TODAY, building owners are having parts of their buildings excluded from insurance cover. Non-conforming cladding has been a key driver. This is a legitimate response by an insurance industry that has no trustworthy line of sight to how buildings are specified, constructed, assured and maintained …
THUS … partially uninsured buildings are technically impaired assets or securities for finance.
-with impact on the saleability and value of these buildings
These are the reasons why a NSW inquiry into the state of the construction industry is needed …
What will be done for the owners of defective apartments, both existing and those to be finished before any new legislation comes in?
“It will be very interesting to see what hand the Opal Tower developer may have had in the procurement, superintendence and acceptance of the project.”
OPAL INDEPENDENT REPORT – government‘s safe terms of reference to the rescue
David Chandler, Western Sydney University | 26 February 2019
Academics, consultants and lawyers do not criticise each other. It was reasonable to expect that Professor Hoffman did not look to allocate blame, albeit there are strong pointers in the report.
Clearly the priority for now is rectification and recertification of the final rectified building.
The report provides salutary insight into the state of construction in Australia and especially NSW. The experts have done a great job meeting the minister’s terms of reference by describing the particular issues that have presented at the Opal Tower, and commentary on mutually agreed ways to address these.
They were right to have avoided allocation of blame for now, as this process will most likely be the subject of other proceedings. But, it’s a pity that the report is so engineering design centric, which suggests new layers of checking the checkers might be needed.
*Construction lawyer Bronwyn Weir, who co-authored the Building Ministers’ Building Confidence report, has cast doubts on the likely impact of the recent actions announced by Minister Kean and the recommendations made in the independent report into the Opal Tower released last week.
Tip of the iceberg
“These things are signals, the Opal Tower is a manifestation of a system in trouble, they are almost the tip of the iceberg of potentially what’s going on in buildings… without prescribed changes including greater registration of practitioners, better design documentation and compliance, more apartment buyers would be left with problem buildings and no way to fix them,” she said.
The ministers say they have mostly embraced the recommendations in the report – the most important being the registration of engineers in NSW, which is widely supported. Regarding the checkers, it’s unclear how the professional indemnity pie would be carved up and who would be taking the responsibility for such interventions. Obviously more detail to follow.
Also unclear is the effect or intent of creating a database for stakeholders to view prior to purchasing apartments. Hopefully, not a shift of accountability for buyer beware purposes. Apartments are not purchased in pieces.
*Today, building owners are having parts of their buildings excluded from insurance cover. Non-conforming cladding has been a key driver. This is a legitimate response by an insurance industry that has no trustworthy line of sight to how buildings are specified, constructed, assured and maintained. Unknown risk is generally uninsurable – how would an insurer price or mitigate unknown risk?
*The flip side of this is that partially uninsured buildings are technically impaired assets or securities for finance. This will have an impact on the saleability and value of these buildings. It’s likely the impact of structural issues at the Opal Tower may impact their value.
**These are the reasons why a NSW inquiry into the state of the construction industry is needed.
*They underpin the reasoning for systemic change, more regulator accountability and single cover 10-year warranty insurance for all residential buildings over three storeys starting from July 2020.
There are reportedly thousands of impaired apartments and more in the making. A reporter at the press conference asked what would be done for the owners of defective apartments, both existing and those to be finished before any new legislation comes in.
The ministers had to concede that this would be contingent on the government being re-elected. When pressed if they were keen to continue in their current portfolios there were no clear indications of interest other than to claim pride in what has been achieved to date along with the “biggest regulatory reform package for the construction industry” ever announced in Australia.
In the report supporting the announcement there was at least acknowledgement that the responses needed went far beyond engineering.
Minister Kean has noted that the Opal Tower experience is not just an Australian problem. He pointed to the 2018 Dame Judith Hackitt review of UK building laws (“Hackitt Review”), commissioned by the UK government, which found widespread non-compliance in the UK construction industry and “ignorance” and “indifference” towards building roles and responsibilities respectively. This is an international issue.
Dame Judith Hackitt said:
“Contractual arrangements for multi-storey projects differ, but commonly developers engage a builder to undertake a design-and-construct project. This means the builder is responsible both for the development of the design and the construction of the building. While the developer might initially engage architects and engineers to prepare early designs to obtain planning approvals, these consultants then become subcontractors… Once contracted, the builder will work to find efficiencies and cost savings in the development of the design and construction of the building.”
