The Report features the following recommendations:
1. that the Victorian Building Authority (VBA) and City of Melbourne complete their comprehensive audits of priority buildings by the end of 2019, and continue to identify, inspect and assess buildings that may not have been captured in the initial priority list.
2. that the risk assessment tool developed for domestic buildings be made available for use in commercial and industrial buildings with any necessary modifications and with adequate training.
3. that consideration be given to requiring Annual Essential Safety Measure (ESM) Reports to be certified by a suitably qualified person.
4. that consideration be given to requiring registration of ESM maintenance contractors.
5. that the VBA engage with commercial and industrial building owners and the insurance industry to develop a strategy for identifying non-residential buildings containing combustible cladding and a process for rectification.
6. that consideration be given to the development and implementation of a protocol between the VBA and councils, which sets out accountabilities, mechanisms for cooperation and communication, strategic interventions and agreed procedures for referring enforcement actions.
7. that the VBA be given the appropriate powers to require a builder to rectify defective building works beyond the issuing of a certificate of final inspection or occupancy permit.
8. that the Department of Environment, Land, Water and Planning and the VBA review the current legislative and regulatory provisions relating to the disciplining of building, plumbing and architecture professionals with a view to reducing delays and improving the transparency of the processes. This could be progressed as part of a package of broader reform.
9. that DELWP closely monitors and assesses the effectiveness of the VBA’s increased inspection and enforcement activity.
10. that the VBA continuously improves its approach to compliance activities, including implementation of a risk-based approach for targeting inspections.
11. that the VBA commence a program of random inspections to complement the proactive inspection program that aims to drive an ongoing increase in compliance across the sector.
12. that the VBA develop a strategy for oversight of building surveyors including potential auditing against a code of conduct.
13. that the Victorian Government establish a dedicated authority to support owners and occupants through the rectification process, including:
a. Providing funding for rectification works
b. Providing project management support
c. Ensuring proposed solutions are carried out in a timely and effective manner to bring buildings to an acceptable level of risk
d. Educating owners about how to mitigate fire risks until the cladding on their buildings is rectified.
14. that should the new authority be established within the VBA, any perceived conflict of interest should be managed appropriately.
15. that if rectification is to be achieved through partial removal of cladding and a performance solution, the solution be independently approved by the Building Appeals Board.
16. that the Victorian Government implement a process to seek recovery of costs of rectification from responsible parties.
17. that DELWP oversee a process of rectification of Victorian Government buildings with combustible cladding to ensure that rectification is completed in a timely, cost effective manner that achieves safety outcomes.
18. that should a new entity be created to drive rectification of buildings, oversight of the government rectification program should be transferred to that entity to ensure a joined-up, coordinated approach that minimises market impacts.
19. that the Victorian Government negotiate with insurers to make a substantial contribution to the cost of rectification.
20. that the Victorian Government seek a contribution to the management and cost of the program from the Commonwealth Government.
21. that the Victorian Government take a risk-based approach to prioritising buildings for funding in the program of rectification of private buildings.
22. that should a rectification authority be established, it develop a comprehensive communications and engagement strategy in consultation with relevant agencies, which includes:
a. Engagement with and communications for both owners and occupants of buildings to promote short-term fire safety measures ahead of rectification
b. Ongoing communications and engagement throughout the rectification process.
23. that consideration be given to strengthening disclosure requirements, including requirements of owners to inform tenants if there is non-compliant combustible cladding on their building. This includes a requirement that residential leases contain information regarding any risk from combustible cladding present on the building.
24. that a risk-based demand management strategy be developed and implemented to ensure that the highest risk projects are expedited, and resourced appropriately.
25. that a framework be developed and implemented to monitor, record and manage rectification costs.
26. that Victoria continues to play a leading role in reaching a national approach to dealing with combustible cladding.
27. that building industry bodies, practitioners and professionals proactively seek to improve the culture within the construction industry.
