The most recent apartment building fire involving combustible cladding, Melbourne’s Neo200 tower early in February 2018, has accelerated concern about the need for urgent effective regulatory action.
In a meeting in Hobart on 8 February the federal, state and territories government’s Building Ministers’ Forum agreed in principle on a total ban on the use of aluminium composite panel (ACP) cladding in new constructions. This raises the issue of Australia’s individual jurisdictions enforcing compliance and the need for speed of implementation of the controls required.
Gallagher Practice Leader, Construction, Angela Vella says the framework is already in place and should be adequate for ensuring that non-compliant products are not used in new builds. “The regulation for reliable third-party certification already exists,” she says. “The National Construction Code just needs to be properly enforced.”
Vella anticipates this will have significant impacts on both the regulatory bodies involved as well as the construction industry nationally.
“The cost of constructing these types of buildings is going to increase because contractors are going to be mandated to buy compliant products. The issue is the regulator needs to get better certification on these things, and better compliance.”
British safety expert and Grenfell Tower investigator Dame Judith Hackitt, in Australia to provide insights from her findings in the United Kingdom, says it’s a wider industry issue than the cladding product alone – more broadly the use of defective building products should be addressed – and she had identified systemic failures in the British regulatory framework for the construction industry. It appears Australia shares the same issues.
Executive Director of the Australian Construction Industry Forum (ACIF) James Cameron supports the enactment of chain of responsibility legislation, already law in Queensland and New South Wales, in all states and territories, but he says one industry expert has estimated the cost at about $2 billion.
Chain of responsibility legislation involves all the industry parties involved in the design, manufacture, importation, supply and installation of building components having duty of care to ensure the products are compliant.
Who carries the cost?
Vella is doubtful that mandatory product recall insurance for high risk building products proposed by the Economics References Committee senate in December can provide any practical solution to the cost of necessary remediation.
“Recall insurance covers the cost of recalling product by the manufacturer or supplier – not the builder or the owner. It covers first party internal costs. And recall insurance for defective building products is high risk for the insurer, and even if was available it would be expensive and market appetite would be low,” she points out.
“Insurance is there to cover fortuitous events. The use of cheap substandard materials is not fortuitous. A failure is going to happen and insurers won’t buy that risk,” she says.
“Construction contractors have to recognise that it’s actually not cheaper to buy these kinds of products because it’s going to cost a lot of dollars to fix the problems that come with using them.” As building owners at all levels have discovered, fuelling the scrabble to establish blame and legal liability for remediation costs for privately owned buildings.
While Australian governments and regulatory bodies need to plan and budget for the cost of auditing existing buildings with cladding, and ensuring compliance, the construction industry is faced with the prospect of picking up the remediation bills.
But, Vella stresses, “insurance can’t provide the answers to the cladding problem because it’s not addressing the root cause”.
Talk to an expert
Gallagher’s construction specialist brokers have the expertise and industry knowledge to formulate insurance solutions for complex construction projects and assist stakeholders with managing their risk exposures.