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Economics References Committee
19/07/2017
Non-conforming building products - use of non-compliant external cladding materials in Australia

BHASIN, Mr Sahil, National General Manager, Roscon Property Services

DWYER, Mr Phillip, National President, Builders Collective of Australia

GARDNER, Mr Ken, Chief Executive Officer, Master Plumbers and Mechanical Services Association

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 Dwyer : The Builders Collective is a voluntary organisation. We care about the building industry that we have watched go into decline over the last 10 or 15 years to the point where we believe that the industry is virtually in crisis. In the next number of years the situation will be terrible for all of us, I believe. Some say it started around 1994, when we privatised the building surveyors and so on, but I think it was probably moving forward to 1999, when we had the 'deemed to satisfy' type of products et cetera and the performance based products that opened a can of worms. Then we got to 2002 and builders' warranty insurance, courtesy of HIA. While builders warranty insurance is a product that is supposed to be there as a consumer protection, it also brought industry management with it. So, whatever went wrong in the industry was controlled by that regime. You went to a tribunal—that was the only place you had to go to to resolve a dispute.

What basically happened was that the insurers were vetting the builders. It was Royal & Sun Alliance at the time. The bureaucracy and their agencies and so on took a back seat to registration of builders because the insurers were doing it. A letter of eligibility became the criterion for registration of a practitioner. So we ended up with a situation where the bureaucracy basically decided the way things would operate in each case. People that were concerned, such as ourselves and so on, became very marginalised by the various building commissions at the time. Basically, we believe that anyone that had technical prowess was removed from any of those agencies, so we have ended up with a situation now where the industry itself is in such decline. The Lacrosse fire should have been a wake-up call but wasn't, and we have done nothing about it. It still sits there today with the cladding on it, and now the owners are being faced with a bill to rectify it. But what on earth it had to do with the owners, I'll never know.

We believe there is any amount of regulation existing but not enforced, and that's where our problem is. That's why we've got such a ratbag building industry at the moment. We had these training organisations bringing people into our industry. For a few dollars, you can get a building licence in a few weeks, and that's been happening around the country. We have a huge element of people that don't know what they are doing in Victoria. In Victoria, we don't register trades, which is ridiculous. Everyone should be accountable in the building industry. We're responsible for building people's homes. We need to be responsible and accountable, but we're not. We've got the codes board and so on that have oversight over the whole lot, but they do nothing and haven't done anything. The codes board really needs to start ramping up where compliance and regulation comes from and enforce it and make sure that it happens. We have the situation now where we are just building anything and getting away with it, without accountability. If you've got a good relationship with a building surveyor, away you go.

Senator XENOPHON: What do you mean by a 'good relationship' with a building surveyor?

Mr Dwyer : Builders favour a certain—by working with them over a long period of time. Keep in mind that if the building surveyor doesn't have income and doesn't have a builder to employ him he isn't going to have any work. Relationships are always formed, and that will always happen to a large extent, but we need to make sure that we are making these people accountable, whether it's a building surveyor or an architect that specifies certain products and so on. I don't think the problem is with the products; it's what we are allowing to happen within the industry and we are allowing everything. There is self-certification and so on and 'deemed to satisfy'. What does any of that mean? Either the product is right or it is wrong. The suggestion Senator Carr made earlier about banning aluminium panels would probably be a very good start if it came from the Commonwealth.

I think also though that the Commonwealth has to have something very strong to say. I think we have to. I think the Commonwealth can play a role in authorities like the Victorian Building Authority or New South Wales Fair Trading, where people from industry that have technical prowess are involved with those organisations. Whereas, at the moment, no-one can get within cooee of them. No-one like a builder knows building better than a builder. Or it might be a plumber or whatever, but we need that technical prowess that covers our industry in the organisations that run it. Because we're a paying a huge amount of money supporting these organisations, and they are not delivering. We are not getting value for money and we've got an industry in such decline and dilapidation over the last 10 or 15 years that it's just shameful. I've been building for 40-odd years, and to see the downhill slide in the last 10 or 15 years is really an affront to all of us. We need to do something about it. Talk must stop and we must do something very practical about it, because if we have an industry that is made compliant and we have enforcement, that fosters compliance and brings people into the industry that will be very robust and so on in terms of what is good for the industry. At the moment, we're just going along with, 'This developer wants this product built for that amount of money, and that's what it's going to be, so where do we cut corners?' We're cutting corners everywhere, and we're going to have a disaster. Maybe it won't be so much with the high-rise, but it will be with these developments in the suburbs that are three, four, five, six or seven stories but under 25 meters et cetera. They are clad with cladding and so on, and we are going to end up with a disaster in those areas.

