CSV’s fast-tracked recladding program: what does it mean for owners corporations?

Key changes announced by Cladding Safety Victoria in June are designed to speed up the process whereby rectification can begin by inviting the original builders back to perform the works “at cost”. In this article we look at the key takeaways for owners corporations from Master Builders Victoria’s July 2020 Cladding Rectification Legislation Briefing Webinar with Cladding Safety Victoria CEO Dan O’Brien.

 

Background:

Most readers will be aware of the contributing factors which culminated in the creation of Cladding Safety Victoria in 2019. The below timeline shows the sequence of events leading to $600 million in funding being allocated by the Victorian government to reduce the risk associated with combustible cladding on residential apartment buildings.

  • November 2014: Melbourne Lacrosse fire
  • June 2017: Grenfell Tower fire
  • July 2017: Victorian Cladding Taskforce established
  • August 2017: Taskforce starts pilot audit
  • December 2017: Statewide Cladding Audit begins
  • July 2019: Cladding Safety Victoria announced
  • 2020 Onwards: Cladding rectification program commences

Mr O’Brien begins by explaining that Cladding Safety Victoria was set up in part to deal with the difficulty of rectifying high-risk buildings where there is fragmented ownership:

“We’re dealing with an ownership structure that… because it’s so fragmented… creates an enormous amount of difficulty to make decisions. And one of the great challenges we have is working through the many owners corporations that we have to deal with.”

“We’re working with owners corporations and, again, I would class these buildings, because of the fragmented ownership … as some of the most difficult buildings to remove cladding on.”

Confusion and disputes surrounding who is legally liable to pay for the removal and replacement of combustible cladding has hampered the rectification process from the beginning and continues to create huge complications for all involved.

Whereas owners corporations and body corporates have received building orders from the Victorian Building Authority, with deadlines to have the work done, the very presence of the flammable materials is widely understood to have resulted from a breakdown in the process of effective oversight during the construction process.

This uncertainty surrounding who will ultimately foot the bill for the necessary works – a list which includes builders, surveyors, insurance companies, government and property owners – has led to an extremely distressing situation for the biggest victims of the cladding crisis, the apartment owners and inhabitants.

While introducing the webinar, Master Builders Victoria CEO Rebecca Casson is at pains to make clear that builders are invested in the rectification process too:

“We’ve been absolutely vocal at the forefront of this cladding issue, absolutely saying that the finger pointing must cease and that Master Builders Victoria and our members want to be a part of the solution.”

The June Announcement

CSV announced in June that new measures were to be introduced which aim to speed up the preliminary process whereby rectification could actually begin. Under the new measures, CSV are aiming to see the yearly tally of buildings that are rectified double from 100 buildings a year to 200 in the same time frame.

Due to various complexities around the government process, the owners corporation act, the tendering process and associated regulations it was initially projected in July 2019 that an average assessment and planning period of 66 weeks would apply before construction could begin on any particular building.

Mr O’Brien goes on to explain, that, towards the end of 2019:

“We looked at that time period of 66 weeks, that was sort of a baseline process, many would take longer than that to get to construction, we felt that’s way too long”.

CSV then implemented an expedited process whereby the projected period could be reduced from 66 weeks to 33 weeks by taking a more active role in the design phase of the process.

Since the emergence of the coronavirus pandemic, CSV has unveiled new plans whereby the implementation of rectification plans could be reduced from 33 weeks to as little as 16 weeks by inviting the original builder who installed the combustible cladding to return and complete the rectification “at cost”.

In addition to once again halving the turnaround time whereby rectification works can be expected to commence, the post-COVID announcement is designed to have the added benefit of creating jobs and stimulating the Victorian economy during this unexpected downturn. Mr O’Brien points to a joint solution:

“In conjunction with Master Builders… how do we really get buildings moving along and how do we bring confidence back into the industry? And a key decision that we made… was to really wrestle with this question of should the original builder that was involved in the construction be able to come back to rectify the buildings that they are involved in?

