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Economics References Committee
15/02/2016
Non-conforming building products

HARNISCH, Mr Wilhelm, Chief Executive Officer, Master Builders Australia

CHAIR: Welcome. Thank you for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so.

Mr Harnisch : It will just be a very brief one because I think the value lies in the Q&A. First of all, this is an important inquiry. Obviously, there was some high-profile failure last year, which, quite properly, led to not only this inquiry but other inquiries. From the Master Builders' perspective, public safety and public—

Senator Xenophon interjecting

Mr Harnisch : Yes, that is one of them. The Infinity cable is obviously another high-profile failure, but, as Peter Tighe has said, there were problems with asbestos in plasterboard and some of the flooring that he properly identified, and I have discussions with him on that matter. So public safety and confidence is vital to the building and construction industry because, without it, investors will not invest and tenants and homeowners feel unsafe.

Having made that point—it is a problem; let's not deny it—it is not a problem that is out of control, nor is it a problem that is widespread. Having said that, obviously there are signs of pressures and potential for future failures, and these are the things that need to be properly addressed. Therefore, it is important from our perspective, before there is any rush to even more regulations, to recognise that Australia is a First World country and has a First World regulatory system. We need to recognise that. At the Commonwealth level, we have the ACCC, for instance; we have the ABCB; we have Standards Australia. At the state level, we have building authorities and other authorities like metropolitan fire boards et cetera. We have safety agencies as well. At the local government level, we have building approvals processes that have to go through. So there are a whole range of existing processes in place. Having recognised that, last year those two high-profile cases demonstrate that something has fallen between the cracks, and those cracks need to be fixed up.

It is important that this Senate committee, with other inquiries that are being held by the Commonwealth, including by the ABCB itself, the ACCC, Standards Australia as well as the Building Ministers' Forum, which have looked at this in great detail, complements those inquiries and the outcomes of those inquiries. Those are my overarching comments, and I am happy to take questions or make clarifications to the submission that we put to this committee.

Senator XENOPHON: Thank are very much for your submission and the comprehensive way that MBA has set it out. You made reference to cracks in the system. Some of the evidence we have heard today suggest that those cracks might be more like crevasses in the sense that there seems to be a lack of clarity and certainty as to how good the system is and whether we can rely on some standards. One of the other criticisms we have heard is that, for instance, toughened safety glass has been going for years and years, and it seems that if it simply went to the automotive standard, where the glass shatters like gravel, it would be much safer, and we heard evidence just a few minutes ago that it is a negligible additional cost. So it is something that your members should not have any difficulty with. In fact, there would be a society-wide benefit—fewer insurance claims and fewer people getting injured as badly. What feedback have your members had in terms of the issue of standards? Is there some frustration about a lack of clarity?

Mr Harnisch : There is a high level of frustration, as you could imagine, because under the current laws the first port of call for these sorts of failures is builders. That is why we have a strong interest. It is not a case of defending the indefensible in terms of non-compliant products. In fact our builders are looking for certainty. They rely on the certification process and all the other processes that go ahead of them actually using it on site through a contract. This is the point I want to focus on. If you look at the normal process, you have a supplier, then an architect, an engineer or some other building professional that specifies the product saying, 'You shall use X.' When that contract is let the builder is relying on the supplier, then through the whole process they are also relying on local government to approve the building and the products. The fire brigade also looks at the building design as part of the approvals process. During the construction phase we have the independent certifiers that look at the specification and make sure that the work done is in accordance with the specification. Then obviously there are more processes. Right at the end there is another approvals process where the whole project is looked at in its total context.

The point I am making is that there are already processes in place. Obviously these things have simply fallen through the cracks. So from our builders' point of view, it is important that we want to stop it. We want to stop it at the source because it is a liability for the builders, for a start. If there is a vested interest, that is the vested interest.

Senator XENOPHON: We heard from the Asbestos Safety and Eradication Agency earlier today. I should disclose that I am a patron of the Asbestos Victims Association of South Australia and I have done a lot of work on that and been to too many funerals of people who have died of asbestos related diseases. I am staggered that in in this day and age we are still getting building products, cement fibre products particularly, with that very deadly substance in them. I am sure your members would be horrified and would not want to go anywhere near it. If they are relying on certification that on the face of it seems okay and legitimate, arguably they can use that as a defence, but they still have to clean up the mess if the company that supplied them has gone under. I put a question on notice to Mr Tighe about a positive assurance program, so that positive assurance would need to be required if there is a country or a source that has been proven to be unreliable in the past. They would need to jump over an extra hurdle. The specific technical question that I put was how that would work with free trade agreements. I would have thought that a free trade agreement should not impinge on the safety of our citizens. Do you have a view about that? If there has been a problem with a particular country or source, an industrial source or a particular region, do you think there should be a tougher approach, requiring positive assurances?

