Articles

The below piece that I have italicised for ease of reference was published in sourceable 9 years ago. It attracted 33,000 reads. I`ve re-released it (with a couple of minor edits) as the crises discussed in the article, the shrinking pool of certifiers hasn’t been solved nearly a decade later. 

Jill Brookfield CEO of the Australian Association of Certifiers last week was quoted in the Daily Telegraph as saying “Make no mistake, the housing crises cannot be solved without certifiers”

“Is the era of Private  Certification nearly  over” sourceable  3 July 2015

“There is talk again a around the imminent demise of private certification. If this is correct, how did it get to this?

A trip down memory lane will provide some of the answers. Private certification was established in the early 1990s. By the mid-90s, it was prevalent in all Australian jurisdictions albeit in different guises. 

The system allowed one to choose either a private certifier or a council building surveyor to issue building permits, carry out inspections and ultimately issue occupancy permits. In some jurisdictions like ACT, certifiers were tasked with carrying out some of the approval functions but the occupancy permits were issued by government. There were further permutations; in some jurisdictions they were called building surveyors, while in others, accredited certifiers.

Why was the private certification system introduced?

It came into play to speed up the building approval process. Back in the day, before the system opened up (and I’m showing my age here), building permit issues was the sole domain of local government. Builders and owners complained that it could take weeks, sometimes months to get a building permit from a council.

I remember lodging a simple set of plans for a very minor renovation. When visiting the council building department I noticed that between the hours of 10am and 12pm, or 2pm and 4pm, I could be graced with access to a building surveyor. It was a good lifestyle job for the civil servants but a  inconvenient for the rate paying customer. 

Private certification revolutionised this and turnaround time plummeted as building surveyors competed with one another for building permit revenue.

10 year runoff cover

When private certification was first introduced, the insurance products were fantastic. All building practitioners could get 10-year runoff cover. 

Based on the French system, when a building practitioner retired, it triggered automatic runoff. This meant that the retiree was indemnified for 10 years post-retirement and consumers had the benefit of insurance protection for 10 years. 

It was very good consumer protection. By the late-90s, however, the insurance industry said “enough.” They complained that the cost of underwriting the scheme was crippling and unsustainable. Fearing an underwriter exodus, the governments did away with mandatory requirement of runoff.

By the late 90s the risk landscape for certifiers began to change

Further, the early 90s Model Act based reforms had intended that all building practitioners were required to be registered across the board. This only occurred in some jurisdictions like Northern Territory and Victoria. Other jurisdictions like New South Wales chose not to insist upon the registration of all building practitioners; they opted for a regime where only residential builders and private certifiers were required by law to be registered and insured. 

So we had the emergence by the late-90s of profoundly divergent risk landscapes in the eight countries of Australia (i.e. the states and territories). 

Ominously, risk started to skew in the direction of the certifiers

Then there was another thing that cut across the bow: in the mid-90s the ABCB introduced a performance based building code. This allowed building surveyors to sanction alternative solutions – to choose innovative often computer modelling based design scenarios, designed to comply with the objectives of the BCA – in lieu of design proposals complying with the prescriptive or deemed to satisfy provisions of the BCA.

This was all well and good, but it was a huge game changer as for the first time in Australia, building surveyors could issue building permits based upon alternative solution design scenarios that did not comply with the prescriptive provisions of the BCA.

A private certifier, armed with a building surveying qualification could ‘green light’ a development courtesy of an alternative solution that was not of the tried and true prescriptive regulation persuasion. Talk about a radical turn!

Now one had a proliferation of alternative solutions being sanctioned in areas like fire compliance, where sprinklers would be deleted as other methods of fire retardant persuasion were preferred. 

Invariably some of the alternative solutions involving the likes of the deletion of sprinklers were a cheaper option than sprinkler-containing solutions. The risk barometer was ratcheted up against private certifiers on account of the massive assumption on alternative solution base risk.

Another Game Changer introducing the above 3 story home warranty exclusion

At about the turn of the third millennium, the insurers arched up. Insurers descended upon government, insisting that they didn’t like to underwrite warranty cover for residential skyscrapers anymore. The risk was too high and they argued that they were losing money on multi-unit development claims.

They intimated that they would have to have to leave the market unless they were freed from underwriting the mandatory legislative requirement for sky-rise multi-storey dwellings. 

The upshot was that insurers no longer underwrote residential high rises for builders. But here’s the thing: private building surveyors still had to carry general professional indemnity cover for high rise residential monoliths.

So the elevated status of private certifiers as highly desirable insured defendants went through gained momentum, particularly in jurisdictions like NSW where, unlike Victoria, certifiers had by default become the only professionals who were by law required to carry mandatory PI cover. 

For fear of belabouring the point, this made certifiers very attractive to plaintiffs. In Victoria, on the other hand, engineers, architects, draftspersons and quantity surveyors are all required to be insured. Needless to say, the risk was spread more evenly.

Not surprisingly, in garden variety lawsuits – multi-defendant legal proceedings, that is – building surveyors increasingly found themselves locked in as co-defendants.

If not as co-defendants, they were joined as third parties and this in recent times has become the bane of the building surveying sector. The insurers began to see say ‘these guys as a bad risk, as they were popping up as co-defendants everywhere” and the London-based underwriters looking from afar began to get a little nervous about this antipodean creature called a private certifier (or is it an accredited certifier?).

Premiums went up and more and more certifiers began complaining about the difficulty in getting insurance cover. More and more frequently, one heard of certifiers having to look far and wide for cover to avoid closing shop and going out of business.

The deleterious impact of all of this on the risk profile has continued to coincide with fee cannibalisation and the habit of too many builders or developers screwing certifiers down on price. So we have an unholy coalescence of hefty and increasing premiums and cutthroat fee competition. Anecdotally, there is even talk of the insurance industry pulling out of the market altogether. None of this is surprising.

All of this means that the profession is being poleaxed every which way and the risk profile of the private certification sector has become increasingly dire. Compounding the problem is an ageing demographic, for the green shoots of youth are not coming through. Whenever I address a building surveyor conference, 80% of the audience members look like me: male, bald or grey, or both. Not surprising, we are all well north of 50 and take my word, 50-something is not the new 40-something.

More and more certifiers are telling me that the writing is on the wall. Unless there are some profound changes, this relatively new profession may be in its twilight. This has led to the rumours that now abound about it all returning to local government. 

That may be well and good, depending on your point of view, but remember: in the post-GFC world there have been cutbacks to the funding of compliance departments. Latvia’s supermarket roof collapse, that killed many people, was in part due to the post-GFC austerity measures on account of the disbanding of the national building inspectorate.

A return of the approval function to local government will not be a cure-all

Furthermore, builders and aspiring home owners should be on notice as swift permit delivery may be coming to an end. And for those who have, for so many years, screwed surveyors down on their fees, let’s see how the numbers will stack up when one is holding a development for an extra few months on account of permit delays in councils due to human resource constraints.”

Kim Lovegrove MSE RML is a partner of trans tasman lawyers, Lovegrove & Cotton, an author & law reformer, a Conjoint Professor at UWS University of Newcastle NSW & Chair of the IBQC and a past President of Northern Chapter, NZ

Disclaimer

This article is not legal advice rather a discussion of the topic in only general terms. Should you be in
need of legal advice, please contact a construction law firm. Lovegrove & Cotton Lawyers and
our experienced team will assist you based on the facts and circumstances of your case.