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Economics References Committee
13/11/2015
Non-conforming building products

BYRNE, Dr Anne, General Manager, Manufacturing and Services Policy Branch, Department of Industry, Innovation and Science

CHESWORTH, Mr Peter, Acting Deputy Secretary, Department of Industry, Innovation and Science

DAVIS, Mr Gary, Manager, Building Metals and Construction Section, Department of Industry, Innovation and Science

SQUIRE, Mr Martin, General Manager, Trade and International Branch, Department of Industry, Innovation and Science

[9:43]

CHAIR: I now welcome representatives of the Department of Industry, Innovation and Science. Thank you for appearing before the committee today. I now invite you to make a brief opening statement, should you wish to do so.

Mr Chesworth : Thank you for the opportunity to share our department's views as the committee conducts its inquiry into non-conforming building products. It is important to note that non-conforming building products are only one issue that impacts on the quality of buildings in Australia. The difference between non-conforming and non-complying building products is an important distinction, as these two issues are often conflated—as I think we have already been discussing today. All building products, regardless of country of origin, are required to conform to minimum Australian performance standards as referenced in the National Construction Code and subsequently referenced in state and territory legislation. It is important to note that the National Construction Code and the building conformance framework for these products centres on the constitutional authority held by state and territory governments and enacted through their building legislation. This extends to building product compliance and enforcement.

Under state and territory building legislation, building certifiers are responsible for assessing the conformance of all components of a building and issue construction compliance and occupancy certificates. These certificates are linked back to the requirements of the National Construction Code and the standards referenced within. The selection and installation of products can often involve designers, developers, builders and consumers, and all of these stakeholders share in some of this responsibility to ensure that non-conforming building products are not installed in Australian buildings. Within this context, there is an important role for the Commonwealth in relation to building and construction matters.

My department represents the Commonwealth as one of the nine government members on the Australian Building Codes Board, which is the standards-writing body responsible for the National Construction Code. The Commonwealth also chairs the Building Ministers' Forum, which is a body of Commonwealth, state and territory ministers that oversees the implementation of nationally consistent building and plumbing regulation through the intergovernmental agreement for the Australian Building Codes Board.

At the most recent Building Ministers' Forum, on 31 July 2015, ministers agreed to some significant outcomes that will benefit the Australian building and construction industry and the wider community, including on non-conforming building products. Specifically, ministers agreed to establish a working group of senior officials from all jurisdictions to report on strategies to minimise the risks associated with non-conforming building products. That report will be presented at the next Building Ministers' Forum meeting, currently scheduled for 19 February 2016. As part of this participation, the Commonwealth has outlined an information-sharing option where the Department of Immigration and Border Protection, which you are speaking with later today, could play a role in assisting states and territories with additional information to help them better target their enforcement and compliance activities.

CHAIR: Returning to the Lacrosse building fire, the Victorian government's submission in relation to that noted:

… there is no single organisation or regulator responsible for certifying products as being compliant with relevant standards …

Is that something that is being looked at?

Dr Byrne : The Building Ministers' Forum concluded that there were two separate issues that needed to be addressed through two separate processes. As Mr Savery described, one of the outcomes from the Building Ministers' Forum was an investigation of fire safety in high-rise buildings, which the ABCB office is undertaking. In that context, there is an exploration of options for possible mandatory schemes for high-risk building products with life safety implications. So there is, if you like, a process underway to acknowledge that, as a result of the Lacrosse fire, there may need to be some refinements to the processes that we have in place to ensure that we have better controls and safety protections for the Australia community in the context of a high-rise building fire in future. That work is underway and, as Mr Chesworth said, the expectation is that reports from that work, plus the work of the senior officers on non-conforming building products, which is a separate process, will come back to ministers at the next Building Ministers' Forum in February. So it is a work in progress.

CHAIR: I am not sure if that goes to the architecture question that I am referring to.