The question was posed earlier of how many buildings do we have. For 20 years we've had aluminium cladding, and we estimate at least tens of thousands of buildings would be the number we've got in terms of cladding, if we are just talking about cladding. But we have so many other areas where non-compliance is just rife.

In Victoria, the Auditor-General found that 96 per cent of building permits were non-compliant. We've got an industry that's out of control. It's really out of control, and it comes down to enforcement. There is no enforcement at any level, and that's where we've allowed the industry to go out of control. You can put in as many layers of regulation as you like, but if you don't enforce it it's never going to work. That's where we see the problem, and that's coming from builders and plumbers and people that work in the industry who are at the coalface, not sitting in an ivory tower or anything like that. We work at the coalface and understand building, and while none of us are ever perfect, at least we've got a far better idea than a lot of people who make comments. Enforcement of regulation is the key to the problems we've got.

CHAIR: Is your opening statement on behalf of the other industries?

Mr Dwyer : No. Ken is from the master plumbers, and I'd like him to have something to say. Sahil is from Roscon, and he represents owners corporations and so on and sees the faults in buildings a lot. I would really appreciate it if those two gentlemen could have a minute or two.

CHAIR: Time is marching on, so I would encourage you to provide a brief statement to us, Mr Gardner and Mr Bhasin.

Mr Gardner : I'll keep mine very brief. Plumbing is a regulated industry and is licensed. We do have the benefit of having the WaterMark scheme and the gas appliance approval scheme. None of those things are perfect however. In terms of the WaterMark scheme, or any product approval scheme, if you are considering broadening that and introducing it on a wider basis, I do think you need to incorporate point of sale controls. At the moment, for plumbers, it's up to them. They can only install products that are WaterMarked, but you find a lot of people buying non-WaterMarked products, either on the internet or overseas, that get imported. And although properly behaving licensed plumbers will refuse to install them, the person who's bought them will find someone to do it. So there needs to be a point of sale.

It is also much easier way to regulate the industry, because if you find a non-WaterMarked product at one Bunnings store and point it out to them, they will fix it in every Bunnings store in the whole of Australia. It's a much better way to deal with it. It also needs more random-sample testing. We have seen a possible example that has been referred to this morning as a 'golden child' situation—

Senator XENOPHON: A golden sample.

Mr Gardner : Or a golden sample. I think the only way that you can stop that in terms of the false documentation is if there is an inspection, audit and enforcement regime that randomly selects products that they go out and buy in a marketplace to ensure that what is being supplied is the same as what was tested. There are four ways failures occur. Firstly, you have a non-conforming product; secondly, you have a conforming product but you use it for something that it was not designed for; and thirdly, you do not install it correctly or there is poor workmanship. So, in terms of those broader areas, I do think you need better enforcement, inspection and audit.

As I think Phil was raising, you can always improve the standards and you can have the best standards in the world but, if you don't enforce them, it is not going to deliver you the industry that you want. If you are a plumber who is trying to do the right thing and only installs compliant product and only installs it in accordance with the regulations and somebody else down the road is prepared to ignore all the regulations and do a much cheaper job, that is who the builder will go with. If you had a strong regulatory framework, the chances of that happening would be much reduced. So the good plumbers, the ones who are going to install the compliant product in a high-quality way, would win the work and you would have a much better system.

It seems to me that there is always a lot of buck-passing between the Commonwealth and the states about who sets the standards, who is responsible for enforcing the standards and to what level the standards get enforce, and we need to resolve that. If the states are doing the enforcement, there needs to be a funding mechanism to fund that activity, because that is the critical part that seems to be missing at the moment.

