Leading architecture industry groups have made a joint submission to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, detailing the unfair treatment of architect-administered contracts by the banking sector.
Several banks are refusing to approve construction loans to consumers for projects where contracts specify an architect as the contract administrator or where contracts contain provisions for monthly progress payments or where progress is assessed by the architect rather than a bank-appointed quantity surveyor or a contract that contains provisions for variations.
Describing this practice as anti-competitive, the submission said that the banks’ policy on lending is imposing costs on consumers as well as small business.
The joint submission by the Australian Institute of Architects (the Institute), ArchiTeam Cooperative and the Association of Consulting Architects Australia (ACA), condemns the unfair treatment of industry-standard construction contracts by banks, which is negatively impacting construction industry competition.
According to the groups, which have a combined membership of almost 15,000, instances of banks refusing to lend to consumers have occurred primarily in the housing sector where architect-administered construction contracts have been applied.
A snapshot survey conducted by the Australian Institute of Architects, ArchiTeam and the ACA revealed that:
- 175 projects with an aggregate budget of $152 million were delayed by a total of 324 months;
- Big four banks were responsible for 65% of reported loan refusals of architect-administered contracts;
- Small businesses are the most affected by loan refusals, with 71% of impacted architecture practices employing five people or less;
- 66% of project budgets are under $1m and 85% under $1.5m, the average project budget being around $870,000.
AIA National President Clare Cousins says banks are unfairly discriminating against architect-administered contracts, discouraging the professional engagement of architects and excluding them from engaging in a task for which they are specifically trained.
“At the end of the day, Australian consumers are the ones paying for this unreasonable and discriminatory behaviour by the banks, which prevents architects from properly overseeing the projects they have been appointed to design and in many cases, to oversee and manage to ensure work is completed to the required standards.
“If more architecture-administered construction loans were approved, it would ensure that more buildings are constructed to the highest standard, designed and overseen by qualified architects, which would on the whole, offer greater consumer protection.”
In the aftermath of the Grenfell Tower disaster and following the release of the Building Confidence report, which recommends significant changes to the National Construction Code (NCC), there is renewed focus on building safety; therefore, architect-led project management should be front-of-mind.
ACA Immediate Past President, Kieran Wong observes that architects go through rigorous training starting with five years of study at university, followed by two years of mandatory practical experience and the requirement to pass a state registration exam before being registered as Architects. This qualifies them to carry out the role of contract administrator for these contracts and their role on-site reduces inherent risks associated with construction and improves the quality of building outcomes.
Thanks to the banks’ unfair lending conditions, consumers have no choice but to exclude architects from their projects, which increases costs and risk.
Though banks are entitled to manage and reduce risk, ArchiTeam Directors Barbara Moje and Warwick Mihaly said the current lending standards were uninformed and discriminatory, impacting consumers and small business.
Unless banks improved their attitude towards architect-administered construction contracts, architects, consumers and builders will be forced to use construction contracts that create more risk to them and add project costs, they noted.
“Industry-standard construction contracts provide a clear and contractual role for the architect to administer the project and provide considerable protections for the consumer.
“This is in the common interest of architects, consumers, builders and the banks.”