Dr Byrne : I think Senator Xenophon mentioned that the national processes are fairly piecemeal. I think one of the issues that is being explored, including through a recent COAG Industry and Skills Council meeting, is an attempt to further clarify the roles and responsibilities of the various parties. It is a complex environment, but I do not think it could be described in the words that were used before—

Senator XENOPHON: Piecemeal. Why don't we just call it fragmented.

Dr Byrne : There is perhaps a lack of precision in how we articulate at the system level where the parties fall, but it is clear that the states and territories have the enforcement and compliance responsibility. As Mr Savery said earlier, there are consumer issues that need to be addressed through the relevant bodies, and there are also other aspects at the system level. The clarification of how the system works may be at issue, but there is a system in place, and I think that is articulated in some of the submissions to the Senate inquiry.

Senator MADIGAN: We realise there are lots of bodies that deal with different things, but it does not give any solace to a first home buyer purchasing or building a home. They assume that there are government departments that are looking after their interests. I have received complaints around steel reinforcement; then I spoke to the industry body that represents that area. I was shown bogus test certificates for concrete reinforcement bars. I have had other people speak to me about formaldehyde in composite boards used in cabinetmaking. I have seen dodgy, non-conforming plumbing products where the intellectual property trademark is ripped off from an Australian company that does make a product that conforms to the applicable code. I am sure you are aware that these are problems. We are hearing about the building fire in Melbourne at Docklands. Is this the only thing that has piqued the department's interest in this issue, because it is so high profile? As I said, I am concerned that there are hundreds of thousands of Australians across the length and breadth of the country who are exposed to products that are not fit for purpose—that is one issue. There are non-conforming, non-compliant products and, potentially, there are even standards that some products comply with where the standard itself is not fit for purpose. It is a massive problem. I believe we have a duty of care so that Australians can have confidence that the materials in houses being built for them are right. I know you do not have a role in the workmanship issue of a particular house, but in the product that is used in that house we have a duty of care.

Mr Chesworth : There are a few elements to that question. I will work my way through them—and pick me up on any that I omit. In the purchase of a house, there are so many issues at play, and you have touched on some of those as they relate to consumer protection and consumer confidence—everything stretching from importation standards to intellectual property and a range of other things. As we indicated in our opening statement, the responsibilities are very clear in relation to what level of government is responsible for enforcement. As Dr Byrne indicated, we constantly have a job ahead of us to ensure that those roles are clarified.

Additionally, you asked if anything was done prior to the Docklands fire and whether the Docklands fire is really a catalyst for this work. I think it is fair to say the Docklands fire has focused attention on this issue, but, as Mr Savery indicated, it is a complex regulatory regime because there are so many issues at play. As part of this, we went through and had a look at when Building Ministers' Forum meetings had been conducted in previous years. It is more or less an annual event. It is something that has clearly constantly been the focus of governments over a number of years. I am quite sure that, if we looked at the discussions back in 2007 and 2008 and at where they are now, there would have perhaps been some incremental change along the way. But it is fair to say that, yes, the Docklands fire has focused and sharpened attention on these issues—and I think the terms of reference for this inquiry reflect that.

Senator MADIGAN: We have Standards Australia, we have your department, we have Customs and Border Protection, we have the ACCC, we have all these different bodies, but the system is not working. That is my concern.

Mr Chesworth : I cannot comment on whether the system is working. I think—

Senator MADIGAN: It is not working when we have this product being used in commercial developments, schools, hospitals and private homes. The system is not working. Would you acknowledge that?

Mr Chesworth : No, not necessarily.

Senator MADIGAN: Well, tell it to the people whose homes are not worth a crumpet.

Mr Chesworth : In relation to whether that is an issue connected to the involvement of many levels of government and many portfolios, I would suggest that nearly every issue that my division and portfolio is involved in cuts across government both horizontally and vertically—everything from the auto industry vehicle emissions standards to the defence industry or whatever. It is a common feature of policy and regulatory implementation that many departments and many levels of government are involved. I am really not meaning to engage in weasel words here, but this is a complex issue. We appreciate that a house is the biggest purchase that anyone is going to make, and in that instance the issues are certainly brought into a sharper focus. But I could not comment on whether that is an indication of whether the system is broken. I am not necessarily sure that is the case. The Building Ministers' Forum is having a look at some of these issues. There is an officials group working on it, with a report to be handed back to the Building Ministers' Forum in February next year.