Mr Harnisch : The short answer is yes. There needs to be a more vigilant approach. The issue is about how these products come into the country. If something comes through a reputable supplier—I will not name names—but a reputable big supplier that provides a whole range—

Senator XENOPHON: I think you can name reputable suppliers. It is the disreputable ones—

Mr Harnisch : They bring it in, then there is one solution there: you can jump on that supplier and say, 'You cannot do that because you have a liability.' My understanding about how some of these asbestos-related products are coming in is that it is coming through direct importation by either the contractor or the subcontractor. So it has bypassed the normal supply chain and accreditation processes. That is a problem now also with homeowners, who buy it online looking for price and then unwittingly buy nonconforming products only to find that, for instance, the glass or other building products that they have bought online are nonconforming. We need to disaggregate the problem. Where the builder has chosen to source it from another country, then obviously the liability lies with that particular builder or contractor. But where it is a supplier—in this case an disreputable one, I take your point—there are ways that the ACCC can get involved in terms of using the current compliance regimes.

Senator XENOPHON: The ACCC has limited resources. They only pick cases that they feel they can take on. I am not being critical of them as such. I am not sure if it is in your submission, but has your association estimated what the costs are of both nonconforming and noncomplying products?

Mr Harnisch : No, we have not. We have not been able to get data that we believe is a credible number that we can put on the table.

Senator XENOPHON: Do you mind taking this on notice? I think it is an important issue from a public policy point of view. You will get this in the Hansard. Firstly, what impediments are there in quantifying the cost of these nonconforming and noncomplying products? It seems to me that it might prompt governments—state, federal and even local government at the procurement level—to say, 'We are not going to deal—we want to clamp down on this because the cost to the economy is so great.' The cost to your members would presumably be enormous as well.

Mr Harnisch : I understand that the Building Ministers' Forum and the ABCB have attempted to do some modelling. I think they have difficulty in trying to put a dimension to the problem for the modelling that goes with it.

Senator XENOPHON: There is a report from the AiG in 2013 that quoted the Australian Constructors Association, which stated:

Non-conforming products have the potential to cause significant expense in construction projects…

You do not disagree with that, I suppose?

Mr Harnisch : Not at all. The expense comes after the event when there is a major failure and major rectification work needs to be done. There is the litigation that is entered into and, of course, the costs to both parties or, in many cases, several parties. The cost is not just borne by the supplier or the contractor. In the case of an apartment block, there are obviously other people who are potentially in a class action claim.

Senator XENOPHON: I want to pick up on some evidence that you gave to the treaties committee on the chapter. It is not a criticism, but in the context of this inquiry I want to see if you want to consider this. You said at that committee that the chapter has the benefit of reducing imports and the like. Is there a real risk that if you reduce the imports but you also reduce the quality—I am not picking on China; I am saying this for any free trade agreement—if you lower the standards in terms of quality, conformity and safety, it ends up costing your members a lot more? Do you seek to qualify your comments about that?

Mr Harnisch : Not at all. Before I made that comment, I spoke to a number of my members, who in fact do use products from China. They do not have a problem with it. I asked, 'How come you are not having a problem and others seem to have one?' They make sure that when they enter into an agreement in terms of purchasing building materials from China, in this case, they have a very close relationship. They buy volume, so one of the approaches they take in making sure that it complies with Australian standards and regulations is to actually have a person full time at that manufacturing plant at the time of production, so what rolls out of the factory is a complying product. Therefore that reduces that risk. Obviously, it is very difficult for a subbie, who is relying on the fact that when he goes through his reputable supplier he expects that the product he buys off the shelf is a compliant product.

Senator XENOPHON: My final questions is, in respect to that, do you think that governments, and even contractors, should take into account in the procurement space—and Senator Madigan expressed it much better than I can—that you might pay little bit more for a locally sourced product but you have all the benefits? I think Senator Madigan pointed out about taxation, health and safety laws and that they spend their wages in the community so there is a multiplier effect, which in turn means that your members probably end up getting more work because there are more pay cheques being paid here rather than in another country.

Mr Harnisch : That is a very important question, because clients have responsibility as well. Clients, quite rightly, want lower prices. They want more competitive prices and there is this unfortunate drive by clients to go for the lowest price. In a competitive market, that is fair. But the issue with driving prices down further and further is that we all know it creates problems elsewhere, and one of them is that in trying to be competitive some contractors seek to source the cheapest building product. I am not saying that is acceptable, but that is the market reality. Clients themselves, as we keep saying, need to take responsibility. Rather than saying 'Well, mate, you were stupid enough to buy the cheapest product, which is now non-compliant,' it becomes your problem. It should be part of their problem as well.

Senator XENOPHON: Thank you.