Mr Bhasin : By way of background, Roscon has been a national provider of building consultancy since 1987. We provide services to the owners corporation and industry. You may be aware that aluminium composite panelling, ACP, can be acquired in three forms: combustible core, fire retardant core and non-combustible core. As highlighted in the Lacrosse apartments, our data suggests that the failure in the system is occurring at the procurement of the product and not of the actual specification or design. Architects may stipulate a non-combustible core in size 6 font on architectural drawings; however, builders trying to reduce costs and increase profits are obtaining orders of the cheaper combustible core, as consumers can't notice the difference until it is too late.

The Hon. Daniel Andrews recently formed the Victorian Cladding Taskforce, to be headed by former Victorian Premier Ted Baillieu. Without predicting the outcome, all buildings with ACP may have to be tested. One of the shortfalls which needs to be addressed as soon as possible is the resources for testing for ACP. Currently in Victoria the CSIRO is the only organisation with the capabilities to conduct such tests. However, based on our experience, the capacity of the organisation to complete such works within a reasonable time frame is questionable based on demand if we are talking about thousands of buildings. There is essentially one person at the CSIRO. The imported combustible cladding installed at the Lacrosse building was tested by the CSIRO and found to be so combustible that the tests were abandoned after 93 seconds due to the potential for the equipment to be damaged.

The Victorian Building Authority, the VBA, conducted an audit of some 170 high-rise buildings within the Melbourne CBD and, as you are probably aware, found 51 per cent to not meet the standards; however, they were deemed safe to live in by the municipal building surveyor. One would question if this was due to the pressure of occupants of 85 buildings being displaced of housing. My opinion is that the audit did not scratch the surface, as buildings outside the Melbourne CBD were not part of the scope. The audit needs to be conducted on all buildings with ACM, regardless of the geography, and cladding that is not compliant needs to be rectified through urgent building orders issued by the municipal building surveyor for the retrospective municipalities.

It is also really important to note that buildings outside the CBD generally have cladded buildings up to 25 metres in height or seven levels, which generally do not require fire sprinklers. One of the main saviours of Lacrosse was the fire sprinkler system. What you saw at Grenfell was without a fire sprinkler. So it should be kept in mind that everything in the outer suburbs which has not been tested most likely does not have a fire sprinkler system installed.

The authority requested documentation relating to the external wall cladding, but overall noted that the nature of the scope of the design and detail contained within the drawings and specification that formed part of the building permit appears in some instances to be adequate. The detail was occasionally ambiguous for the purposes of determining compliance with the National Construction Code, and that's what we're talking about today: the ability to work around the code to have a product that can deem to certify. The report's findings also indicated documentation received by the VBA to illustrate materials and methods of construction used by the builder was inconsistent with the approved building permit or inadequate to demonstrate, as built, that the building complied with the building permit. That's what we see at the coalface every day auditing these buildings after they're complete on behalf of the owners corporation. The builder, once awarded the job, is taking shortcuts in the process of ordering the material from overseas, not the actual specification.

The aforementioned building permit oversights have transpired by the privatisation of building surveyors. As Phil mentioned earlier, 96 per cent of building permits in Victoria were not compliant in accordance with the Auditor-General report of 2011. The privatisation of building surveyors has resulted in an alternative solution, which we've talked about at length today, being noted on most building permits, resulting in a lack of amenity or total non-compliance with the National Construction Code. Eighty-five per cent of New South Wales apartments have defects. This was exposed by University of New South Wales research funded by the federal government.

Due to time, I'll skip most of this and will go to the last point. As a nation, we need to improve our urban planning laws and processes for the longevity of our stock being produced. We could be observing a systemic problem due to lightweight construction. Lightweight construction such as polystyrene finished with a sliver of render was originally used for top-storey constructions of double-storey dwellings. This is a completely separate product that we're talking about—polystyrene. Lightweight construction is now being used for the entire dwelling, with consumers being led to believe they have purchased a solid-brick home when it has only been rendered. They discover they have purchased something like a polystyrene esky. There is no way to get polystyrene to work on a wood stud frame and make it watertight. We are going to have a huge epidemic of water ingress in the next three to four years. It is being widely publicised at the moment. That product needs to be outlawed.

Senator XENOPHON: That is polystyrene?

Mr Bhasin : Correct. Polystyrene cladding. That is completely different to ACM.

