Undermining 200 Years of Confidence in Aussie Construction

It doesn’t look as though that voice will come from an industry association as could be construed from the ABC’s Madeline Morris interview with the MBA’s National CEO Wilhelm Harnisch who said, “the buck obviously has to stop with someone, but finding out who that someone is is very complex in a legal context. Yes, the builders do have a responsibility, but so to do the designers, so do the people who install it, so do the people when they finally approve it. So you know there are all these checks and balances along the way.”  

So who should give the public a single of point assurance about construction in 2015?

The current enquiries into construction materials and building certification are a shambles and they don’t appear likely to serve the public or the construction industry well. Their proponents are well-intended but their objectives are in my view ill-informed. Let’s be very clear. The federal government will eventually have no choice but to establish a Royal Commission into Australia’s construction industry to deal with a national undermining of public confidence in construction’s performance. It’s a national problem and one that cannot be left to the states, the industry associations or CFMEU to fix.

The current state of construction shortcomings has been years in the making. I estimate that there are hundreds of millions of dollars of questionable work and materials already in service. Their root cause has been the declining quality of trades and supervision, weak quality assurance and certification practices, a lack of investment in the modernisation of building codes, fraud and a failure to hold anyone to real account. In this day and age, there is no defence for these shortcomings. Ignorance is certainly not one, and nor is indifference.

The government was quick out of the blocks to call on an enquiry into pink batts following the calamitous roll-out of the home insulation program by the Rudd government. The government was less enthusiastic to call on an enquiry into the systemic defects and project certification failures identified in the $13.4 billion BER school building program and from the industry whispers about the $6.4 billion social housing program. The government will have discovered the widespread substandard work that has been done and paid for in the NBN rollout, but little has been said about it and no one has been held to public account.

Construction customers and the public are getting a far from acceptable deal. The public is not only being fleeced by paying for substandard and non-conforming building and infrastructure work, they are also being exposed to buildings that are not as fit for purpose as they should be. And they they are not being adequately informed of findings about safety or compliance failures when they are identified. Here are some examples:

• The new SCG Member’s Stand was initially occupied without complying with the conditions of consent. There was evidence of substandard work and life safety systems that would not have functioned if tested
• The crane fire at the UTS Broadway construction site has been investigated but NSW Work Cover is coy about publishing its report
• There are dozens of Victorian public school building roofs that do not conform to the manufacturers’ installation recommendations and will fail years ahead of their contracted life expectancy
• There are wide-scale installations of prefabricated buildings that have been certified as compliant when they may not be

The industry is rife with plenty of other examples, as well.

While there is a good mix of imported materials going into construction these days, there are many homegrown system failures. These should form part of the Senate enquiry’s terms of reference if any real physical or cultural change is intended.

I recently gathered observations about some of these practices. I showed photographs of a pre-fabricated building I had just inspected to an industry association CEO to ask if they had a position on dealing with member activities that would in time bring their association into disrepute. I was told there was no policy and that if there were, it would make it harder to retain existing members or to recruit new ones. I believe this is not an issue confined to one association or professional body. When challenged, many industry professionals paid to inspect and certify work assert that their clients only get what they pay for. “If prices are screwed down, then so is the level of service or product,” they say.

The global construction industry is going through massive transformation. The industry is becoming digitised, industrialised and its goods and services sourced from all over the globe. The Senate and NSW enquiries need to understand that the Australian construction industry is only a $300 billion drop in a $15 trillion global market. It is projected that 60 per cent of all global construction will occur in the Asia Pacific by 2025. Irrespective of the free trade momentum now being touted across these markets, the pace and movement of sophisticated materials, sub-assemblies and modules is way ahead in response to trends in sourcing modern construction projects and their growing assembly off-site. It will go faster.

The Australian construction industry is unprepared for what is happening now and for what lays ahead. Australia’s starting point is that its domestic labour and material inputs are far too expensive. The industry has become conditioned to accepting its high-cost nature in a market which just does the business and passes its costs on to clients. The major construction companies and the industry associations who represent them are holding onto the status quo because they know how hard it will be to adapt when the time comes. But that time cannot be long away. For now, they are indifferent to the long-term well-being of a capable, innovative and competitive industry at home. Its easier to go off-shore and source more and more construction inputs elsewhere.

The Australian construction industry’s problem does not just stem from China. The Chinese construction market has its problems with standards, corruption and capability, but that’s changing rapidly. Yes, we need to be on the look out for shoddy stuff when it hits our shores, but that is just a passing phenomenon. The Chinese and their developing country counterparts are getting a lot better by the year. In Australia our standards and capabilities are falling further behind each year. In my view, our problem is an “inside out one” more than it is an “outside in one.” The current Senate enquiry will make no difference unless it widens its reference framework and tackles the issues that no one is keen to have exposed.

