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Economics References Committee
02/08/2018
Non-conforming building products

CATO, Ms Cathy, Deputy Commissioner, Operations and Code, Australian Building and Construction Commission

[14:31]

CHAIR: Welcome. I remind officials that the Senate has resolved that an officer of a department of the Commonwealth or of a state or territory shall not be asked to give opinions on matters of policy and shall be given reasonable opportunity to refer questions asked of the officer to superior officers or to a minister. This resolution prohibits only questions asking for opinions on matters of policy and does not preclude questions asking for explanations of policies or factual questions about when and how policies were adopted. Thank you for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so.

Ms Cato : In this brief opening statement, I would like to outline the ABCC's jurisdiction with respect to Australian standard building products. The ABCC was established on 2 December 2016. One of its key roles is to monitor the Code for the Tendering and Performance of Building Work 2016. The code is the only area of the ABCC's jurisdiction that relates to Australian standard building products. The code places requirements on funding entities who are procuring Commonwealth funded building work. Two of the requirements relate to the use of Australian standard building materials and products. Firstly, before entering into a contract, a funding entity must collect information from the preferred tenderer about whether the building materials to be used to undertake the building work comply with relevant Australian standards published by or on behalf of Standards Australia. Secondly, a funding entity must only enter into a contract with a code covered entity that only uses products in building work that comply with the relevant Australian standards published by or on behalf of Standards Australia.

To assist funding entities to comply with these code requirements, the ABCC has published model clauses that funding entities may include in tender and contract documentation when procuring Commonwealth funded building work. If the funding entity imposes the requirements and a contractor fails to use Australian standard building materials, the contractor could be in breach of its contract with the funding entity. The code also provides that, if satisfied a funding entity has not complied with the code, the ABCC commissioner may refer the matter or make a complaint to the secretary of the Department of Finance for investigation or further action. I'm happy to take questions.

CHAIR: Thank you very much. You made reference to the Code for the Tendering and Performance of Building Work 2016. That's your area of responsibility?

Ms Cato : That's correct.

CHAIR: Can you provide to us on notice, if necessary, a list of what you have referred to in the past as the 2016 projects, which are the projects that are subject to the 2016 building code?

Ms Cato : Yes, Senator.

CHAIR: Is that an extensive list?

Ms Cato : It's a rolling stock list. It's a group of products that changes. I'd like to explain to the committee that the code has application in quite a complicated way. It attaches to contractors rather than to projects, and then the date that they've tendered for the particular project impacts on whether or not the code applies on a particular project. With respect to the requirements relating to Australian standard building materials, they apply on a much more limited number of projects, which is those that, firstly, have Commonwealth funding attached to them. At the moment, there are 164 of those that are directly procured by Commonwealth funding entities. It also has some application to Commonwealth funded building work that is procured by the states and territories, where it is indirectly funded by the Commonwealth.

CHAIR: So you're able to identify those projects by virtue of—

Ms Cato : Yes. We can provide you with a list of the 146 projects.

CHAIR: Also can you provide us with a list of the code-covered entities and funding entities?

Ms Cato : Yes.

CHAIR: They're different, I take it?

Ms Cato : Correct. The code-covered entities are the contractors that have bid for the work, and the funding entities are the Commonwealth agencies.

CHAIR: Can you tell us how the code has been performing?

Ms Cato : Can you be more specific?

CHAIR: I don't want to ask for your opinion, but I'm just interested in the Code for the Tendering and Performance of Building Work 2016. Can you give us some assessment of how it's been going?

Ms Cato : With respect to the jurisdiction of this inquiry?

CHAIR: Yes, the non-conforming building products.

Ms Cato : The limit in terms of what we do as an agency with respect to these particular requirements of the code is to make sure that the particular requirements that are imposed on the funding entity are carried out. Our role is to make sure, essentially, that funding entities put these model clauses into their tenders and their contracts so that they are collecting the information that they should be so they can assess during that tender stage whether or not companies will use Australian standard building materials. Our proactive activities to date show that those model clauses are being used across the board and also that the contracts themselves contain that requirement.

Senator PATRICK: What are those proactive things that you're doing?

Ms Cato : We undertake audits and inspections of the contracts and the tender documents to make sure that they contain the relevant clauses.

Senator PATRICK: How's that going? Is it 100 per cent?

Ms Cato : With the funding entities, yes, it is.

CHAIR: So the contracts might contain the relevant required clauses.

Ms Cato : Yes.

CHAIR: Are you seeing that having a benefit in terms of a reduction in the level of non-conforming building products?