28. that the Victorian Government consider introducing a statutory duty of care on building practitioners to protect occupants and consumers.
29. that all practitioners be required to undertake compulsory Continuing Professional Development on the National Construction Code.
30. that the Victorian Government give consideration to the restoration of the role of the clerk of works as part of its long-term reform strategy for the construction industry.
31. that the requirements around the use of performance solutions be strengthened, including provision for third party review of proposed performance solutions.
32. that the Victorian Government advocate for a national approach led by the Commonwealth Government to addressing building insurance and Professional Indemnity Insurance issues.
33. that Victorian Government undertake negotiations with insurers with a view to maintaining the market for Professional Indemnity Insurance.
34. that the Commonwealth and Victorian Governments explore fall-back options for providing Professional Indemnity Insurance.
35. that the VBA take a proactive interest in identifying emerging systemic issues.
36. that the Victorian Government work with the Commonwealth Government and other jurisdictions to establish the extent of any emerging systemic issues and to consider both solutions and future prevention measures.
37. that further reforms are undertaken to address key policy issues and place safety and consumer protection at the heart of the system.In discussing the Lacrosse building fire in Melbourne Docklands, which predates the more-publicised Grenfell Tower fire in London, the report comments
Challenges in pursuing action against responsible parties
The Lacrosse example demonstrates some of the challenges in pursuing legal recourse from builders and other parties responsible for the design and construction of buildings with non-compliant cladding.
Challenges in pursuing action against responsible parties include:
• Where buildings were completed more than 10 years ago they cannot be the subject of ‘building actions’ for recovery of damages.
• Limited legal recourse exists for owners where builders are no longer operating or have been wound up. Builders involved in the original works may have since ‘phoenixed’ (wound up the entity under which works were carried out, now operating under a different entity).
• Proceedings are likely to be protracted and the likelihood of recovery is uncertain. Recovery mechanisms for building defects depend on the age of an individual building, the application of case law and the extent to which liable building practitioners are able to pay out losses.
Legal actions relating to the rectification of combustible cladding are likely to trigger insolvency of some building companies, a tightening of Professional Indemnity Insurance and the possible withdrawal of insurers from the market. No jurisdiction requires builder to carry warranty insurance in relation to work to construct buildings of three storeys or more. For buildings without insurance the bringing of claims may result in builder insolvency.Further
Rectification of combustible cladding on buildings is complex and difficult – different solutions will be required for different buildings. There are many buildings requiring rectification and they come in many different sizes and types. Cladding may need to be removed to ensure safety in many but not all affected buildings. Rectification is a process that will take time, in large part due to the size and number of affected buildings and the nature of the building works to be carried. Often owners corporations are large and are not geared up to deal with complex, large-scale building matters. It is difficult for many owners corporations to make prompt decisions about rectification and in many cases owners are likely to have difficulty funding the works. ‘As constructed’ documentation may not be available or accurate. It may be necessary to fully or even partially relocate Occupants to undertake works.
The volume of work required represents a challenge. The availability and capacity of practitioners and contractors will also need to be monitored. Even the administration and logistics of any project, and facilitating access will be a challenge for many owners corporations, particularly if other work is required at the same time
There is a strong case for further government intervention to support owners in timely rectification. This support will need to involve both funding and a coordinating role from government.
Principles for rectification process
Consistent with our prioritisation of the safety of building occupants, the focus of activity since we handed down our Interim Report has been on the identification and risk assessment of buildings with combustible cladding to ensure that, where necessary, urgent steps are undertaken to ensure that residents can stay in their homes.
Now that a significant number of buildings have been identified and assessed, the next step is to ensure that buildings can be rectified. In our view, it is critical that buildings be rectified:
• Taking a risk-based approach: ensuring buildings are prioritised based on risk, ensuring the highest risk buildings are rectified first, reducing risk to residents and the broader community.