This situation is not unique to residential buildings. It applies to school buildings, sports facilities and commercial buildings equally.
*The point Dame Judith Hackitt has not made is the shared culpability of clients who go about procuring buildings with practices that are sure to return them less than optimal outcomes.
**The Fifth Estate provided a case study on this very subject. It will be very interesting to see what hand the Opal Tower developer may have had in the procurement, superintendence and acceptance of the project.**
For now, it seems that both the developer and the engineers are content to point to the builder. WSP Australia and New Zealand chief executive Guy Templeton has reportedly said, “I cannot say more clearly that WSP did not underdesign the hob-panel assembly… what has been built was not WSP’s design at the points of failure.” He was silent on WSP inspections.
*In the same article in The AFR, the reporter opined the following conclusion: “One thing is clear, however; the report has absolved the developer Ecove from responsibility. Ecove takes a view that construction was at fault.”
This position is seemingly adopted by Ecove chief executive officer Bassam Aflak who has reportedly said, “as the investigation team have stated in their report, this was a rare case of structural defect, but has nevertheless provided relevant, important and unique insights.”
The situation is clearly becoming toxic between the developer, designer and builder as each would now be under advice from their lawyers and insurers. Stuck to one side of this are the Opal Tower residents who will be left to battle out their rights beyond the immediate fix in the courts.
*NSW is now in election mode and the government simply wants the Opal Tower out of the news.
The AFR identified that the independent report did not seem to make it clear if non-compliance to the design, the actual design – or both – were at fault. Clarification from the NSW Department of Planning reportedly yielded the following response: “How you interpreted the report is your prerogative” with the representative refusing to offer any further explanation. Heads down here.
The Opal Tower story has much more to give in shedding light on the NSW construction industry
Critical documents that will eventually see the light of day will help. The Fifth Estate has been on the front foot calling for the Opal Tower to be used as a lens to view the local industry. Articles dealing with the poor state of construction procurement and practice have also been published.
The strongest call has been for a 10-year warranty to be required for all residential projects over 3 storeys, started after July 2020.
- See our story Construction crisis – No minister, it’s broken. Try an iron clad mandated warranty instead
*The issues are involved are so systemic, that a roots and branches enquiry into the NSW industry is essential. These go way beyond the engineering report into the Opal Tower. Here are some of the documents that will help shed light on who signed up for what, and who may not have delivered the goods:
- The developer’s tender documents including the designs, approvals and the design and construction contract, showing all of the legal amendments to the standard form;
- The design and construct builder’s tender documents to the engineers, the proposed scope of design, inspection and certification services, the contract used, showing all amendments;
- The design and construct builder’s relevant contracts with suppliers and sub-contractors for the parts of the Opal Tower project identified in the engineering report;
- The design and construct builder’s progress claims for the months that the defects identified by the independent engineers report, were performed and paid for;
- The superintendent’s progress payment certification for the same elements;
- The design and construct builder’s claim for practical completion
- The curriculum vitaes for the following:
- The design and construction builder’s design manager
- The developer’s superintendent
- The design and construct builder’s site manager
- The design and construct builder’s quality assurance manager
- The design and construct builder’s on-site safety and risk manager
Insights from the above documents will help shed some light on the state of the construction industry in NSW. The Opal Tower project is just one of many that will help demonstrate to the industry’s governance authorities the tip of the iceberg referred to by Bronwyn Weir.
*A further 20 case study projects will be needed to provide defensible evidence of the problems and what will be needed to turn this around.*
Those projects should be drawn from across NSW, involve differing project types, scale and complexity. They should include a mix of public and private projects.
It is these challenges that will await the next building minister in NSW. It was understandable that Minister Kean was coy about putting his hand up for the same portfolio if the government was re-elected next month. The same answer could be expected for the next industry nightwatchman at the Commonwealth level. The construction industry seems to carry blemishes that no aspiring minister would want on their record. It is time for the construction industry to demand better.
It’s time for both sides of politics to announce their intent to hold an enquiry into the state of construction in NSW if elected. Otherwise, these issues will still be there to bite in four years’ time.
In the interim, you have to feel for the Opal Tower residents and thousands like them.
David Chandler is a construction industry practitioner and an adjunct professor at Western Sydney University.
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