Senator XENOPHON: In addition to being a fire risk, it will be a maintenance—

Mr Bhasin : A maintenance and longevity risk.

Mr Dwyer : It can be both.

Mr Bhasin : It can be both—yes. In the next 30 to 40 years, my real belief is that the homes that have been made by polystyrene will need to be demolished. They're not being built to outlast 100 years.

Senator XENOPHON: Who allowed the polystyrene to be approved in the first place?

Mr Bhasin : The building laws that were changed in 1996 to allow alternative solutions. Polystyrene is now a compliant solution.

CHAIR: How many buildings do you estimate have this material in them?

Mr Bhasin : I would have to take that on notice, but more than—

Mr Dwyer : Just about every double-storey townhouse. For a pair on a block and that type of thing, they use lightweight at the top. It is the same product that New Zealand had. It was called the leaky home syndrome, and that cost $80 billion in New Zealand.

Senator XENOPHON: That has a sixth the size of our population.

Mr Bhasin : What I also mentioned there is that lightweight construction was first designed for second-storey dwellings in order to reduce engineering, footing and concrete costs essentially. Now builders are utilising the product for the ground storey and top storey of the building.

CHAIR: And that would have structural implications?

Mr Bhasin : Not structural implications. It has watertightness implications. You could imagine polystyrene sitting on wood. How would you keep that watertight on the ground level when you have soils, sand and concrete? It is impossible.

CHAIR: Gentlemen, you're telling us that we've got a broken system, an industry full of ratbags, standards that aren't worth the paper they're written on, you can't get copies of the standards because they're too expensive and people can't afford to access them—

Mr Dwyer : SAI Global is a private company. They control all of that, and it's very, very expensive. It shouldn't be a private company. The Commonwealth could very easily make sure that those publications are available to everyone. If we need to, put a levy on something.

Senator KIM CARR: You're suggesting that the Commonwealth should take full responsibility for the standard?

Mr Dwyer : Not necessarily full responsibility for it but be involved in our facilitating the fact that—

Senator KIM CARR: It used to be, didn't it? It was once a public body?

Mr Dwyer : Yes.

Senator KIM CARR: And it was then privatised.

Mr Dwyer : Correct.

Senator KIM CARR: And the consequence of the privatisation is that it becomes more difficult to get access to it—is that the proposition?

Mr Dwyer : Yes, mainly because of the expense—thousands of dollars—and 85 per cent of the registrar of builders in each state and territory is represented by small to medium builders.

Senator KIM CARR: Refresh my memory: does the Commonwealth have a golden share in the—no more? Is that not the case?

Mr Dwyer : No. We don't.

Senator XENOPHON: When was the certification? When was it privatised in terms of SAI, because it used to be—

Mr Dwyer : I don't know the exact date—

Senator XENOPHON: But roughly?

Mr Dwyer : Probably about 15 years ago.

Mr Gardner : It's up for renewal at the moment—2018, I think it is.

Senator KIM CARR: I recall this matter came up when I was minister, and the Commonwealth does have the capacity to force public interest declarations. Is that your understanding?

Mr Gardner : That is my understanding. The Commonwealth—

Senator KIM CARR: You're saying that it's not being enforced now?

Mr Gardner : The Commonwealth is a significant funder of the standards writing process as well, so you certainly have influence.

Senator KIM CARR: You're saying that it's not sufficient?

Mr Gardner : No, it's not sufficient. The best way to improve compliance—or the first way—is to make the information available.

Senator KIM CARR: I think that's right.

CHAIR: So there are no simple solutions to this issue, but I was going to ask: to what extent do you see the desirability of returning to responsibility for the certification of buildings back to local or state authorities rather than having the private building surveyor problem that you have referred to? Would that be part of the solution, not necessarily the whole of the solution?

Mr Gardner : I think that's part of the solution. The concept of having a private building surveyor that the builder chooses could create a scene of potential conflict of interest. If they were private building surveyors and they were allocated by some sort of public system rather than up to private choice, then that might impose a better level of control.

CHAIR: But, even then, there's always the potential for private providers to want to be accommodating in order to get repeat business.