• To an appropriate standard: long term rectification must bring buildings down to an acceptable level of risk. The appropriate standard ought to be determined by reference to the performance requirements set out in the National Construction Code.
• In a cost-effective way: given the volume of rectification work to be undertaken, there is a risk that the price of rectification works will increase and that owners corporations will not be well placed to assess the value offered by proposed works.
• With minimal stress and disruption for occupants and owners: those who own or live in buildings that have been identified as having combustible cladding are already under considerable stress. It is important that the rectification process seek to minimise additional stress and disruption on these individuals.
Rectification of combustible cladding on buildings should achieve the requirements of the National Construction Code. Rectification will vary from full replacement of all combustible cladding to no further action being needed in those buildings that have been deemed acceptable-risk. If a building retains some combustible cladding it should be required to seek approval from the Building Appeals Board of an acceptable performance solution. The approach needs to consider risk and prioritising works based on risk as a paramount consideration unpinning all program design elements.
Cost Management
Findings of the State-wide cladding audit, as well as rectification works undertaken to date of Government buildings have helped identify a number of key challenges and opportunities in anticipating and managing costs associated with rectification. Notably, the cost of rectification can vary considerable between buildings, posing a significant challenge in estimating the total cost of rectification and the extent of any funds that may be required for state intervention. While cost estimates may be made based on the extent of cladding found on buildings audited to date, individual building characteristics, the relative risk ratings, and the availability of performance solutions (partial removal and/or other risk mitigation measures) mean these estimates are not necessarily scalable.
Undertaking further pilot projects and further analysis of review outcomes will enhance understanding of specific building characteristics and variables likely to impact rectification costs, as well as program design mechanisms that may be used to manage costs through the process and deliver more efficient cost outcomes.
Further consideration should also be given to the role of any new entity in managing rectification costs, including any market response which may inflate the cost of rectification as a result of demand for services and any government intervention. In the interest of ensuring any government funds made available for rectification are utilised effectively, access to funds should be risk-based, ensuring those buildings with the greatest risk from cladding are resourced first and rectification expedited.
Owners Corporations should be encouraged to exercise fiscal discretion in decision making, and the allocation of funding interrogated through appropriate procurement and funding assessment processes.
There is a key role for government in determining reasonable amounts of funding to be made available to Owners Corporations, based on individual building circumstances and appropriateness of rectification solutions, assessed against benchmarked costs and quotes for works. Tender-like principles through the funding process will also help ensure costs remain competitive and limit any market disruption.
Program cost projections and rectification funding processes should also not act to limit market innovation by prescribing a single rectification solution. By ensuring any government rectification program adequately considers performance solutions, including any future innovations in both design and materials development.
If government intervention was to prescribe a single rectification solution, this may unnecessarily inhibit the emergence of new products to the market. Encouraging market innovation will also have a positive effect in reducing any supply chain and inflationary risks, as the demand for existing products and services increases. ...
Challenges in achieving rectification
There are a number of challenges to achieving rectification. The most significant of those challenges are:
• The difficulty faced by owners corporations in making prompt decisions about complex matters such as which rectification solution to approve for a building (including the time required to reach the 75 per cent threshold for decisions)
• owners corporations who do not have the capacity and knowledge to manage such complex building issues and capital works projects
• the inability of some owners to fund rectification works.
To date, local council MBSs and the VBA have been using existing regulatory powers, in particular building notices and orders, to bring about the rectification of buildings that have been assessed as needing physical works to be made safe.
Despite the best efforts of the VBA to date, very few private residential buildings identified with non-compliant cladding through the State-wide audit have commenced rectification. This means owners of apartments in these buildings continue to deal with increased insurance premiums, decreased property values and challenges selling their properties.
Most significantly, building occupants continue to live with an unacceptably high level of risk. In this context, it is clear that further intervention by Government is needed to bring about the prompt and consistent rectification of the private buildings identified as having combustible cladding and requiring rectification.