Senator MADIGAN: At these ministers' forums is the consensus that currently the system is working?

Dr Byrne : I think it would be fair to say that one of the challenges in this space is, first, to be clear about definitions about what it is that we think is the issue. That of course informs, ultimately, the strategies. But what is the evidence base for the claims being made? One of the parts of the system—and our colleagues from ACCC will be speaking to you later—goes to a level of evidence that is required to take action in relation to consumer law. I might just put that to one side.

But where ministers got to in their thinking at the last Building Ministers' Forum—and, as Mr Chesworth indicated, previous discussions of building ministers had gone to the same place—was that there is still not a body of evidence that indicates what the specific nature of the problem is that might require a measure. So what the senior officials have been asked to do is to consider strategies to minimise the risks to consumers, businesses and the community associated with the failure of building products to conform to relevant state and territory building laws and regulations and at the point of import. So, to pick up Mr Chesworth's point, there is a recognition that at the heart of the enforcement system are the states and territories. They are responsible for enforcing the National Construction Code. They are responsible for enacting the legislation requiring compliance, but the Commonwealth obviously recognises that, at a system level, it is wider than that.

As you mentioned, Standards Australia has a role and our colleagues from the ABCB have a role, as do local governments and, of course, the consumer law agencies—Fair Trading and ACCC. At the point of import is important because there is a recognition that we should also explore whether or not there are any issues at the point of import. One of the considerations of the senior officer group which is exploring these strategies is to consider whether or not it may be possible to consider ways in which data could be shared by colleagues in the Department of Immigration and Border Protection with state and territory colleagues to ensure that regulation is properly enforced. This is a work in progress. I know you are talking to colleagues from that department later today, who will no doubt want to add more. But I think that is a recognition that ministers and, on their request, officials are mindful that we need to explore strategies to see if improvements can be made, and not just at what we know now but also in addition—is there is anything at the point of import where we should be taking further action?

I am not sure if that is complete enough. Certainly there is a recognition, but I do not think it is fair to say there is a conclusion that the evidence indicates there is a system-level problem, but it is still a work in progress in terms of exploring options.

CHAIR: In terms of looking at these issues, is there any impact in the consideration of this from the negotiation of free trade agreements? I understand there may be consideration of aspects of conformity assessment.

Mr Squire : For example, where Australia might initiate and sign a free trade agreement with another country and that then provides relief from duties applicable to products, that does not remove the obligation on those products from meeting a particular Australian standard if that standard is called up in legislation or via regulation. That claim that free trade agreements allow for open borders for the quality of goods meeting Australian standards is not correct.

CHAIR: I am not making that claim; I am just interested as to whether the TPP in particular is relevant here. I understand that DFAT has said:

The TPP will include ‘WTO plus’ commitments, such as those relating to conformity assessment procedures …

Mr Chesworth : We might have to take that on notice.

Mr Squire : If that is the Department of Foreign Affairs and Trade's claim, we would not—

CHAIR: So you are not aware of that?

Mr Squire : Of their claim. I am not sure where you have referenced that claim from.

CHAIR: This is apparently available online, this particular comment. It is from the document 'The Trans-Pacific Partnership Agreement: An introduction by the Department of Foreign Affairs and Trade'. Perhaps if I could leave you with that one and you can come back to me on that?

Mr Chesworth : Yes. If they have put it on their website—I am always reluctant to second-guess it—we are not aware of it. We can take that up with the department.

CHAIR: So you have had no specific instructions in relation to that matter having any bearing on the Building Ministers' Forum?