Mr Bhasin : Currently, that's what you've got occurring. Currently, it's all driven by price. A tender goes out for building works. A tender also goes out for the building surveyor, and the builder generally works with a building surveyor who will give them the outcome that they desire, whether that is deemed to satisfy or with dispensations of other sorts—disability ramps at the front entrance. Dispensations are given out by private building surveyors to satisfy the requirements of the builder and achieve the developer's requirements.

Mr Dwyer : That will always happen while we don't have enforcement when things go wrong. It's across the board. It doesn't matter what area we look at, whether it's domestic, high-rise whatever, it's across the board that we have this problem of lack of enforcement. Back in 2002, the high-rise builders were supposed to be included in the last resort warranty scheme. They kicked up, so what happens? 'Well, we'll take you out of that.' 'Oh good, that's okay. We'll say nothing now.' I don't understand how we can have just the domestic builders funding a consumer protection regime that doesn't work anyway. There's no consumer agency in Australia that has any time for builders warranty insurance.

Even the Insurance Council that you have on after us will say the same thing. They've made statements in their 'house of horrors' story last year that it's fundamentally flawed. We need to get rid of that system altogether and have a proper system under a statutory fund run by state bodies. It happens in Queensland. We're prepared to fund it. We'd be paying less than what we're paying now, because all the private enterprise are taking all the money out of consumer protection and leaving nothing for consumers. Senator Carr, you were at the 2008 builders warranty insurance inquiry in Canberra. You will remember we said exactly the same thing, that we were going to have these ongoing problems, but HIA were very effective in those hearings, and it all remained exactly the same. We need a system of proper consumer protection that includes the high-rise purchases. We have such a dog's breakfast of a building industry at the moment. It doesn't matter whether it's consumer protection or compliance; think of any area and we can find issues with it and, these days, not too much in favour that gives it credibility.

Senator KIM CARR: We appreciate your analysis, and I think there's considerable sympathy within the committee for your observations. We are looking for advice on what to do, including some of the suggestions that've been made today. There's a question around banning dangerous building products entering the country. You're supportive of that approach.

Mr Dwyer : Of course.

Senator KIM CARR: But it's a question about whether or not we enforce a more effective regulation in regard to licensing throughout the building process, from architects and surveyors through to engineers and tradespeople. The plumbers are a fully licensed industry; do you support the extension of that type of arrangement throughout the industry?

Mr Gardner : I certainly do. I think it would strengthen the whole system.

Senator KIM CARR: I'm particularly interested in how we get some enforceable action that means people have to take responsibilities for actions.

Mr Dwyer : That's what we don't have at the moment. When it comes to the litigation side of things, we use the scattergun approach and target everyone around the area that's been involved, instead of focusing on what has caused the problem in that particular building. Architects seem immune from anything, yet a lot of times will design a building that could cause problems later on, but are never accountable.

Senator KIM CARR: There's a question about people being able to abrogate responsibility. This keeps coming up in all the evidence that we're hearing. The licensing regime that's being suggested would require some sanction for negligence, for failure to take responsibility. What do you say to that proposition?

Mr Dwyer : That's probably the key to it, because at the moment we're not targeting the right people for responsibility, so we end up with no outcome. In so many court cases a consumer believes they will get justice by going to a tribunal. They don't get it, in their eyes, and they're probably right, but we don't seem to be able to target anyone, because of our very loose arrangement. There are all these subcontractors in Victoria and not one of them is registered. The attitude of the authority is, 'It's not registered so we can't do anything about that.' That is where we have got this lunacy of a system where people cannot be made responsible. We need to make people responsible. If you or I go and drive over somebody's fence or something—whatever—we should be held responsible, and rightfully so. If we build a building and get paid money for it, and we do the wrong thing—and it could be a safety issue or whatever it might happen to be—we should be directly responsible for that. We need to be able to target those people, and we have got to strengthen that side of the building industry.