Ms Cato : To look at that extra layer—as in whether or not non-conforming building products are actually being used—is outside our jurisdiction. There are no requirements under the code that are imposed on contractors, so we can't monitor whether or not they are actually using conforming building products. But what we do to assist the funding entities—because part of our role more broadly is to look at the contracts that contractors are using—is that we go through the supply chain, and one of the things we do there is to make sure that they are passing that contractual requirement to use Australian standard building products through the supply chain. Our work in that area has suggested that we've had almost full compliance there as well, and where we've had noncompliance we've referred it to the funding entity so that they can then look into that further and check whether or not the contractor has breached its contract in that regard.

CHAIR: In a practical sense, who is going to identify that having these requirements in the contracts is having a meaningful impact out there?

Ms Cato : I guess that's a matter for parliament to decide, but in terms of our knowledge of this area I've talked to you about what we need to do as an agency and what we are doing. In terms of funding entities, once they are informed by us, perhaps, that there might be a noninclusion in a contract of this Australian standard building requirement, they have requirements under the Commonwealth Procurement Rules, which I'm sure you will have heard about during the hearings of the committee, where the Commonwealth Procurement Rules require a level of auditing by those Commonwealth entities. So that's something that they need to do but not something the ABCC has the jurisdiction to check.

CHAIR: Okay. Let's get into these practical steps that can be taken to stop non-conforming building products from being used. There have been examples where workers have identified that there have been non-conforming building products. If workers have a reasonable suspicion that they're being asked to install non-conforming building products, does your organisation consider it to be illegal industrial action if they refuse to install those non-conforming building products?

Ms Cato : No. If they were refusing to install something because of a safety issue then I think that would likely be a defence against unlawful industrial action. We'd have to look at the circumstances of the case, but it would be most unlikely.

CHAIR: It may not be the health and safety of the workers themselves that is at risk. It might be that, for example, they find that it's some other type of product that's going to be a risk to the end user of the building. What's your view about that situation?

Ms Cato : I'm not quite sure what question you're asking.

CHAIR: If a worker decides to not install what is determined to be a non-conforming building product in a situation where there is no immediate or imminent risk to the health and safety of the worker but the risk is rather to the end users of that building, does that constitute illegal industrial action?

Ms Cato : I don't see how it does.

CHAIR: It doesn't?

Ms Cato : Not in my view.

CHAIR: Are you aware that Mrs Denita Wawn of Master Builders Australia agreed with a proposition that workers should not install material that's noncompliant and, if a worker is told to put in a noncompliant product, they have the right to refuse, provided their concerns are based on factual evidence?

Ms Cato : I'm not aware of what Mrs Wawn said, but I accept what you say there.

CHAIR: Do you agree with what she has said?

Ms Cato : In all of these circumstances, we as an agency would always look at all of the contextual circumstances in which an event like that has occurred. I would imagine there would be many different ways in which that could play out. We would look at the particular circumstances, but a worker bringing to the attention of a contractor that it's working for an issue like that would not of itself draw our interest.

CHAIR: Just coming back to your area of responsibility in this area, I understand that in February you gave evidence in Senate estimates to Senator Cameron along the lines of what you said earlier—that your role is to look at the contracts and make sure that they're compliant with the code. You said then that it's a matter for the funding entities to ensure they're complying with their obligations.

Ms Cato : Correct.

CHAIR: Are you saying that's adequate to discharge the ABCC's responsibilities for administering the act and the code?

Ms Cato : That is the responsibility within the jurisdiction of the code. The code places requirements on two parties, on code covered entities and on funding entities. In this particular circumstance, as outlined in my opening statement and previously at estimates, the obligation in the code is placed on the funding entity. So the ABCC's remit is to make sure that the funding entities are doing what they should be doing, which is how we are monitoring the code. A lot of other requirements in the code are placed on contractors and, if they fail to comply with particular requirements, there can be a sanctioned consequence if the minister takes such a recommendation from the ABC commissioner. But, with respect to building products, there are no direct requirements on contractors.

CHAIR: Have you had any external advice about that matter?

Ms Cato : No. It's quite clear from the wording of the code.

CHAIR: Are there any other areas of the code where the primary area of ensuring compliance falls with the funding entity as opposed to the principal contractor in the case of their subcontractors or the agency?

Ms Cato : There are a number of areas within the code that fall on the funding entity with respect to collecting certain information—such as section 25A, which contains a requirement to collect information about Australian standards. I have a copy of that, if you don't have that in front of you.