Mr Chesworth : Not in relation to the Building Ministers' Forum. Whether there have been any discussions on that matter—as you would appreciate, in the first six months of this year in particular there was some very intensive work in relation to the TPP, and the ChAFTA—China-Australia FTA—as well. But not being directly privy to them, we are going to have to go and have a look at that.

Mr Squire : Excuse me: one thing that is worth adding to that discussion, Senator, not so much about the TPP but perhaps the China-Australia trade agreement, is that it does provide another avenue for the Australian government to raise any issues around conformity assessment with, in the case of China, for example, the Chinese government. That is one of the benefits of free trade agreements: it does provide another venue, if there are issues, for those to be raised by the Australian government.

Senator XENOPHON: Can I follow up on that?

CHAIR: Sure.

Senator XENOPHON: That was a very important question, Chair, that you asked. The chair has read out to you what appears to be DFAT's considerations that could well impact on the work that you are doing in terms of the conformity of building products or the regime for approval and assessing conformity. It seems curious that one department is not telling the very department that is going to bear the brunt of this what is going on. So have you had any briefings, any indication, any correspondence from DFAT saying, 'TPP, any free trade agreements we've entered into, will impact on the work that you're doing in terms of conformity of building products'?

Mr Chesworth : If I could, I would like to go and check on that. It is a big portfolio; there could well have been an entry point somewhere else in the department, but I am just not quite sure.

Senator XENOPHON: Okay.

CHAIR: I am just going to go back to the Building Ministers' Forum and the fact that in late January, probably, there will be an outcome from the meeting on 31 July. Are you able to give us an update at the moment on any progress that is happening?

Dr Byrne : Yes, and just to correct the record: the proposed date, as Mr Chesworth said, for the next Building Ministers' Forum is 19 February 2016. To date, in terms of the senior officers group, I can only comment that Mr Savery from the Australian Building Codes Board, as he explained, is leading the work on the non-complying building products. My team is involved in the non-conforming building products. The senior officers working group has met twice on 29 September and 6 November and is having another meeting on 24 November. To date, we have progressed terms of reference for our work, considered a consultation strategy with stakeholders, examined and reviewed all of the 74 submissions to the Senate inquiry into non-conforming building products and started to explore a range of possible options in terms of potential strategies because that is the focus of that work.

At the last meeting we invited, as guests to the discussion with senior officers from the Commonwealth and from states and territories, our colleagues from both the ACCC and the Department of Immigration and Border Protection to provide insights into what it is the Commonwealth does in relation to the system, so that we are all clear on roles and responsibilities. At the next meeting we anticipate there will be a fuller discussion about potential strategies. Once those strategies are developed, they will be ultimately finalised and forwarded to the building ministers for consideration on 19 February, so that they can decide on what further action ministers believe is appropriate.

Senator MADIGAN: Mr Chesworth, I am aware of test certificates that have been issued which are bogus. The particular manufacturer here had some doubts about this particular product and this particular certificate and so rang the company listed on the test certificate. They could not get the person who signed the test certificate. They were never available or quite often they did not answer the phone. He also went to the listed address of the supposed testing company and there was nobody at that address. If I were to furnish the department with this test certificate and the details of the so-called testing company, would the department look into that or is that not your area?

Mr Chesworth : It is probably not my area. Certainly the ACCC will be here later on today and it would appear to be something that may fall within the general realm of misleading and deceptive conduct. They have a general catch-all provision in the Competition and Consumer Act, section 52, and some other provisions as well within part V of that act. My recollection is that that is broadly reflected in state and territory legislation as well in their fair trading acts, so certainly the ACCC would be best placed, as the enforcement authority for consumer protection, to deal with that issue.

Senator MADIGAN: In the case where a certificate of compliance to a standard is issued overseas for instance, who in Australia conducts compliance? Do they do random audits of these testing facilities to see that there is compliance rather than just relying on some external body?

