Issues in Australia’s building and construction industry under increased scrutiny

Following a major development boom in Australia, recent events have highlighted significant issues in the building and construction industry.

Update on legislative response to Aluminium Composite Panelling (ACP)

The use of ACP in major building projects across Australia has led to legislative change and potential recovery actions against building practitioners. Following the Melbourne Docklands’ Lacrosse Apartments Tower fire in November 2014, Australian states have enacted legislation targeted at managing the risks associated with ACP:

  • The Retrospective ban of ACP in New South Wales under the Building Products (Safety) Act 2017 (NSW) came into effect on 15 August 2018, which has resulted in owners being issued with rectification orders imposing heavy fines for non-compliance (A$1.1 million for corporations and A$220,000 for individuals).
  • Cladding Rectification Agreements (CLAs) – introduced by Victoria (alongside the state-wide ban of ACP), to ease the financial burden placed on building owners. CLAs allow owners to take out low interest rate loans, guaranteed by the local council, to assist with rectification costs.

Following the fire at Melbourne’s high-rise Neo200 apartment building (cladded with ACP) earlier this month, state authorities will continue their efforts to manage this issue. As building owners are currently footing the bill for rectification orders, claims by them against developers, builders and consultants for damages, may provide the only recourse for owners to offset the costs of rectification works.

Who is responsible?

The decision of the Victorian Administrative Tribunal (VCAT) is awaited in the claim commenced by the Owner’s Corporation of the Lacrosse Apartments Tower, a building that had ACP and sustained a significant fire on 25 November 2014. This claim was brought against the builder and other consultants who worked on its construction, including the surveyor, architect and fire engineers.

The tribunal proceedings have placed the builder, surveyor, architect and fire engineer in a legal stand-off over responsibility for the majority of any damages award, with residents currently facing a A$24 million rectification order. The tribunal’s decision will give a strong indication as to where liability rests in ACP cases and the strength (or otherwise) of any defence based on reliance on other practitioners in construction projects.

Alongside these proceedings, the Building Practitioners Board of Victoria has conducted disciplinary proceedings against the builder, concluding it breached the Building Act 1993 (Vic) by authorising the use of ACP on the Lacrosse Apartments Tower. The builder will face a costs order and possible cancellation of his building license. Disciplinary proceedings against the building surveyor and fire engineer are also ongoing.

Opal Tower defects cause growing concerns

Alongside the ACP issue, defects in a high rise residential building in Sydney’s Olympic Park have placed Australia’s building practitioners under further scrutiny. In December 2018, following identification of cracks in internal walls on four floors, residents have been evacuated while the building developer and New South Wales Government lead an investigation in to the building’s structural stability. Preliminary expert investigations found that while the building was structurally sound, design and construction errors contributed to the damage of several structural parts of the building.

Preliminary investigations suggest the issues will likely be rectified, but fallout from the incident is ramping up. The timing of the incident (shortly before Christmas) has contributed to reputational damage to the those involved in its construction, as well as reducing buyer confidence in Sydney’s off-the-plan apartment market.

Class actions against building practitioners

It appears possible that class actions by residents/owners of the Opal Tower and Lacrosse Apartments Tower respectively, to seek recovery of losses associated with the incidents, may be commenced. 

Calls for reform

In the wake of these incidents, the New South Wales Strata Community Association has called for a national construction sector audit. Calls for reform and tighter regulation in the building and construction industry were previously foreshadowed in the Shergold-Weir Report (the Report) published by the Building Minister’s Forum on 22 February 2018. This highlighted a lack of regulation and oversight by state regulatory authorities and made recommendations to improve compliance and enforcement systems.

Eyes are now on certifiers who face criticisms over conflicts of interest in the privatised certification system in Australia. The New South Wales Government has plans to audit the building certification industry in order to strike off corrupt or negligent certifiers. Builders and other consultants are also under scrutiny over critiques of cost-cutting and lack of adherence to relevant building standards.

Comment

Insurers and investors should be aware of the current exposure of building practitioners involved in projects that are non-compliant with relevant building standards. Recent calls for reform will likely affect compliance costs for all building practitioners who will face increasing oversight and regulation from building authorities. Insurers may also be exposed to further actions from residents and owners seeking recovery for costs associated with building defects and non-compliant materials.

Related item: Cladding continues to trouble insurers and the construction industry in Australia