CHAIR: That's okay.

Ms Cato : You can see that it asks for the collection of quite a number of other materials. So there are a number of requirements on funding entities with respect to how they manage a contract. For example, it requires a workplace relations management plan to be approved before they can enter into a contract. That is something that we assess on their behalf. So there are different requirements on funding entities versus code covered entities.

CHAIR: Are you familiar with the concept of product substitution, which involves non-compliant and non-conforming building projects caused by product substitution as architects are not retained during the build process to have an oversight role?

Ms Cato : No.

CHAIR: Are you aware that this committee's published a view that we consider substitution as perhaps the most significant contributing factor to the prevalence of non-compliant external cladding materials on Australian buildings?

Ms Cato : No, but I imagine from its name that product substitution is what the previous witnesses were talking about.

CHAIR: So your organisation is not interested in looking at this issue of product substitution?

Ms Cato : It's not a matter of interest; it's a matter of what's within our mandate under the legislation. We are guided by what's in the legislation and we perform our role according to that.

Senator PATRICK: I just want to make sure I heard you correctly in your opening statement. In the last sentence you talked about enforcement under the act. Did you say that rests with the Department of Finance?

Ms Cato : What I was saying was that, if the ABC commissioner was satisfied that a funding entity had failed to impose the requirements that it should across all of its code requirements, that could be referred to the Secretary of the Department of Finance for them to take further steps.

Senator PATRICK: This might be outside your understanding, but do you know what the secretary would then do?

Ms Cato : I don't know what they would do directly, but the fact that that is there acts as a deterrent to funding entities ignoring the legislative requirement.

Senator PATRICK: Let me put this to you. I've been asking questions about airline travel policy with airlines and have an answer from the Department of Finance that says: 'We set the policy. It's up to the agencies that we impose the policy upon to do the enforcement.' I'm just thinking about the question that the chair asked about when a builder says, 'Hey, I think something's not in compliance with provisions 25A and 26 of the code.' What would you recommend that person do?

Ms Cato : I would hope that anyone who finds an issue like that would raise it with the contractor or, if the contractor wouldn't listen to them, raise it with the client of the contractor. In this particular set of projects we're talking about, the client would be a Commonwealth funding entity. Then they would be able to address it as a breach of contract. If it was brought to our attention, we would immediately notify all relevant regulators, as well as the funding entity.

Senator PATRICK: I was going to ask that question. So whilst it's not in your jurisdiction—

Ms Cato : We would always refer it to the relevant regulator.

Senator PATRICK: Do you ever follow that up, because the genesis of the requirement comes from the ABCC?

Ms Cato : As an agency, we haven't yet come across an instance of knowing about any non-conforming building products being used. But if we did, we would refer that to the funding entity, as we do if we come across a safety breach or a migration act issue or any other issue—we refer it to the relevant agency. If it's something that could also lead to a breach of the code, because there are certain types of laws that are also a breach of the code if they're not complied with, we would follow that up to make sure we knew whether or not it was proven as a breach of the law. And there would then be a further consequence for the contractor, which could be exclusion from Commonwealth government work.

Senator PATRICK: In the circumstances the chair described, where a worker may be exercising perhaps inappropriately or unlawfully, in your view, the right to not continue working on the basis that they think the contract is breaking the law and would put the officials that may end up using that building at risk, and where you might perhaps take an action against that worker if they raised that as the issue, would you refer that then to the appropriate authority?

Ms Cato : I didn't give evidence that we would see what the worker had done as being unlawful. A worker raising an issue like that would not be stopping work because of an industrial issue, so it would not be industrial action, and therefore it would not be something we would investigate as a potential breach.

Senator PATRICK: But in any circumstance where you are seeking an enforcement in some way against a worker, if presented with evidence there were non-conforming building products being used on a site, would you refer that to the funding agency?

Ms Cato : Of course. In any of the work that we're doing, in any of our activity, if we came across evidence of non-compliant building products that could up in a lot of circumstances, if that happened to come to the agency's attention, that would be raised with the relevant client and the funding entity.

Senator PATRICK: I seem to recall that the Commonwealth procurement rules were changed in, I think, April 2017—

Ms Cato : Yes, March 2017.

Senator PATRICK: And there was a new clause introduced that talked about the use of Australian standards.

Ms Cato : Yes.

Senator PATRICK: And it had another clause much later, from memory—it's sad I remember the Commonwealth procurement rules—in the rules, stating the agency had an obligation to ensure that those standards were being used. Is that the same clause?

