By Phillip Leaman

19 November 2019

A new agency, Cladding Safety Victoria (CSV), will have access to a $600 million package from the State Government to fund rectification works on private residential buildings across the State which have been clad with combustible materials and are classified as “high-risk”.

The State Government has committed to directly fund half of this $600 million package, and plans to introduce changes to the building permit levy to raise the remaining $300 million over the next five years. This is in response to the Shergold Weir Recommendations and the recent decision awarding $5.7 million in damages to owners of apartments in the Lacrosse towers that suffered significant fired damage as a result of flammable cladding in November 2014.

See Phillip Leaman’s blog: Combustible Cladding – VCAT’s Decision in the Docklands, Lacrosse Tower Fire Case for a summary of the Lacrosse Tower Decision.

The Cladding Safety Victoria Agency

The Government’s approach will be to adopt a risk-based approach to prioritising buildings for rectification funding with higher risk buildings eligible for earlier funding and rectification. It will also require private owners to transfer their legal recovery rights to CSV as a condition of receiving funding, to allow the State to seek to recover rectification costs from responsible parties.

However, given that CSV is the first agency of its kind and has a complex and widespread issue to tackle, it is likely to face a number of commercial and legal challenges, namely:

1. Prioritisation of Buildings for Rectification

The State Government will need to ensure its method for prioritisation of buildings is consistent across the State and is based on appropriate assessment criteria. It will also need to carefully consider where to draw the line between buildings that are eligible for funding and those that are not. Rectification (or recovery proceedings) that have commenced on high priority buildings should also be addressed. There is a related issue associated with disclosure of buildings to be rectified and the impact on prospective sales of those properties.

2. Limited Funding

CSV’s rectification fund is, initially, limited to $600 million, which could be exhausted relatively quickly. The State Government should consider whether it will top up the fund if/when it has been exhausted.

3. Insolvency of Builders

The construction industry is a volatile market — particularly in light of recent developments in cladding-related insurance. CSV may face difficulties recovering from responsible parties if those parties have since become insolvent or wound up.

4. Limitation Periods

A number of affected buildings will likely have either reached the statutory limitation period, or be approaching it. CSV will need to commence any recovery proceedings quickly in order to ensure it is not time-barred.

5. Time and Cost for Recovery

Proceedings in VCAT and the Supreme Court can take years from start to finish. This could result in the State Government using up the rectification fund without any prospect of recovering those costs in the short term (unless early negotiated outcomes can be reached). Further, the costs of investigating, commencing and running multiple recovery proceedings are likely to be significant.

The Shergold Weir Report

The Lacrosse fires showcased to the public the extent to which the Australian building and construction industry is unregulated and out-dated with modern compliance and enforcement regimes. In mid-2017, Mr Peter Shergold and Ms Bronwyn Weir were retained by the Building Ministers’ Forum (BMF) to undertake an assessment of the compliance and enforcement systems for the Australian building and construction industry. The comprehensive report investigated a wide-range of problems and concluded with 24 recommendations to ensure best practice and compliance with the National Construction Code (NCC) in the industry.

The report identifies that the main issues in the current construction industry were that:

  1. Large numbers of practitioners in the industry either lacked competence, did not have proper training on the NCC or do not properly understand it;
  2. Adequacy of design documentation is generally poor and, as a result, builders on occasion improvise and make decisions themselves, such as on construction methods or materials, which then affect safety without independent oversight;
  3. Licensing bodies, regulators and local governments are ill equipped to undertake effective enforcement of compliance with the standards due to lack of skills or resources. Particularly in high-rise construction projects, builders and designers have been largely left to their own devices, where supervision has been provided by private building surveyors which are arguably not independent from the designers or builders.

The report further provides a comprehensive list of 24 recommendations aimed at addressing the issues with compliance in the construction industry. The recommendations are framed as a nationally consistent approach to ensure that reliable and transparent processes are implemented in the industry and that the industry begins to recover its levels of trustworthiness.

The Shergold Weir Recommendations

The pdf below summarises the 24 recommendations presented in the report and the goals they aim to achieve.

Summary: 24 Recommendations Shergold Weir Report

 

For more information, please contact Phillip Leaman.

 

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