- Clare Kermond
- The Age “Extra”
- August 16, 2015
It has taken a giant pit in Mount Waverley to focus attention on the substandard regulation to builders and building inspectors in Victoria. Clare Kermond reports.
When your dream home becomes a nightmare
When a building job goes wrong consumers have disturbingly little recourse, writes Clare Kermond.
‘We felt going into it, what a great contract we have, we’ve got all this protection, we’ve done our homework.’
Mark and Alison signed on with builders to start work on their new house when Alison was pregnant with their third child. They decided to stretch themselves financially and rent somewhere really nice. After all, it would be less than a year before their dream home was ready. But that baby bump turns three in a few months and the family is still many months from moving into the new house.
The past three years have been a horror story of delays, building problems, legal battles and hundreds of thousands of dollars that they’ll never see again. The couple feels they had done everything possible to make sure things would go smoothly. They signed with a registered builder, who came well recommended, made sure their contract included clauses for delays and damages and checked that the builder had insurance.
‘‘We felt going into it, what a great contract we have, we’ve got all this protection, we’ve done our homework,’’ Alison says.
Almost from day one, the delays began, with Alison and Mark suspecting that their builder had taken on some large projects and was putting their job a long way second.
A year on, despite having paid the builder 90 per cent of his fee, workers were showing up once a fortnight or less, meetings were cancelled and excuses were running out.
In August last year, nearly 12 months after they should have been moving in, and with work still stalled, Alison and Mark went to a lawyer to have the contract terminated.
While that process was running its course, the builder was declared insolvent.
In what Alison calls ‘‘the only silver lining to all this’’, the builder’s insolvency meant they were eligible for building warranty insurance. But getting an insurance payout came only after they had to spend many thousands of dollars in legal costs and experts’ reports on the poor state of the building work.
The insurance payout of $200,000, the maximum possible at that time, is supposed to cover building faults, legal costs and rent for up to 60 days – small comfort when you’ve been paying rent (and a mortgage) for three years.
Alison estimates they are ‘‘at least six figures down’’, including the $330,000 quoted to finish the house, and says the costs involved would have been too much to bear if they had not both been working.
‘‘The personal cost has been massive, just because a builder couldn’t run his business properly.
‘‘We were lucky because we both work, otherwise this would have sent us under.
‘‘But again, we’re not where we thought we would be at this time, financially and otherwise.’’
Finding another builder to finish the house has been a nightmare, with few willing to take on the job, but work is expected to start soon and to take about another six months.
As Alison tries to calmly set out their story, the stress in her voice breaks through. The new house is on the same street as their older son’s primary school, and part of the plan was to see him walking to school, but of course that is yet to happen. ‘‘You have this idea of how things will be, you make all these plans for how you’ll be living your life, and then this happens.’’
In a quiet corner of Mount Waverley, gardens are neat, houses are tidy and things seem to be as expected in suburbia. Except for the giant hole that has opened up on a busy corner.
Three weeks ago, work came to a dramatic stop on the basement car park of what was to be a $5.5 million medical centre and childcare facility, after large chunks of the pit’s walls collapsed.
In cartoon-like fashion, as the hole grew, a portable toilet, fencing and part of the backyard of one of the neighbouring houses, also tumbled into the void.
Signs on the safety fencing, which divert pedestrians and shield the 15-metre deep pit from view, read ‘‘Danger, Deep Excavation’’. No kidding.
Residents and workers near the site, at the corner of Highbury and Huntingdale roads, are mostly bemused with some annoyed by having all the good parking spots taken up by the growing number of experts who come each day to stand and stare into the pit.
Two townhouses bordering the deep pit have been evacuated and look as if they are teetering on the edge of a cliff.
The developers of the site say it’s not their fault, and threats to nearby properties are not their responsibility.
The Victorian Building Authority is investigating the conduct of the building practitioners involved in the development, including the private building surveyor.
How could this happen, that a multimillion-dollar development, which supposedly followed all the building and planning rules, ends in a giant hole? Many in the building industry say the real question is not how did the Mount Waverley debacle happen, but why doesn’t it happen more often?
Long-term critics of Victoria’s
building industry say there are so many flaws in regulation, inspection and consumer protection that Alison and Mark’s story, and the Mount Waverley hole in the ground, are just two of many, many construction disasters, most of which leave the consumer with little recourse or even means of recovering their losses.
And it’s not news that the system is broken. Since July 2002 there have been 54 separate reviews of the building industry, including by the Victorian Ombudsman and the State Auditor-General, all pointing to serious shortcomings and all calling for reform.
The Auditor-General has held three inquiries into the building industry since 2000, the most recent report being released in May this year. The findings are alarming, highlighting ‘‘glaring shortfalls and weaknesses’’ in consumer protection in the building industry, and calling for urgent action.
The report says five keys areas need urgent improvement: registration and discipline of builders, monitoring and compliance, dispute resolution, insurance and consumer awareness.
According to the report, consumers can have no certainty that only builders who are ‘‘qualified, competent and of good character’’ are registered. The report also highlights the potential conflict of interest for private building surveyors, who are checking that other builders comply with all the rules while relying on those same builders for work.
