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

GOVER, Mr David, Chief Executive Officer, Engineered Wood Products Association of Australasia

[14:08]

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

Mr Gover : Thanks for the opportunity to be heard by this committee on the matter of non-conforming building products. This is an issue which is important for the Engineered Wood Products Association, and I think it's also important for the broader building products industry. Our view is that unless there are meaningful penalties for trading in dodgy products, the problem is not going to go away. Over the past couple of years I've observed this inquiry start out to investigate non-conforming products generally, and then morph into an asbestos-containing products inquiry and, following the Grenfell tragedy, into a flammable cladding inquiry. The need for the committee to focus on those issues is absolutely understood and supported; however, I would hope that the efforts of this committee not just translate into effective action to address asbestos-containing products and cladding issues but continue to address the broader issue of building products.

During the course of this inquiry, I've also been aware of other instances of non-conforming products. Whilst we've seen an inquiry into asbestos and flammable cladding, there have been other instances of non-conforming building products which have been visible in mainstream media, not because I've gone out looking for them but just purely in the reading of newspapers that come to my attention: the supposed tempered safety glass shattering on footpaths below, tapware containing lead components, and gas ware which breaks down when exposed to ultraviolet light, just to name a few. There are, of course, likely to be many more than that, and I see this as very much the proverbial tip of the iceberg.

In our submissions to the inquiry, we presented data comparing conformity rates of certified products from Australia and New Zealand to conformity rates for imported products. Testing over a 2½-year period found that the non-conformity rate for imported products was 28 per cent. Compare that to Australian and New Zealand products, at 1.5 per cent when tested to Australian product standards. That testing was up to August 2015. I can report to this committee that nothing has changed. Since August 2015, Australia and New Zealand non-conformance rates are still very low at 1.5 per cent, compared to 34 per cent of imported products that we've found not to conform to Australian standards.

The Queensland government has provided a glimmer of hope of change with the introduction of non-conforming building products legislation. However, change in the current situation, we believe, is going to be dependent on QBCC having adequate resources to get through the mountain of complaints that they are receiving. Beyond the Queensland legislation, very little appears to have changed, unless it is asbestos or cladding related.

Various possible solutions have been suggested to try to curtail the availability of non-conforming products. These include mandatory certification, product registers and border screening. I'm happy to expand on these if it's helpful to the committee. However, it is my view that change will only be achieved if there is accountability in the supply chain for the supply of non-conforming building products and strong disincentives to prevent them being there. Unless regulators can create that disincentive, it will not be surprising to continue to read of building products' failures in our newsfeeds.

I will do my best to answer any questions you might have of me.

CHAIR: Thanks, Mr Gover. Just to take you up on that final point, which regulators or enforcement agencies for your industry are the important ones that need to do the right thing?

Mr Gover : It's a really good question. I think it's an indication of a broken system when an organisation which has strong interest in non-conforming building products struggles to recognise the organisations that we should be approaching to take up the fight. As part of our testing, we have advised two organisations of results. We've advised QBCC of some of those results, and we've advised ACCC of results. QBCC have acknowledged that, and on one of those complaints they are currently looking for an independent body. They've had a response from a party in the supply chain. They're looking for an independent body to make their own assessment, which as far as I'm concerned is exactly what they should do. Until this morning, I had had no response from the ACCC. We provided information to them on 9 April. They responded to our lawyer last week, and I received confirmation from our lawyer this morning. So, some four months later, we have acknowledgement of receipt of our concerns. In other jurisdictions, we are not clear who we should be reporting the issues to.

CHAIR: That's certainly a major concern. You've highlighted the difference between imported products and Australian products. Does that suggest that something needs to be done at the border?

Mr Gover : My highlighting of Australian and New Zealand products compared to imported products is probably a reflection of our association. The coverage that we have as an association covers all of the manufacturers of the products that we certify in Australia and New Zealand. There are other wood products that we don't certify that are manufactured in Australia that we're aware of that don't conform. The businesses are probably more cavalier in their approach to conformity. I think the issue of screening at the border is a difficult issue. It's a difficult issue because of the volume and because of understanding what sorts of products you should be testing: how are you going to test them and what's the cost of testing? It is a possibility. The Korean Forest Service has a model where materials have had to be tested at the border when products are imported into South Korea.

CHAIR: What's the cost differential between those that are producing conforming product that's properly tested and those that don't?