Mr Chesworth : We could give you an answer but it would not be entirely clear. It is probably better to take it on notice so we can get you a fully worked through answer. I suspect that we might have to speak to some colleagues in state and territory jurisdictions as well, but at least that way we can get the committee a clear answer on that question. Essentially, if I could clarify, the question is: what or who is responsible in Australia for determining whether a certifier is actually a certifier or not?

Senator MADIGAN: There are different bodies with different products—even the way the certificate is written, if you know what you are reading, does not make any sense. Yet nobody seems to be checking the validity of the certificate that comes with the product. Do the states have people with adequate training proficiency to even look at these things? Would it not make more sense to have one body dealing with this so that there is one point a state department can go to and say, 'We've got a query on this and we need people who are adequately trained in that particular field to deal with it'? There seem to be huge gaps.

Dr Byrne : Mr Chesworth said we will take that on notice and give you more detail. Just to confirm, each state and territory adopts the National Construction Code, as you know, by their relevant building or planning acts. They are responsible for regulating product conformity, and the required documentation to the extent provided in the National Construction Code is their responsibility. But we will follow up and give you more detail on that.

Senator MADIGAN: If a consumer and/or a manufacturer has a concern about a test certificate accompanying a product—correct me if I am wrong—you have to lodge that concern with New South Wales, Victoria, Queensland, the Northern Territory and Tasmania. You have no one person dealing with it. They all deal with it separately.

Mr Chesworth : Again, we will work that into our clarified response.

Senator MADIGAN: You do not know, currently, what the situation is.

Mr Chesworth : I would suggest that if there were a problem with Victoria they would go to the Victorian state government.

Senator MADIGAN: But the product does not know a boundary between states, Mr Chesworth; that is the point. It goes all over the country.

Mr Chesworth : Indeed. It would rely on conferring between jurisdictions.

Senator MADIGAN: It is not efficient, is it?

Mr Chesworth : It depends. Where we sit, there are often instances that arise where it is put to the Commonwealth that a central body for something or other would be more efficient and the way to go. There are just as many instances whereby the Commonwealth is not placed to do it, because we are generally not close to the action. It is broadly reflected in the arrangements as they exist. Whilst they are broadly guided by constitutional responsibility, there are plenty of instances whereby the regulation sits at the state level. There are some circumstances where there is collaboration. Even the existence of the National Construction Code and the Australian Building Codes Board is an example of that. I could not respond, with any certainty, that it is always the case that centralised things, with the Commonwealth, is the way to go.

Senator MADIGAN: In the case of the ACT and the Northern Territory, would you agree it is not practical? They have, predominantly, far smaller populations than the rest of the states. How could they have the people there? You are going to have a body or testing facility in the ACT and we are going to replicate that in the Northern Territory. How do the people of the Northern Territory justify—is it better to pool our resources and have a one-stop shop, so to speak, to give people clarity and faith in what they are being told?

Mr Chesworth : I can hear what you are saying. That is an issue that goes, broadly, outside building products and what the roles and responsibilities—particularly of the territory governments—are. Even to compare the ACT with the Northern Territory is quite a stark comparison, because the ACT has quite a dense population within a small, confined space. In other areas that I have been involved with, in the past, particularly around consumer protection, fair trading and those sorts of issues, the Northern Territory has represented itself very effectively. I could not comment on their capability to do that in other areas as well.

Senator XENOPHON: Has the department received any advice or given any consideration as to whether it has the constitutional heads of power to have a uniform scheme rather than—I know Dr Byrne does not like the word piecemeal but it is a situation where you have separate regulators and a separate approach. There is the example of a product such as the Infinity cable in 40,000 homes and a number of states. Has advice been sought as to whether there is the power to have a more streamlined national approach to these matters? I am not asking for your opinion on whether there should be a national approach, because that would be improper.

Mr Chesworth : The answer is: no.

Senator XENOPHON: That solves that one, pretty quickly. The other issue is—

CHAIR: I have a follow-on question from that. The building industry located on the Gold Coast and Tweed Heads has different regimes. This would seem to be a prime target for red-tape reduction and productivity improvements. Is this an issue that is on the government's agenda?

