The apartment building ‘crisis’ explained

The first warning sounded in this country in 1995, but it took another 22 years for people to heed it.

CSIRO testing first showed the dangers of combustible cladding in the year Qantas was privatised and Telecom changed its name to Telstra. Those dangers were dramatically revealed in November 2014 when fire raced up 13 levels of Melbourne’s residential Lacrosse Tower in as little as ten minutes.

Even so, it took a further two and a half years – until the June 2017 fire at London’s Grenfell Tower that killed 72 people, to prompt the Australian government to commission an inquiry into the country’s building and construction system.


Melbourne’s Lacrosse fire in 2014 showed just how dangerous cladding could be, but still did not prompt major reforms. Supplied

But Christmas Eve a year later showed the problems to be far wider than just cladding, when residents of the 36-level Opal Tower in Sydney were evacuated after the concrete in the building’s walls and floor cracked.

Other incidents came quick and fast. A cladding fire swept up another Melbourne building, the 43-storey Neo200 in February. Mascot Towers in Sydney’s inner-south was closed to residents in June after cracks were found in its car park. 
The Sydney Morning Herald revealed in July that families had been kept out of their units at 19 Gadigal Avenue in Zetland for eight months, owing to water damage and faulty fire prevention at the property.

Experts warn these events are symptomatic of underlying defects in Australia’s construction system; state and federal governments have vowed to respond. Here’s what the building crisis means for you.

What is the building crisis?

The recent spate of high-profile building failures owe to different immediate causes.

Practitioners do the wrong thing. The Lacrosse VCAT judgment last year found builder LU Simon failed to exercise reasonable care in putting cladding on the Melbourne tower that did not comply with building code, but hit the consultant architect, building surveyor and fire engineer with harsher penalties after finding them liable for the panels that ended up on the building.


Building materials can be deficient.

Sydney’s Opal Tower on Christmas Eve 2018 showed everyone that the problem of construction defects went well beyond cladding. AAP

The NSW government investigation into Opal Tower found that the concrete used in load-bearing hob beams may have been a “lower strength” than was ordered.

“The as-constructed hob beam/panel assembly was under-designed, according to the National Construction Code (NCC) and the Australian Standard for Concrete Structures (AS36001), at a number of locations in the building. This left the hob beams susceptible to failure by shear compression and bursting,” the report said.

These flaws can be compounded by unsound construction practices.

The Australian Financial Review revealed that Mascot Towers owners had been battling structural flaws like faulty gas meters and leaks since 2011. These leaks were attributed to “poor sealing practice at construction and in the construction joists”.

The Opal cracks were also connected to poor building practices like insufficient grouting – the use of concrete “glue” – at the joints between hob beams and panels.

A similar problem arose at Multiplex’s high-profile Collins Arch project in central Melbourne last year, when incomplete grouting caused precast concrete columns to crumble at the $1.2 billion-project.

There were structural defects resulting from inadequate maintenance after the construction phase. This includes problems with fire systems and water leakage as well as complications arising from “natural defects” like shrinkage, all of which may arise after residents have already moved in.

But underlying each of these flaws is a more systemic failure of regulation and its implementation.

A 2018 report commissioned by the Building Ministers Forum noted that the number of apartments being built in high-rise buildings (4+ storeys) had tripled in less than a decade, and that regulations like the National Construction Code had not kept pace.

“Most compliance and enforcement systems do not account for the modern construction practices described above,” authors Peter Shergold and Bronwyn Weir wrote.

Who is responsible for the crisis?

The roots of the building crisis are systemic and resist any tidy allocation of blame. There are at least six factors:

1. Builders:

Under a design-and-construct arrangement, which is common for multi-storey properties, builders are responsible for both the building design and construction.

This includes quality assurance for building materials and construction practices, which have played varying roles in the recent series of building failures.

Other personnel engaged by the developer in the pre-approval phase – like architects and engineers – become subcontractors, and the builder assumes responsibility for successful delivery.

The Shergold-Weir report noted the competence and integrity of many builders, but found that “rates of disputes, alleged defects and reports of high levels of illegal phoenix activity… need to be addressed”.