Ms Cato : That's the clause I was talking about earlier in the Commonwealth procurement rules, yes.

Senator PATRICK: Because I recall that those rules were tabled by Senator Cormann during the ABCC legislation passing through the Senate chamber. But actually, I also know the genesis of those particular clauses and it wasn't something that had come from Senator Cash's office; it was something that Senator Xenophon asked to be put in the CPR. That's why I ask the question. It might have been 10.38—

Ms Cato : I think 10.10 and 10.37 may be the two clauses.

Senator PATRICK: Thank you. That helps me. So the reality is you leave enforcement ultimately with the funding authority?

Ms Cato : Yes, because that's the way the legislation is structured. The funding entity is the one that can impose a penalty, if you will, on the contractor through following through with a breach of contract if they saw that there was, in fact, use of non-Australian Standard building products.

Senator PATRICK: But that's effectively a contract breach rather than a breach of a building code, which might have some other penalty.

Ms Cato : That's right, and the reason that's how we implement it is because that's the way the law is written.

Senator PATRICK: Sure. I guess we're just exploring.

Ms Cato : Correct.

Senator PATRICK: The committee may well say that that needs some change and that there may need to be something a bit more direct. I say that because a lot of agencies have a particular function and, in some sense, this is a secondary function when they contract. They may well not have the enforcement capabilities. Treating something as a contract breach can be effective in getting a change, but there's no penalty associated with that. Rather, there's a contractual remedy as opposed to a penalty.

Ms Cato : Correct.

Senator PATRICK: I guess you can't offer an opinion on that, can you?

Ms Cato : I can't. Sorry about that.

Senator PATRICK: Okay.

CHAIR: I have one or two other questions. Just coming back to the application of the code, if a building industry participant breaches a state or territory building law by installing a non-conforming building product that, say, doesn't comply with the Building Code of Australia, could they be sanctioned under section 9 of the code, which goes to compliance with laws, decisions, directions and orders? Section 9(1) says:

A code covered entity must comply with the Act and all designated building laws that apply to the entity.

Ms Cato : I can see why you would ask that question, Senator, but the definition of 'designated building laws' under the act is not broad enough to cover the types of building laws that you're talking about. The building laws covered are the Building and Construction Industry (Improving Productivity) Act, which is the act that established the ABCC, and the Fair Work Act. So essentially they're laws of a workplace relations nature rather than relating to building codes with respect to building standards.

CHAIR: It would be argued that that means that there are no real teeth to address the issue of non-conforming building products under this code. It doesn't add anything extra to assist with dealing with non-conforming building products.

Ms Cato : What it adds is the requirement on the funding entities to include it as a contractual requirement, so they're making sure that they're engaging contractors who can and will use Australian standard building products and, from there, setting up a process whereby there can be a breach of contract if they fail to do so. That's what the code has set up.

CHAIR: Finally, looking at the ABCC's six quarterly reports and one annual report since it's been established, and regarding section 22(i), the reports outline how the ABCC has monitored compliance of funding entities with section 26(8); published model tender and contract clauses for use by funding entities; and audited supply chain contracts to ensure that the Australian standard requirement contracts were passed down the supply contract. So you're basically reporting on the monitoring of compliance of funding entities with section 26(8) of the code. The work of the ABCC has done something to encourage compliance with 26(8) as opposed to recording work that the commission has undertaken. So how does all that work?

Ms Cato : I'm not sure I understand your question, Senator. The purpose of the quarterly and annual reports that we publish is in accordance with the requirement in the act, and we are required to report on the activities the Australian Building and Construction Commissioner has undertaken to monitor compliance of products. The compliance monitoring that we can do is limited by the legislative framework, so we have set out in each of these reports the steps we've taken to monitor compliance. Our compliance strategy includes an education component, which is the publication of model clauses for use so that they can actually carry out and be compliant with the requirements, and also providing advice et cetera to relevant parties. That's before we undertake the compliance activities.

CHAIR: The nature of your reporting seems to go to compliance with section 26(8), as opposed to reporting on work that's been done to monitor the compliance of products and building work with relevant standards.

Ms Cato : I understand your question. Yes, Chair. And the reason that we are reporting on 26(8) is because that is the section that does require use of the Australian standard building materials, and there's no other section apart from the collection of information under section 25A that is relevant to our jurisdiction. That's all we can report on.

CHAIR: Okay. I've got some other questions that I'll put on notice.

Ms Cato : Thank you, Senator.

CHAIR: Thank you, Ms Cato.