Senator MADIGAN: In your earlier evidence you said we have to be careful not to increase the regulatory burden. You alluded to the fact that we have all these different bodies—one could think of the Victorian Building Authority and one could think of the WaterMark testing regime for plumbing fittings, and the list goes on and on.

Mr Harnisch : Yes.

Senator MADIGAN: I question the robustness of our regulatory framework as it is. Would you agree that we need to have credible deterrence to bad behaviour in the market?

Mr Harnisch : I think you are asking two separate questions. In terms of deterrents, that is certainly one part of the solution for people who wilfully put in non-conforming products and put people's lives at risk. Obviously, that is a serious offence and needs to be addressed.

Senator MADIGAN: When we talk about people installing non-conforming products, I have read in your submission here where you have said:

… builders and tradespeople need to be alert to the potential presence of NCPs in the building supply chain, practicing the golden rule of “if in doubt, check it out”.

Is it not true that there is enormous pressure on subcontractors from larger firms, as you have said previously, about the costs and getting costs down, so they do assume that products sold to them are compliant? These people do not have the ability to check whether a so-called compliance certificate or, for that matter, a materials-handling document, is correct—would you agree?

Mr Harnisch : That is right. I will come back to my original point, that we have to have confidence in the system—in the whole supply chain. Like we have in our legal system, people have to have confidence in the system because if that confidence breaks down then everything breaks down.

The point about a subcontractor being able to go to his compliant supplier is that he should be able to expect that when he buys, or she buys, that product, it is a compliant product, rather than having to go to the CSIRO or Standards Australia or some other independent-certifying body to ask, 'Is this nut or bolt a complying nut or bolt?' He has to have some sort of confidence when he goes to Blackwoods that is a compliant product, and that Blackwoods would not sell a dodgy product.

The proposition, then, where a contractor—as has been put to me—goes and buys a product from a bloke at the pub who says, 'I've got this in the back of my ute or my van; I can give it to you for a fraction of the price,' surely does not pass, in this case, the 'pub test'. If it is so cheap, if you were a proper tradesman, you would say, 'There's something dodgy about it.' And I think that, if that is the case, where a person wilfully, as an expert in the building industry, puts in dodgy products, there are already rules under the law that can deal with that.

Senator MADIGAN: But realistically, Mr Harnisch, the number of tradesmen that buy a product in a pub would be quite negligible in the overall scheme of things.

Mr Harnisch : But some of these things cause the high-profile failures.

Senator MADIGAN: But I could take you to places that lots of tradesmen go to buy product, and the fact is that there is a lot of noncompliant product out there. 'Not fit for purpose' may be a better way of explaining it. That is in so-called reputable places. Even they haven't got the means to test the veracity of the claims of the certificates of compliance with whatever standard they allude to complying with. Would you agree that we have a major problem? You said it is not a big problem, but I beg to differ with you there because I have countless constituents in the residential and commercial markets who have shown me product that does not meet the standard. It is not fit for purpose. It is flooding into the country. It is a big problem, and it has to be a problem for your members.

Mr Harnisch : It is indeed a problem. And obviously our strong interest is why we work with the ACCC; we have worked with the ABCB; we have worked with the Building Ministers' Forum; we keep working with the ABCB; we have worked with Standards Australia. The problem that you have identified is quite rightly a problem. What we are saying is that in an ideal world you have to stop it at the source.

We are talking about a legitimate process here. We are not talking about the shonks that might get it in through the back door and other processes. So we need to look at the whole supply chain. I appreciate the problems for suppliers, but nevertheless there has to be some onus on suppliers as well. Then there has to be an onus on the architects and designers. Then there has to be an onus on all the various independent certifiers through the whole process. Then, yes, the industry itself, but the industry itself has to take responsibility.

Senator MADIGAN: People have to comply, yes—I have no argument with you there, Mr Harnisch—but the fact is that there is a cost that comes with policing and compliance. As you said, the end consumer has to be prepared to pay for that, but your members also have to be prepared to pay for that compliance as well—not a race to the bottom of the barrel.

Mr Harnisch : There is no argument from me or us on that particular point.

Senator MADIGAN: You mentioned before the ACCC. You mentioned also, I think, Infinity cables. Are you aware of how the recall is going of all the dodgy electrical cable?

Mr Harnisch : I cannot give you the exact update in terms of numbers, but the recall is occurring. What I am hearing from within the industry is levels of frustration that it is not going fast enough.

Senator MADIGAN: I think that, if you went out and asked people, the effectiveness of the recall is pretty bloody hopeless, to put it bluntly. We have hundreds, possibly thousands, of people who have had work done in good faith, and it is no reflection on the tradesmen who bought at suppliers materials that are unsafe, not fit for purpose.