One final point I will make: we seem to have the authorities—like VBA, fair trading and so on—not working together, and, even with the NCC, in New South Wales they have decided they are not going to adopt those recommendations. It is one building industry; we should not have one authority, one regulator, over there saying this, and another regulator over here saying something else. We need a more uniform regulatory framework because, at the moment, we have got people in these authorities that, in many instances, have no idea of what they are doing. Even in Victoria, we have got consumers so hell-bent on getting at the VBA, we have got the Auditor-General, we have got the ombudsman and we have got IBAC—three agencies—now having a crack at the VBA. There is something very wrong with everything. We just need to get it fixed up, and I think that is where the Commonwealth comes in. Your government can do something as to turns of direction and how the pieces might be put together, and I do believe that that would be a role for the Commonwealth—to say, right from the very top: 'Boys, this is the way it's going to be, and these are the guidelines and so on, and we are going to have an industry that is going to operate under these rules and regulations, like it or lump it.' But I think that is where the Commonwealth could help enormously.

Mr Bhasin : Just one action point that could be tangible that could come out of this meeting is that the federal government also directs state governments to reform planning laws by including the review of actual products through the planning process. So, to give you a bit of a quick snapshot: the planning process largely focuses on dwelling densities, impact amenities, car park provisions, permeability and site coverage. However, none of that actually includes what building products are going to be used on the construction of that building. Once a planning permit is approved, then builders find the cheapest possible way to build that home and sell it. The consumers do not know the difference between a well built home and a cheaply built home. So they are trying to do anything they can to reduce the fees. The only time that building materials actually get reviewed in the planning permit process is in a heritage overlay environment. So I would suggest that the planning laws actually take into consideration building materials in every planning permit.

Senator KIM CARR: Can I go to this issue about the content—the componentry, you might say—in the manufacturing process. On the question of who takes responsibility for non-compliant products being placed in buildings: do you think there is any evidence of collusion between manufacturers and builders or installers in the placement of non-compliant products?

Mr Bhasin : We see the coalface on the floor when we audit these buildings. To give you some idea: when we ask for glass manufacturing—and here is an issue that has currently raised its head—at the end of glass manufacturing there is a process which is heat soaking, which essentially gets rid of some of the impurities, like nickel sulphite, in that glass. It cannot be tested, after that glass is actually produced, as to whether it has been through that process or hasn't. When we ask for testing data of that glass that has been coming in from overseas, the test data certificates that we are receiving are for the dates that we are requesting the data—and this is two years after the building has been built—which clearly shows that the certificates are just saved on a Word document somewhere and produced, and the address is changed, and it is sent out to you, and that there is no testing of each batch of glass that is being produced at all.

Overseas, I wouldn't say there is collusion between the buildings and suppliers, but what is happening is that a builder is going to the cheapest supplier. In the case of glass manufacturing, there are processes that can be cut out quite simply, like heat soaking at the end, where you will not know if that pane of glass has been heat soaked or not. That will reduce the cost for the supplier, in turn achieving the builder's outcome as well. However, the certification comes with it.

The problem with the current building surveyor system that we have is that they are essentially becoming an administrative body to collect certificates. A building surveyor can sit in his office and ask for the builder to produce an electrical compliance certificate, plumbing compliance certificate, glazing certificate and waterproofing certificate. As long as all of those certificates are provided, that building is signed off, no matter if it is one storey, 50 storeys or whatever it may be. We need to have some monitoring, whether it be CCTV or whatever it be, in these plants.

Senator KIM CARR: So, in your view, if that audit's demonstrated that documentation that has been produced is false, what action should be taken?

Mr Dwyer : Prosecute.

Mr Bhasin : Yes, prosecute.

Mr Dwyer : Prosecute some people.

Mr Gardner : I think that while there may not be collusion, at best there is recklessness. If you all of a sudden get an offer from a supplier at a price that is half of what everybody else is prepared to supply it for, then I would have thought you would at least be asking some questions and looking for a bit more documentation than just accepting it and installing it without any further inquiry.

Mr Dwyer : We were talking about consumer protection in high-rises. If a domestic builder builds a single house, he provides a certificate of occupancy at the finish of that building. The high-rise builder that builds 500 houses, he also is only required to provide one occupancy certificate for the 500 houses. I'm not quite sure how that works either.

Mr Bhasin : In Victoria, just to add to that, the consumer that is purchasing a domestic dwelling has a little bit better consumer protection than someone purchasing a 50-storey tower, based on anything over three levels being exempt from builders warranty insurance. That is a complete farce which needs to be resolved.

CHAIR: Unfortunately, time is marching on. We appreciate you appearing before us.