Mr Gover : In terms of the testing that we do and the audit work that we do, the cost is not massive; it's probably in the order of about $25,000 a year. In terms of internal costs, doing their own internal testing, some of the mills that we work with would be spending $150,000 to $200,000 a year as a direct cost. They have additional costs in terms of educating their staff and making sure that they are clear on what their responsibilities and accountabilities are in terms of managing their manufacturing process. There are also some hidden costs. If they do identify a problem, there's then the cost of quarantining that material, reworking that material or writing off that material. That's where the much greater cost will be. If you're not worried about the conformity of your product, you put that material out to market and you have no cost; you just have margin.

CHAIR: What happens when it's identified that the material is non-conforming?

Mr Gover : It has to be identified that it's non-conforming, and then you've got to find out who has supplied it. You have to have people that are prepared to pursue it. It will either be settled commercially—people will talk to their suppliers and come to some sort of commercial arrangement—or it won't be sorted at all. The difficulty is that no-one is going to be in a hurry to make a song and dance about non-conforming building products when they have an asset that the song and dance is going to devalue.

CHAIR: Okay. You've highlighted the accountabilities with QBCC and the ACCC. We've talked about the Queensland chain of responsibility legislation. Do you agree that it's a step in the right direction and that other states should follow suit?

Mr Gover : I do agree that it's a step in the right direction. I think that other states following suit would be a positive move. I was really disappointed when the New South Wales government had prepared legislation, had consulted with industry and had feedback from industry that the legislation was supportive of our concerns, and then, somewhere between consulting with industry and presenting that to the chamber in New South Wales, it had been completely gutted. Some fervent work by industry advocates attempted to get amendments back into that legislation, but they were all blocked. My interpretation of the amendments from the New South Wales building act is that it's pretty gutless in terms of trying to counter non-conforming building products.

CHAIR: What's the normal methodology for non-conforming product to be identified? Who actually identifies that?

Mr Gover : It depends on how serious the non-conformity is. In a case that I was involved with on a concrete apartment being built in Sydney, the formwork had been set up ready for a concrete pour. The reinforcing steel had been put down. The developer's safety officer, on a walk around the site, saw some material delaminating and was concerned. The developer, of all people, contacted the CFMEU with their concerns and the CFMEU contacted us to go and have a look. In that instance, the developer saw that there was a problem. They saw a problem with their build, with that material potentially failing. When formwork fails with wet concrete on it, you have a massive problem. The subcontractor was particularly unhelpful. It wasn't until Safe Work got involved and issued a directive that they had to replace the formwork that the material was taken up and moved. Of huge concern on that particular job was that the subcontractor was lining up the material that he had taken off the site to put on his truck, take back to his yard and use on the next job. Such is the lack of commitment to conformity in some parts of the industry.

CHAIR: In the case that you just cited, was that a situation where the workers themselves were probably the ones that detected the non-conforming product?

Mr Gover : The developer's safety officer identified the problem and asked questions. The CFMEU asked us to have a look, as people that had expertise, and we provided that expertise.

CHAIR: Have you had a chance to look at the Shergold and Weir report? I'm interested in your comments about it. Are there any recommendations that you support or any that you don't support, or anything else in the report that you think is worth highlighting?

Mr Gover : I have read the report. I would support most of the content of that report. My interpretation of it is that there is a lot in that report which is dealing with compliance issues, and a small part of it dealing with product conformity issues. I think the compliance issues absolutely are an issue, but it's a different issue to non-conforming building products. They both impact on building quality, but the building product conformity issue is able to be addressed separately.

CHAIR: Thank you.

Senator PATRICK: You made the point at the start that there are no meaningful penalties for dodgy products. What are the current penalties? Who collects them—so, who receives the money? What should they be?

Mr Gover : If I can use the case of Infinity cable, because I think that's probably a good starting point: a business that imported cable that wasn't fit for purpose and that didn't meet product standards—some 6,000 kilometres or thereabouts, depending on whose version you read—sold into the Australian market, and they received fines that probably totalled about $40,000. If I were the owner—

Senator PATRICK: They went out of business, so, in that instance, they paid the ultimate price. Maybe that was a price they were willing to accept—I don't know. In the end, they were out of business.

Mr Gover : I suspect the margins that they made before they went out of business were fairly attractive. If I were making a reasonable margin on that product for the quantities that were sold, I would probably quite happily go out of business and go away with some comfortable profits.

Senator PATRICK: That's, in some senses, an extreme example. For the person who's taking material off site, putting them on their truck and using them at the next job, and is maybe not interested in phoenixing as a business process—what sort of fines? You're saying $40,000 for a corporation with a significant breach? What's the bar we need to put on this?