Deficiencies in the building authority’s oversight of building surveyors means there was ‘‘little assurance that domestic building construction complies with minimum standards’’.
The Auditor-General found that building surveyors were more than seven times more likely to have their registrations cancelled than any other class of building practitioner, with 10 per cent of the state’s registered building surveyors found guilty of an offence in the five years to 2013.
But the aspect of the auditor’s report that strikes the loudest chord with so many is its criticism of the lack of recourse for those who believe they have a grievance when a building project turns sour.
The report points out the weaknesses in the system where, in the case of any disputes over domestic building, mediation or conciliation is voluntary and its outcomes unenforceable. In other words, if a consumer is in dispute with a builder and asks for mediation, the builder can simply choose not to turn up as Consumer Affairs Victoria, which oversees dispute resolution , has no power to compel them.
Critics reserve special anger for building warranty insurance, the compulsory insurance that many argue is next to impossible to claim on and does little but fatten the pockets of those involved in its administration.
The Consumer Action Law Centre is among the many groups calling for reform, arguing that in a case where consumers do manage to make a claim, they are highly unlikely to fully recover things such as legal costs and the cost of relocating while the dream house, turned nightmare, is unlivable.
Critics of building warranty insurance, also known in the trade as junk insurance, also say its premiums have been driven up by costs including agent and broker fees, and that it gives consumers a false sense of security. Many also argue that it reinforces vested interests in the industry, who in turn will fight any attempts at reform.
In a small change for the better, the rules around junk insurance were recently loosened slightly. Until July 1 this year, consumers could attempt to claim only if the builder was dead, had disappeared or was insolvent. Under the changes consumers can now also make a claim if the builder has failed to comply with a Victorian Civil and Administrative Tribunal or court order. This applies only to policies issued on or after July 1.
Building warranty insurance is underwritten by the Victorian Managed Insurance Agency, who has appointed private insurer QBE to sell the insurance. On top of that, the Housing Industry Association and the Master Builders Association receive brokerage fees for distributing the insurance to builders. It’s a system that the consumer law centre, among others, say is rife with vested interests. Says Consumer Action Law Centre chief executive Gerard Brody: ‘‘The building sector has some very strong lobby groups that are interested in the status quo.
‘‘And at the government level there are quite a few different departments and ministers involved in building … that contributes to not much happening and a lot of buck passing.’’
Aside from junk insurance,
consumers could try to pursue dodgy builders through the VCAT or take them to court.
But given the high costs and lengthy delays involved, the legal avenues available are beyond the reach of many.
The Auditor-General’s report describes seeking resolution through VCAT for domestic building consumers as ‘‘costly, risky and not a realistic option for many consumers, often already suffering financial stress due to building costs’’.
Brody says most consumers who came to the legal service for help did so because they had found it impossible to get a satisfactory outcome after finding problems with their building project.
‘‘It’s really hard for people to get a just outcome. There’s mediation, but if the builder doesn’t want to be part of that, it doesn’t happen, then you can go to VCAT, but that’s very costly and time consuming. We say to people, you need to have at least a couple of hundred thousand at stake or it’s not worth it,’’ Brody says.
Professor Priyan Mendis, from the Melbourne School of Engineering, said the Mount Waverley situation had at least focused attention on the many problems in the building industry. He said there had been a definite decline in building quality in recent years and protection for consumers was very weak.
Mendis said he was also worried about the training and skills of some building inspectors to cover all areas of a project and, in some cases, a civil engineer or other specialist should be brought in to check work. ‘‘It can be very hard to find builders and get things fixed, particularly when problems may not show up for years after the work has been done.’’
The Consumer Action Law Centre is calling for an ombudsman for the building sector with the power to order builders to replace substandard work and provide compensation. The unwieldy system of junk insurance would go, replaced by a statutory compensation fund, controlled by the ombudsman.
Echoing the conclusions of the Auditor-General, Brody also says reform to the industry must include an overhaul of the builder registration system so that ‘‘only qualified, competent and suitable practitioners are allowed to trade’’.
The state government has been talking to stakeholders about reform of the building industry since early this year, saying it is committed to achieving ‘‘better consumer protection, stronger registration requirements and a tougher discipline system for building practitioners’’.
A spokeswoman for Planning Minister Richard Wynne said as well as new legislation, the government would honour an election promise to create an Office of Building Rights Advocate, whose role would be ‘‘to help consumers navigate dispute resolution, monitor investigation procedures and contribute to policy’’.
The Victorian Building Authority has confirmed it is working with the government on reform of the industry, following the Auditor-General’s report.
The VBA said that improvement was needed in areas including compliance and communication between the various bodies involved in consumer protection.
Phil Dwyer, national president of the Builders Collective of Australia and a builder for 40 years, is one of many in the industry tearing their hair out over a system that, he says, protects neither consumers or builders and allows shonky practitioners to flourish.
Calling the current insurance system ‘‘lunacy’’, Dwyer says it should be replaced by a one-stop shop for compliance and registration, with a statutory fund for compensation to be administered by a single person, preferably a retired builder.
‘‘Those of us who have watched the decline over the past decade begin each day in disbelief of what is going on,’’ Dwyer says. ‘‘Those of us who have spent our lives working in the building industry are bewildered and disgusted how we’ve got to this point.’’