Will New Levy Solve Building Defects? 7

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Tuesday, September 15th, 2015
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Quenstion Mark
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Substandard construction work has been identified by the University of New South Wales in 85 per cent of apartment buildings built since 2000.

The New South Wales Government wants to impose a new two per cent levy on construction on all new developments over three storeys, with money from the levy helping to pay for rectification works to proven defects by the developer.

The cost of this levy will be passed down the line from developer to builder to subcontractor. The subcontractors are the ones this levy will have the most impact on, as it will add another layer administration, compliance and cost. In such a competitive low margin sector, there will be a great deal of commercial pressure applied by developers and builders for the subcontractor to absorb it.

In commercial construction, subcontractors already provide the principal contractor, or builder, with retentions of 2.5 to five per cent of the cost of the contracted works in the form of either cash or by bank guarantees. These retentions are held as security during the construction period and then for 12 months after the practical completion date. The subcontractors also provide very comprehensive, in some cases very onerous, warranties conditions up to 25 years.

The proposed scheme by Government may possibly be another administrative disaster. You only need to speak with people who have battled through claims with the Home Warranty insurance scheme to understand how dysfunctional that process is.

I’m skeptical of the scheme, as I believe there are bigger issues at play such as the decreasing support by Government for effective trade training, TAFE funding and ineffective Government enforcement of BCA and Australian Standards.

We have a multitude of Government agencies (the Department of Planning and Environment, The Building Professionals Board, WorkCover, Fair Trading, Australian Building and Construction Commissioner and others), a hoist of laws, legislation, codes, standards and industry bodies that could deal with construction quality standards. But where are they? I’m sure they have wonderful websites with amazing announcements and graphics, but what is needed are the boots on the ground – building inspectors and certifiers who are truly independent and not in the developer’s pocket, WorkCover and BCA inspectors onsite advising and enforcing standards. There could be a lot done with existing resources if the mandate was there and the leadership empowered.

A new levy will impose an additional burden on business. Will it really deliver or will it be yet another convoluted scheme with sketchy outcomes for the consumer? Or could Government get back to basics and utilise exiting agencies and collaborate with industry bodies to advice, patrol and police industry?

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Discussions
7
  1. beverley-jane

    Aren't we missing the point? Isn't the competence and integrity of the builders and subcontractors the elephant in the room?
    Not only a NSW issue and definitely not limited to commercial construction. Far too many domestic projects are dangerously defective and the little old consumer is more vulnerable than a multi million dollar developer!
    I seriously doubt the efficacy of a 2.5 % levy which will ultimately be passed on for the consumer to absorb.
    2.5% ? We were left with a seriously defective and non compliant home for which the builder has never put his hand in his pocket or carried out repairs. Despite being paid out 20% – Builders Warranty Insurance claim limit and it doesn't come close to the rectification costs we are facing.
    Regulators found the builder guilty of in excess of 140 defects but did nothing to force him to rectify or pay for the repairs and he liquidated walking away from all accountability, leaving a trail of financially damaged claimants who didn't receive a brass bean.
    "12 months after practical completion" and 2.5% is totally unrealistic. Eight years on and deterioration is exposing additional defects hidden behind plaster board, paint and silicon.

    • Brett Bates

      You are 100% correct there Beverley-Jane with your 'elephant in the room' observation. The current love affair the media is having with Mike Baird in NSW has blinded the real and obvious challenges that the Baird government is spectacularly failing in. The educational standards and qualifications required for licencing and regulating of builders in NSW is firmly at the bottom of the barrel by comparison with other states and territories. When 85% of apartment buildings are built and issued with occupancy certificates and yet are found to be riddled with building defects you have to wonder how the builders responsible ever got a licence. Oh that's right. They paid their $15,000, wrote a few letters testifying their 'prior learning' and then had someone complete a very basic 20 day course from one of the many private training providers who 'sell' a builders qualification training package. This is a direct result of a deregulated training environment, encumbered by a hopeless ASQA auditing body and a totally disinterested NSW government that is enjoying their honeymoon with the media while our building construction standards are rapidly becoming third world quality assured.

    • Antony Fendt

      100% Beverley-Jane. The developers don't do the construction, it is the contractor. Already we are slugged substantial amounts in levies and taxes for skills training … have a look at how the long leave levy is constructed (Queensland's Q-Leave is a great example of hidden taxes). Time for the LAW to be effectively enforced … there is already enough of it so clearly the public servants are not doing their jobs in enforcing the regulations. Also way too easy to get a builders licence! Also time that the Developer organisations got off their collective derrieres and got serious with fixing these issues for thir members.

  2. Karl

    Once again the regulators position is to impose additional costs (tax by any other name) to the subcontractors, given costs will be passed down from head contractor/developer. This will be about as effective as the current home warranty tax i.e. another disaster!
    How about we make it mandatory for developers to be licensed builders (or have suitable supervisors who are) with residual defective work rectification followed up by the regulator against the licensed nominee. If works are not rectified, the license is suspended or cancelled (per QLD QBCC).
    Developers don't care at the moment because there is no recourse by the regulators. Cheapest, and quickest is the way of the industry, to all our detriment.

  3. Lesley Crouch

    Yes indeed. We have laws, codes and standards. They just need to be enforced. And those people or agencies in charge of enforcing and regulating building practices most definitely need to be truly independent and not have conflicts of interest.

  4. Greg

    This issue will not be resolved until they stop skirting around the edges of the problem.The problem is poor building practice, whether intentional or not. Strong regulation and immediate orders to rectify is the solution. If they go into liquidation then ban them from working in the industry. We have become a nation of mollycoddlers and need to ensure that dodgy practices are stamped out from this and other industries.

  5. Mark Whitby

    Good article Andrew,

    The words 'proven defect' are going to be a huge obstacle I feel until there is a well spelt-out industry-wide definition of DEFECT.