Mr Chesworth : I will just respond briefly. More generally, all governments, in terms of red-tape-reduction policies—Albury-Wodonga, the Gold Coast-Tweed—and those sorts of issues can show up some stark differences. Often, examples can arise particularly with tradespeople working across the borders. I could not comment in this space, but I have heard about the particular issues that can arise when both consumers and tradespeople, in particular, have to straddle states.

CHAIR: We have the National Construction Code but different regimes that have evolved. Without seeking to water down any regulations—I certainly would not be proposing that—there seems to be scope for harmonisation and streamlining.

Mr Chesworth : It falls, again, to the states and territories.

Dr Byrne : I want to acknowledge the policy issue you raised about variations. It is something that the Commonwealth has been mindful of for a long time and continues to pursue an agenda to reduce variations at the local government level, just as an illustration of efforts to reduce red tape and ensure greater harmonisation.

It is also important to reflect on the history of the NCC and how we have got to this point. Originally, every jurisdiction was more or less doing its own thing. The National Construction Code provides a mechanism for a unified framework, at the standards-writing level, at least. While states and territories are responsible for the legislation and decisions about what to take or not take into their own legislation, from the NCC, it is certainly more harmonised than it was many years ago. It is evolving, but it is important to remember where we started from: states and territories all doing distinct things. Now we have an overarching framework, through the National Construction Code, that, in part, harmonises, at least in terms of the framing of it, and that is a very powerful instrument.

In addition, as I mentioned, the Commonwealth remains committed to trying to look at mechanisms to reduce variation. At the last Building Ministers' Forum ministers agreed that they would continue to look, themselves, states and territories, at limiting variations to the National Construction Code. It is a work in progress, but it is important to see that it is an evolving set of activities.

Senator XENOPHON: You said in your evidence—I made a note of it—that as a result of the Docklands fire there 'may be' some changes. My first question is: does that mean nothing may change, in terms of the regulatory framework, as a result of the Docklands fire? My second question is: in relation to the matters raised by Senator Madigan where there appear to be dodgy compliance, that there are organisations issuing certificates that do not exist or they cannot do the testing that they purport to be doing, what penalty is there?

Rather than talking about consumer law, or the ACCC taking action for false and misleading conduct, that seems to be not only a fraud but something that puts people's lives at risk.

Finally, in relation to the issue of the Infinity cables, unless there is a total perfect recall of them and remediation done immediately, it is inevitable that there will be houses that will burn down and people electrocuted as a result of that. I am just worried that there is not a sufficient lack of urgency in terms of resources on this.

Mr Chesworth : I can respond to a couple of bits. In relation to compliance issues, the legislation at both the Commonwealth and state level is clear as to where that sits. It is up to the regulator to determine whether it falls into, let's call it, the misleading or deceptive civil layer, or whether it needs to be escalated to something that the DPP would be looking at, which is an out and out fraud. I suspect—

Senator XENOPHON: Does that include the risk to life. If as a consequence of the fraud you are going to put people's lives at risk, and there is a risk of injury or death as a result of that, is that a factor that is taken into account?

Mr Chesworth : I do not know. The ACCC will be able to respond to that more clearly this afternoon. If there are issues of fraud I suspect it probably comes under the Crimes Act rather than the Competition and Consumer Act. So there are two separate issues at play there.

Dr Byrne : Can I just answer your question directly. I do not think it is appropriate for us to assume that we can conclude for ministers what they will decide in relation to the follow-up action in relation to the fire safety in high-rise buildings, nor in relation to addressing non-conforming. So my caution was simply to acknowledge that, while the work is underway, at this stage I do not think I can state what it is that ministers ultimately will conclude.

Senator XENOPHON: To be fair to you, if there is not any change, that is a matter for the ministers themselves to explain.

Dr Byrne : That is the way you might put it!

CHAIR: Thank you for your attendance here today.