Illegal phoenix activity refers to the creation of a new company to continue the business of a company that has been liquidated for dodging tax or regulations.

2. Licensing bodies / surveyors:

Builders are required to secure third-party certification for various aspects of construction. But the privatisation of this sector – once a function of local councils – means these surveyors are engaged directly by the builder, or by the property owner, who often receives input from the builder or designer.

The 2018 Building Confidence report found that private certification was part of the “vast majority” of building approvals, and that this carried an “inherent potential for conflict of interest”.

3. State governments:

Building regulations are mainly overseen by state and territory governments, and tend to fall within their planning powers.

The Shergold-Weir report found that regulatory oversight over private surveyors had been “patchy,” and even where audits had been undertaken, ineffectual.

“Intervention is rare. State licensing bodies have cancelled the registration of a relatively small number of private building surveyors in only two jurisdictions,” the authors wrote.

Local governments have said that the state government provides insufficient resources to facilitate local enforcement, while private surveyors have alleged that they have been met with delays or non-responses in their interactions with the government.

State governments taken various steps in response to the prominent building failures.

Queensland in 2017 introduced so-called Chain of Responsibility laws that obliged players along the construction chain to report unsafe situations and avoid non-conforming products.

NSW premier Gladys Berejiklian has pledged to appoint a building services commissioner and to implement a new building industry compliance regime. Victoria premier Daniel Andrews committed $600 million to replace flammable cladding in the state’s buildings.

4. Federal government:

The federal government has historically played a coordinating role on construction policy, but is facing pressure from the states to help defray the costs of reform.

Mr Andrews asked the federal government on Tuesday to cover half the cost of his cladding program, saying that he would increase the building permit levy, if they refused.

“This is a national problem,” he said.

The plea is a rhetorical aboutface from the states’ position in February, when they declined the federal government’s offer of a national taskforce and said building regulation was a state and territory matter.

Federal industry minister Karen Andrews rebuffed the funding requests.

“It’s a bit rich now for them or any state to say someone else has to fund a problem that they created,” she said.

But the minister has hardly kept out of the broader debate on building quality. She has criticised insurance providers for withdrawing coverage for professional indemnity for building certifiers, and called for a taskforce to develop consistent regulations across the country.

“What we’re seeing is a crisis in the confidence in the building sector that we have to address,” Ms Andrews said.

5. A lack of consumer protections:

Unlike standalone home building, there is no warranty insurance product for residential buildings taller than three levels. State-based statutory warranty schemes allow residents to sue builders for neglience for varying periods after
completion, but there is no express requirement that builders produce products that are fit for purpose. A 2014 High Court judgment brought an end to a six-year legal stoush – and extinguished one hope for protection for owners – when it declared builder Multiplex owed no duty of care to residents of a defective tower in Sydney’s Chatswood.

6. Insurers:

With little insurance coverage elsewhere across the construction chain, claims have come down heavily on the consultants – principally building certifiers, fire engineers and architects – who have maintained coverage.

Recent research by PwC for the Queensland government shows professional indemnity sector for building surveyors and certifiers has been unprofitable since 2011, with nearly $3.43 paid out in claims for every $1 received in premiums in 2017.

The desertion by insurers of this market threatens to bring the whole development chain to a halt, as these professionals play a role throughout the life of a project and are needed to tick off milestones during construction.

The largest construction states, NSW, Victoria and Queensland, have broken with past practice and allowed these consultants to keep practising even without the full PI cover they were previously required to have – but on a temporary basis, but pending a permanent fix.

What happens from here?

Thursday’s meeting of the Building Ministers’ Forum, the second this year, has the unenviable task of tackling these many and varied problems.

The state/territory ministers and Ms Andrews have to overcome traditional state-federal tensions to find a way to ensure nationally consistent reforms that will effectively re-regulate an industry that is harming itself and consumers, bring accountability to players in the construction chain and restore confidence in an industry in which many people have lost faith.

Article By Bo Seo and Michael Bleby – Financial Review – Source Link – Jul 18, 2019