The Advantages:

Mr O’Brien proceeds to outline the reasons why involving the original builder in the project should lead to faster and better outcomes for all.

Firstly, they know the building, thus speeding up the preliminaries before work can get underway.

Mr O’Brien adds that at the same time:

“They could also come back and look at potential other defects that had emerged in the original build.”

From the builder’s perspective:

“This is an opportunity to come back and… participate with Cladding Safety Victoria to get a contingent liability off their own books.”

“Where we have a willing original builder that’s of good standing… in partnership with Cladding Safety Victoria we believe that we can get those buildings into construction in a much quicker time frame.”

How it Works

Under the new changes to the scheme the original builders are invited to come back to submit a price that demonstrates that they are not trying to profit from the works.

“Cladding Safety Victoria will work with that original builder, funding materials and labour, and no more. Essentially this is a shared arrangement whereby the original builder acknowledges that it’s important to remove the cladding.”

According to Mr O’Brien: “The response has been overwhelmingly supportive of getting involved.”

He also stresses that any financial contribution by CSV is just that – a contribution and not a loan to be repaid by the builder or the OC:

“It’s a direct financial contribution. There will be circumstances where the owners may seek to co-contribute. Where we see a performance solution that’s viable owners may feel that they want to make a financial contribution to have all cladding removed. That’s possible and that’s been discussed in a couple of circumstances. At this stage, the direct funding by CSV is just that – direct funding to remove cladding – no other contribution (is) required.”

Not all builders qualify

Mr O’Brien explains that participants are subject to strict eligibility criteria and those who have done the wrong thing or are subject to discipline before the VBA will not be eligible to return and rectify the buildings.

To qualify for the fast-tracked program, the following will be considered:

  • Disciplinary history
  • Demonstrated capacity to develop complex and quality projects
  • Financial viability and maintenance of necessary insurance policies
  • OHS considerations, including COVID-19
  • Building registration status
  • Willingness to accept terms and address “other defects”
  • Participation in an “open-book” process

Owners corporations can say no

An important qualification to highlight is that the owners corporation also needs to consent to the original builder’s involvement in the rectification process for the fast-tracked process to proceed. Where the owners corporation does not wish to work with the original builder, the builder will not be permitted to return.

In the event of a situation where the builder is willing to participate but the owners corporation has strong reservations about allowing it Mr O’Brien explains that:

“Cladding Safety Victoria will happily broker a proper sit-down discussion with the builder and the OC to work out whether or not that impasse can be overcome.” 

However, Mr O’Brien also acknowledges that:

“Where it’s not overcome it may be for good reason. It may be that the owners have a series of other issues with the builder and we need to respect that.”

Should the owners corporation choose not to permit the original builder to return, the process will continue whereby a suitable third party will need to be selected as the preferred partner to carry out the cladding replacement.

Cost recovery where the original builder does not participate

Just as the owners corporation can choose not to allow the original builder to return, by the same token, the builder does not have to accept the opportunity to take part in the fast-tracked rectification program.

On those occasions where the original builder does not want to return, or the owners corporation is unwilling to accept the original builder, the project will continue through the existing rectification pathway and the builders will still be subject to cost recovery.

Mr O’Brien explains that:

“The reason it would be subject to… potential cost recovery is the fact that CSV will still be funding the building and it’s that provision of funding that triggers the subrogation right in the act.”

Builders who are found to have done the wrong thing and are not invited to return will also be subject to the Department of Environment, Land, Water and Planning cost recovery process.

According to Mr O’Brien:

“It might be the builder, it might be through the building surveyor, it might be through the fire engineer, or all of them, but that cost recovery process, where there is no intention to participate, or the builders are not seen to be of the suitable quality to participate… that cost recovery process is still very much alive for those builders.”

You can watch the full interview at https://youtu.be/ZKdz9pR_IHA.

As always, you can contact Fire Cladding Solutions for a free confidential chat about your situation by calling us on (03) 9646 1296. You can also enquire on the website and we will be happy to get back to you: https://firecladdingsolutions.com.au/#contact-us