Mr Gover : I break up people that use non-conforming building products into three categories: the ignorant, the rogue and the person trying to survive and compete in business. For the ignorant, they have chosen to be involved with a building product that they don't understand in applications that they don't understand. They've cut their costs. The penalty needs to reflect the cost they've cut and be a disincentive to them taking those shortcuts. As for the rogues who have gone out there and just don't care, put them out of business and fine them and make it hurt, because I think, until it does hurt, people will continue to abuse the system.

Senator PATRICK: Obviously, they operate under a company framework, and it's hard, necessarily, to lift the corporate veil and get access to the directors, I presume.

Mr Gover : Yes.

Senator PATRICK: What about the surviving person?

Mr Gover : The?

Senator PATRICK: The third category.

Mr Gover : What I would like to see happen is those people being given the opportunity to compete on a level playing field and being able to do good work with good product, because at the moment I think there are good building practitioners that want to do the right thing and they are struggling to compete.

Senator PATRICK: That's what the chair was suggesting before—that people can't do the right thing because they'll go out of business. Do you see non-conforming wood products as illegal as well? There are some forestry products that are cut down illegally. Is that non-conforming or it that classified in another way?

Mr Gover : It is probably dealt with under the illegal logging act, so we don't put it in this particular brief. There's other legislation that deals with that. I think the legislation that's there is a good model, with a process of working out who your suppliers are, going through due diligence and being able to demonstrate that the product is suitable.

Senator PATRICK: Noting that we know from testimony from Border Force that they can't really stop product coming into the country unless it's illegal—for example, they can stop asbestos—they're not in a position to stop non-conforming or non-compliant material very easily. Under the act—sorry, I didn't catch the name—in relation to illegal wood, can Customs stop that?

Mr Gover : I believe they can. It's interesting that, from an article I read last week, Border Force turned around a load of pianos from China on the basis that they claimed they were made in Australia, and yet we can't turn around non-conforming building products which have a safety risk.

Senator PATRICK: In that case I guess that's just a complete misrepresentation that is perhaps easier to prove, but as we know, when some glass comes in with a false certificate, it's much, much more difficult. I'm not trying to defend Border Force. I'm trying to differentiate between where they are successful and where they're not. In stopping illegal wood, are they more successful? Do we get a better number than what you said before, 28 per cent or whatever?

Mr Gover : I don't know. The challenge with all of this is that no-one is going to tell you how much material doesn't conform with the legislation, and it's difficult to find out where it is and it's a challenge to prove it.

CHAIR: To follow up on that, what's working under this Illegal Logging Prohibition Act that could be applied to non-conforming building products?

Mr Gover : What is good about that act is there's a due diligence component to it. There is an obligation. If you are importing into Australia a product which contains wood, you are obliged to follow a due diligence process to ensure that the material is legally sourced, from legally sourced products. That due diligence process is entirely applicable to building products, and I think there should be an onus on importers of building products to go through exactly the same due diligence process. We've seen fraudulent certificates; the challenge is they've got to be able to sort through that fraud as well.

CHAIR: Is the problem of fraudulent certificates alive in the illegal logging space?

Mr Gover : Absolutely. There are forest certification schemes, the Forest Stewardship Council and the Program for Endorsement of Forest Certification, both international certification schemes. You can buy certificates for them in different parts of the world, rather than actually have to go through the process.

Senator PATRICK: There was some testing being done by the Adelaide university on detecting illegal wood, wasn't there—like a DNA test of wood?

Mr Gover : You can do DNA fingerprinting, essentially, of some species. The problem is that it will tell you what the species is, but it won't tell you where it came from. It might be from somewhere where it's legal to cut down a particular species or it might be from somewhere where it's illegal.

CHAIR: What are the cost implications of a due diligence process for building products?

Mr Gover : It would probably depend on the product. The due diligence process, in terms of the illegal logging, can extend as far as doing your own investigations of the supply chain. When you get to that level, obviously the price will be fairly high because you have to commit the time to going into their supply chain and investigating it yourself. But, if the risk is such that it warrants it, maybe that is what needs to happen.

CHAIR: Is it the nature of the penalties as well in the illegal logging area that might be driving better outcomes?

Mr Gover : Potentially, yes. There are penalties that can be applied, as I understand it, under their illegal logging act.

CHAIR: Thank you very much, Mr Gover, for appearing before us.