“…we have concluded that their nature and extent are significant and concerning. The problems have led to diminishing public confidence that the building and construction industry can deliver compliant, safe buildings which will perform to the expected standards over the long term.” - Peter Shergold and Bronwyn Weir, Building Confidence Report, Feb 2018, Executive Summary, p3

The NSW Building Commissioner has handed in his notice.

Appointed in 2019, David Chandler was tasked with cleaning up the shoddy workmanship in apartments in NSW. He developed the Design and Building Practitioners Act and its Regulations which started in July 2021.

He certainly shook the industry to its foundations (excuse pun), but barely a year after the regs started, he resigned, effective this November. Much speculation abounds for the reasons, but that does not concern us here.

He was noisy and energetic in undertaking the work he was tasked with, essentially putting into effect the observations of the 2018 report, Building Confidence - Improving the effectiveness of compliance and enforcement systems for the building and construction industry across Australia, otherwise known as the Shergold-Weir report, for the two lawyers who authored it.

Relying, as the authors pointed out, on a mass of existing reports, it comprehensively listed the issues, which were many, from the deeply troubling structural faults to waterproofing problems and a myriad of quality defects.

The report identified those problems, and then set about finding a fix by concentrating on compliance and enforcement.

Admirably, it looked to make a better system.

But there is a fundamental flaw in that report, as I had tried to show in Tone on Tuesday #3 in 2019. The report never identified the key issue of developer’s responsibility, because they were directed to look somewhere else. It answered the wrong question, by concentrating too much on consultant ‘policing’ and not requiring developers to take fiscal responsibility.

The report had harsh words for architects, engineers, and certifiers in particular. It argued that the desired improvements, ensuring better quality in apartment buildings, would come if those professionals were forced to a higher level of inspection, control, and regulation.

But this completely misunderstood the power that these consultants could have over developers.

Ultimately, responsibility for quality in a building lies with the person who profits from the building. The developer.

Rich but reviled, developers are usually twinned with unscrupulous and greedy. They may be the builder, or not; either way they are the entity that stands to profit the most from the building. But the report did not deal directly with developers, but rather with the many players around them, including the builder.

In apartment building, as in all commercial developments, it is the developer that calls the shots. But the energies of the Shergold-Weir report were directed at regulating the minions who work for, and are paid by, the developer.

The assumption was that if the consultants were better ‘police’, then the developers would be better behaved.

In my earlier piece I opined that this misdirection of effort, attacking the players not the owners, could be down to two factors: a misunderstanding of process and who profits; or sadly, a tacit acceptance that little could be done to effectively bring developers to account.

And so, the NSW Building Commissioner, with his Act, followed the lead of the report, and set about terrorising the many players on a building site, to considerable effect.

Standards improved in comprehensiveness of documentation, and many builders will tell you what a relief it was to have an authorative third party hold dodgy sub-contractors to account.

Nevertheless, poor construction is still rampant, wherever developers (and their builders) think they can get away with it. They know that the hammer will come down on others if there is poor building, and they can just phoenix away. They can, and they will, despite the building commissioner’s excellent work.

It is essential to hold the developer to account, to have an ongoing responsibility for the work they profit from. Only if their business, or their ability to continue as developers, is threatened, will it be in their interest to ensure that the building is built correctly.

This can only be done by making them liable. As I outlined in my previous piece, this can be done in three ways: preventing phoenixing, having proper insurance, or having an effective bond or guarantee.

If requiring better documentation and inspections from a variety of experts are sticks not carrots, then these ideas are a big stick: make developers financially liable to repair all defects, for a substantial period of say five or seven years. This is how each one works.

Change corporate law to prevent phoenixing

A controlling or benefitting entity (developer or builder) must be held responsible in perpetuity. That is far from the current practice of developers forming a company for the project and folding it on completion so no-one can be held liable.

The same people then re-appear on another project with no carry-over responsibility. It’s called phoenixing, and it’s rife.

For directors to be held responsible for the actions of a company goes against corporate law, as championed by the right-wing neoliberal free marketeers.

Making company directors personally liable for financial responsibilities is probably a step, or rather a leap, too far. Desperately needed in the development industry, but sadly it’s unlikely to ever happen.

Insurance

A second option is to effectively insure the building for its full cost. Insurance companies are the great arbiters of good practice these days. That warranty insurance cannot be obtained for apartments (but it is mandatory for houses) speaks volumes.

And it’s a result of three issues: the long tradition of poor quality in apartments, the steep costs for repairs, and critically, insurance companies can’t find an entity to take responsibility for insuring their work.

Ironically, not being able to get the developers to carry insurance has led the Building Commissioner to require all the consultants to carry increased insurance, that may be required if defects, created by the developer / builder, but sheeted home to the consultants, need to be repaired.

The rise in costs for insurance for consultants, particularly certifiers, has crippled some firms. Of 120 certifiers with A1 accreditation just two years ago, only 80 remain. I know of several competent ones who find it all unnecessarily too hard.

Bond/Guarantee

A third option is to have the entity put up a bond or bank guarantee, held for say five or seven years. This avoids the disaster of phony bankruptcy and phoenixing, by establishing a fund to which purchasers can have recourse if problems arise. In cash or personal guarantee. It delays the developer’s profits, no bad thing, driving out some get-rich-quick merchants. But it would also drive up building costs, not that better practices aren’t doing that anyway.

In summary

Having an ever-tightening regime of policing on site will always be a second-best option: it attacks the periphery not the heart of the matter. No matter how effective a compliance and enforcement system you dream up it won’t stop some developers cutting corners, building shoddy and then ‘closing down’ without any repercussions for them. Bad building will continue.

If we can’t change corporate law, and insurers won’t insure the current process, then we need to change how buildings are procured.

The best way to guarantee quality in a building is to hold the developer responsible for several years after its construction; and the only mechanism to hold a developer’s attention is having their profit money in escrow for that time.

If they know that every single step they make, every day on site, in every part of the building, may be called into question and that their profits depend on it, they will ensure sharpen their mind to rule out the dodgy practices.

They will then be reliant on consultants doing the right thing, with better standards and diligence. And the improved standards of consultants will be testament to the Building Commissioner’s recent work.

Tone Wheeler is an architect.

The views expressed are his.

He is at toneontuesday@gmail.com

Tone Wheeler

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