Mr Harnisch : Absolutely. I think that is the other important bit. There are two things. There is a nonconforming product and 'not fit for purpose'. A product can be well and truly suitable, but if it is used in the wrong place then it obviously becomes a nonconforming product. I use as my example that you have broadly three types of plasterboard. You have one purely for visual purposes, one for acoustic and one for fire rating.

Senator MADIGAN: And wet areas.

Mr Harnisch : If you use the one that is purely to sheet a wall and use it for fire-rating purposes, it will fail. And someone needs to take responsibility for putting a non-fire-rated plasterboard for a fire-rated purpose.

Senator MADIGAN: Finally, Mr Harnisch, as you have seen, we have this great regulatory framework. Are you aware of people saying that they go to these so-called regulatory bodies and are repeatedly referred to someone else? In the end it is a merry-go-round where people do not get their concerns addressed and ultimately it is down to the consumer. Also, you mentioned earlier the cost of rectification when it falls back on the consumer. The end user ends up paying again for something which they paid for in good faith. Quite often it is the people in the lower socioeconomic levels in our community, who work incredibly hard to try to buy their first home, who find they are buying a pup.

Mr Harnisch : Absolutely. Certainly, we do not support it. What we have been saying is that part of the problem is that these regulatory bodies right around Australia—including federal and state ones—are under-resourced. Unfortunately, what happens is that you do get a bit of buck-passing.

Senator MADIGAN: Not 'a bit', Mr Harnisch. The buck-passing is out of control.

Mr Harnisch : If I am talking to the various authorities is it a problem. Whether you then characterise it as 'out of control'—

Senator MADIGAN: I would like to have some confidence in the regulatory frame work. If you have figures you can show us where there have been successful prosecutions and recalls of product, can you provide them to the committee. We have not had any presented to us—as far as I know—that show any success in this area. So if you have any we would be very interested to see them.

Mr Harnisch : I do not think I have, but I will certainly ask around. Obviously the matters last year and in the last two years have brought this matter to a public attention—the sorts of problems that have been identified are a proper subject for this Senate inquiry.

CHAIR: In terms of your submission and your comments in respect of the CodeMark scheme, you identify that only a small number of certificates of conformity have been issued since its inception in 2005. You highlight the fact that there is a need for the ABCB's report to be released. We see on the ABCB website that the review has been completed and changes to the scheme as a result of the review are currently being finalised. Are you concerned about the amount of time it is taking to get this information out?

Mr Harnisch : Yes, in that sense. I can understand the difficulty in bringing it to a conclusion. The questions that need to be asked—and, obviously, the answers we are looking for—are: what it is the CodeMark is trying to achieve, is it achievable, what is the cost of doing that and is there another way we can achieve the same things without a very bureaucratic system in terms of outcomes? No-one is questioning the objective of some sort of public benchmark that CodeMark is seeking to do, but whether CodeMark itself is appropriate. The question lies, as I think you were saying, in terms of the timing. We obviously look forward to its release and application. I think it would be proper, perhaps after five years, to have another review to see whether CodeMark is an appropriate regulatory response.

CHAIR: You highlight in your submission the difficulties with coordination between the various agencies and certification bodies and you provide a schematic of how better coordination could be achieved. I am interested: does your organisation have a view as to whether any particular comparable country to Australia has a superior system to ours?

Mr Harnisch : Not that we are aware of. Obviously, other First World countries have similar regulatory systems. Australia's seems to be uniquely beset with the problem of nonconforming products. In that sense, we are not aware from the research we have done that other countries have come up with a solution that we could perhaps look at in terms of modelling and reforms we might do in this particular space.

CHAIR: Are you saying that Australia has a unique problem with non-conforming products?

Mr Harnisch : I think so. What I am getting at, as I understand it from listening to the experts, is that the problem of non-conforming products does not seem to be as prominent as it has been in Australia. That is not to say that there are not non-conforming products in other countries, so don't take that as my saying that. I know, for instance, that the problem in terms of the flammability of the external cladding is more to do with the use of it as opposed to the technical specification around particular cladding. That cladding was used for internal purposes only, as I understand it, and I understand that a different sort of product was applied.

CHAIR: Finally, Mr Harnisch, you are calling for a more proactive ex ante role for the ACCC?

Mr Harnisch : Yes, we are. The ACCC, firstly, has not got the full remit—having talked to the deputy chair there. That is obviously a limitation. Secondly, they are strapped for resources, so we would be very supportive for the ACCC to get more resources, and perhaps for the remit to be extended as well.

Senator XENOPHON: User pays?

Mr Harnisch : Well, it depends on who the user is. I think, in the end, we see this as a community problem. Therefore, this is a problem that needs to be properly funded by the community.

Senator XENOPHON: I thought you would say that! 'You do your job!'

CHAIR: Thank very much for your evidence today.

Mr Harnisch : Thank you very much for the opportunity.