start to finish and to work, the builder must first obtain insurance eligibility from the insurer who determines:

  • If he can renew his registration
  • His level of annual turnover
  • The size of a project he can build
  • Pay the price for a warranty policy on behalf of his client

The consumer, for whom this regime is ostensibly designed, for must pay for a warranty policy, which he believes protects him from a builder’s failure and accordingly draws comfort from that fact, and may take the cheapest quote. Sadly he often finds too late that his protection is very limited and not often available. When it is available, it is so protracted it may take many years for a resolution, and average payouts are only $33,000.

The only avenue to resolve a building dispute in Victoria is through VCAT and the cost is totally prohibitive, and never satisfying for either party

Builders were sold down the river though the introduction of this regime. Thousands of builders either lost or were at risk of losing their livelihood when it was introduced and while MBA were sympathetic at the initial outset, the HIA defended the scheme and told governments that the builders that were complaining were not responsible builders.

The building consumers were told this scheme was good for them. Little did they know that the truth was far different.

The Liberals in 2013 stated their proposed reforms were a fresh start. The reform they were referring to was to completely remove the current system and replace it with a regime that would have seen both the consumers and the builders of the state rejoice in what would have been a fair and just system that would have worked.

It appears, however, that both the Housing Industry Association and the Master Builders Association worked to stall those reforms, and the Liberals subsequently lost the 2014 election.

In light of the Auditor General's Report, the new State Government now has the opportunity and needs to demonstrate strength, remove any conflicted influence, and deliver a workable system of consumer protection and industry management.

The first step should be to throw out the regime completely!

The way forward is simple, and consumer advocates agree:

  • Introduce a one-stop shop regime with robust dispute and resolution supported by a government-run Statuary Fund overseen by an independent board to support consumers as the need arises
  • Remove the current boards, and bring all responsibilities under the one stop shop principle administered by the VBA
  • Early intervention with disputes resolved by an adjudicator that issues binding orders

No industry requires 54 investigations to demonstrate their total failure, but over the course of many investigations and studies, it was shown that the current regime failed in the following ways:

  • The cost of the investigations in monetary terms alone is a disgrace
  • The social cost was also staggering
  • It had devastating impacts on building families
  • Builders' families were also hard-hit
  • There was a shocking waste of millions of dollars
  • An industry was taken well and truly into disrepute through this regime

In short, it was a waste of $21 million, did not result in proper licensing, regulation, compliance or consumer protection. This is a powerful indictment of the government.

It is time for the bureaucracy and the two trade associations to move out of the way and enable a genuine regime of consumer protection and industry management to be put in place for the roughly 100,000 consumers who enter into building contracts each year, not to mention the 20,000 or so Victorian builders who want a system based on equality, justice, and fairness.

That is the Australian way! There can be no excuses this time!

  • Absolutely agree and it is heartening to hear a builder echoing the concerns of so many damaged consumers. Unacceptable mountains of tax payer's money thrown into one audit and enquiry after another as well as BWI for absolutely not reform. The deceit is facade of control and protection is merely disguised further, all the while ineffectual parasites drain competent builders with integrity and unsuspecting consumers.

  • Phil, you are right to keep pressing this matter. Consumers in any other industry would not be exposed to these soul destroying experiences, especially when it involves their most important asset. Home Owner warranty insurance is an insidious pea and thimble trick. It is set up to defend the lowest common denominator. And to boot it is a wealth creation source for the industry associations who sponsor both poor performing members, declining industry standards and clip the coupon. But its the same trough that industry associations all feed from in taking public money to deliver industry training, to sit on industry long service leave boards, and industry super fund boards. Why would they want the status quo to change? They then get to sit on government advisory boards so their wisdom and un-conflicted public interest advice may be sought on important policy. Ha!
    And all the while governments ignore the serious state of construction in Australia today. Private certification was supposed to cut red tape, it just cuts corners. Enterprise Bargaining was to improve productivity. Its a farce just look at the QLD EBAs being agreed to now. Construction out of control!

  • Good article Phil.

    Insurance is indeed a useless item at present.

    However I am a consumer and builder advocate and do not agree that adjudication should form part of any solution. Adjudication means no right of appeal and is therefore un-Australian.

  • I agree Phil… that Building Warranty Insurance has been a mess since 2002.

    But is adjudication the way to go? Adjudication means a lack of right of redress and I think goes against a deeply rooted Australian entitlement (as in The Castle… when you feel strongly enough about a violation of your rights)… the right to appeal. That is at present an option I believe under current legislation if each side agrees to take that approach. It seems to be a very harsh option and fraught with the possibility of bias and unreasonableness by those chosen to be adjudicators… and no doubt with not even a definition of the word defect… the very thing that most disputes are about.

    • Dear Mark

      While I share your concerns, and possibly adjudication is an inappropiate description as the model we have put forward is to have a single person resolve disputes and that person to have good skillsets and people skills to make a binding decision against either party to be executed in a timley manner, and if either party does not agree with that decision they may appeal it to VCAT.

      Supporting this arrangement would be to produce a plain english standards and tolerances together with a simple plain english building contract.

      We are all aware defects form the greater majority of complaints and its time for the building industry to grow up, and accept the fact that all attempts at consumer protection and industry management over the past 30 odd years have failed with the exeption of the HGFLtd years that delivered by far the best attempt with zero private vested interests.