Australia is going to have to face up to the reality that it will be unable to sustain a domestic construction standards and compliance regime which all vary in measure and application across a federation of states. The rate of construction method modernisation, composite materials, new assemblies and management technologies is beyond the ability of our domestic institutions to support or keep up with. It’s creating an alarming compliance framework often built on deemed to comply assessments made on behalf of proponents who shop the market to get what they want to hear, not to look after the public interest.

There is a lot of stuff being made and installed in Australia that has not been adequately stress tested or tested to assure customers that what is being offered is fit for purpose and that it will stand the test of time. It’s a very concerning trend. It will affect exports in time.

I attended an industry expo just recently and enquired about the robustness of some of the external cladding systems that were on display. There seemed a general acceptance that if an external finish or installation could last 10 years, it was good enough. I hear the same type of comments about embedded plumbing and electrical services in prefabricated modules. That’s despite buildings constructed in Australia over the last 200 years typically serving for 50 and more years. It’s a reasonable continuing public expectation. Its certainly reasonable for the public to expect buildings that are structurally sound, safe and adaptable.

This public expectation is counter to the risk-adverse nature of the construction industry these days and their advocates who lobby for reduced red tape. This often means reduced accountability and warranty obligation. Construction contracts look to pass unmanageable or unable to be verified risk down to the supply chain. One industry association has even succeeded in promoting a policy for the industry’s customers to pay for a warranty insurance levy to pay for defects. Imagine getting away with that in any other industry.

A regular contracting method observable in the industry in recent years is for suppliers of products like pre-fabricated modules such as student village multi-unit apartments to be engaged as a nominated supplier by the client. This means the client has also to engage a “builder of record” who has the statutory obligations to ensure the conditions of consent are met for the entire project, including the modules. The supplier then just drops off the modules or installs them oblivious to any surrounding or enabling prior work. The “builder of record” also operates in a similar oblivion, assuming that all the hype about off-site quality assurance is true. I have inspected projects where these demarcations have created unacceptable outcomes, but they have been certified and the caravan moves on. There is little care and no responsibility about what lays ahead for customers or the public.

Those on the client side know how assurances of quality in the industry these days are thin at best. This is equally so for state and federal governments who hollowed out their informed buyer capability years ago. The custodians of public interest in construction have been effectively neutered, at considerable loss to the community. There are few if any resources available or able to investigate shortcomings in public project delivery. The prospects for private observers of these shortcomings to make a difference is made almost impossible with public interest disclosures being shrouded in process, commercial confidentiality, expense and affront.

To help address the changed public capability playing field, the Senate and other enquiries into the integrity of the construction delivery process could help to enable such disclosures and look to whistle-blowing options such as those in the US. These have become an important partnership between skilled practitioners in the private sector and governments in getting a better deal for taxpayers. Under the US False Claims Act (FCA), whistle-blowers play an important role in helping government to get value for money and, in the context of this enquiry, enhance the prospects for identifying substandard work on behalf of the community. Under the FCA, whistle-blowers are rewarded for successful exposures.

There is further reason to consider the FCA legislation. Most major public projects these days are consented under special ministerial powers as “projects of state significance.” As a result, these projects have different governance and accountabilities to the mainstream construction market. Given the scale and pace of major public infrastructure spending now and in the pipeline, there would have to be merit in reviewing the legislature covering these projects to ensure they meet the highest standards. Governments contract these projects to private sector organisations who will have competing interests with the public. Some of these companies are majority owned off-shore. Most have been in multiple ownerships over the last 10 years. These will take some complex and expensive sorting out if their contracted standards come up short or if those organisations cease to operate here.

All the while, the Australian construction industry sustains a culture that places not enough emphasis on “good,” settling instead of “good enough.” Well “good enough is not good enough. The time has come for some serious corrective action. The current NSW review of building professionals’ performance like the Senate enquiry really misses the point in the depth of problems and the risk to public confidence in an industry that underpins much of the nation’s wealth.

Be assured that the whole of the industry is aware of the thin ice on which it is skating. Most, however, have a self-centric view of what the root cause is and who is responsible. None have any faith that any enquiry or regulatory response will have the insights or the metal to do anything about it, so they just batten down while construction remains one of those unfathomable riddles. But for how long can the riddle play out? How long before a future government faces up to “I told you so!”

I remember well the words of US construction industry advocate Charles Cowan who said “if you are always going to do what you have always done, then you are always going to get what you always have gotten, and some!” The Senate might keep this in mind.

Let’s hope that Michael O’Connor is not able to grasp at a new CFMEU straw of public respectability based on building standards and compliance, just as Jack Mundy did in the 1970s using Green Bans to shelter the BLF’s unlawful and disruptive behaviour back then. Surely the Australian construction industry and our policy makers can do better in 2015.

The continuance of 200 years of public confidence in construction depends on it.