Update: Status of funded cladding remediation works in Victoria

11 January 2024

As Cladding Safety Victoria nears the end of its mandate to assist with the rectification of the highest risk buildings with combustible cladding in Victoria, focus has now moved to assisting the owners of buildings which present a lower risk.

In this article, we consider the evolving risk profile applied to aluminium composite panels and expanded polystyrene cladding by Cladding Safety Victoria, including the current status of cladding remediation work in Victoria.

The current state of play in Victoria

Recently, Barry Nilsson hosted Dan O’Brien and Luke Exell of Cladding Safety Victoria (CSV) for a presentation on the status of residential and government programs for cladding rectification work in Victoria.

During the presentation, CSV presented data to 8 December 2023, which revealed that:

  • CSV has assessed a total of 1594 residential buildings, and of those, 365 buildings were approved for funding, 422 were discharged as out of scope, and 807 were unresolved, subject to the application of CSV’s Risk Reduction Framework.
  • A further 249 government buildings were reviewed by CSV, with 130 of those buildings approved in the program, with the remaining 119 buildings acquitted without requiring work.
  • The program is likely to be completed in 2025, and has now entered its second phase, dealing with lower risk buildings.
  • Buildings awaiting a cladding solution are predominately (81.7%) low rise buildings comprising 5 or less storeys.

CSV’s presentation raised several thought-provoking issues in the context of cladding and construction generally.

Risk profiling

The first phase of CSV’s cladding rectification mandate was to mobilise to remove cladding which posed an unacceptable risk to the health and safety of occupants.

The second phase was to adopt a risk-based approach in relation to lower risk buildings in the program. This appears to have been a natural evolution of the program given the large amount of owner emotion after the Lacrosse and Grenfell Tower fires, which led to a rapid escalation of enforcement activity that may have been disproportionate to the actual risk posed by certain buildings.

Notably, during this phase—and seemingly in recognition of its allocated budget—CSV is working with stakeholders to consider the viability of cost-effective performance-based solutions, rather than stepping in to remove all trace of non-compliant cladding. The aim being to apply a measured and proportionate response to risk, which values existing fire safety protection (such as sprinkler systems).

As part of the risk-based approach, the Government announced the ‘Cladding Remediation Partnership Program and the cladding risk mitigation framework’ in September 2023, which are aimed at providing a guide for councils, municipal building surveyors, private building surveyors and owners with a clear policy for addressing combustible external cladding.

The risk-based policy applies to ‘relevant buildings’, being buildings in Victoria:

  1. which are classified as Class 2 or Class 3 by the National Construction Code or contain any component which is classified as Class 2 or Class 3;
  2. for which the work for the construction of the building was completed or an occupancy permit or certificate of final inspection was issued before 1 February 2021; and
  3. which have combustible external cladding.

The resources include Minister’s Guideline 15 made under s 188(1)(c) of the Building Act 1993 (VIC), which provides guidance to building surveyors when fulfilling their obligations in relation to both combustible external cladding and the assessment of remediation work proposals for combustible cladding where this does not comprise the full removal and replacement of the cladding products.

Most notably, the policy incorporates three risk categories – unacceptable risk, elevated risk and low risk, applying different categorisation to sprinkler protected and non-sprinkler protected properties. Examples of interventions which could be adopted include removal of cladding in high-risk building areas only, active fire safety system upgrades (such as heat detection and the extension of sprinklers to balconies), passive fire safety upgrades (for example low voltage lights, seal closer and smoke seal installation) and exit and egress protection (such as new exit/egress routes).

This structured risk-based approach is likely to lead to many buildings retaining some combustible external cladding. While the risk-based approach will see outstanding building orders and notices withdrawn, it does not necessarily mean that the building is compliant with the Building Code of Australia. We consider this may be a significant issue for property owners (particularly when selling their property) and Property and Professional Indemnity insurers.

Related defects identified during cladding removal works

At the outset, CSV’s stakeholder engagement was proposed to extend to dealing with the original builder on the project, enabling them to ‘bid’ on their own projects. At the time, we considered this to be a helpful step to avoid future litigation, in circumstances where there may be broader defects in buildings effected by the use of non-compliant cladding.

In their recent presentation, CSV made it clear that related defects are in fact being identified in a significant number (49%) of residential properties where cladding remediation works are funded by CSV. Of those buildings:

  • 38% were found to have water or moisture related damage; and
  • 33% had missing or insufficient waterproofing.

In terms of the immediate impact for property owners, broader defects (beyond cladding) are not covered by CSV’s funding. This means that owners are required to cover the expenses for these additional works and the costs of pursing a building defects claim against the builder. CSV reported that approximately $52 million has been spent by owners to date on the rectification of non-cladding defects identified during cladding remediation work.

The prevalence of waterproofing and water ingress defects, coupled with the quantum of repair works funded by owners, suggests this is a significant issue for the construction industry, which will impact professional indemnity and property insurers.

To the extent that construction drawings and specifications do not contain sufficient detail, there is potential exposure for design professionals and building surveyors, who issued permits permitting the works and approved the works through mandatory inspections, to be the subject of civil claims.

Potential litigation

Given that CSV is nearing the end of its role funding cladding repair works in Victoria, we would expect to soon see more subrogated recovery claims by the State. This is because where CSV funds rectification works, the State can step into the shoes of an owner to recover its losses.

While the original builders are likely to be the first in the ‘firing line’, other building practitioners/consultants are likely to be on the hook in relation to recovery claims. As was the case in the recent decision of Owners Corporation 1 Plan No PS 707553K and Ors v Shangri-La Construction (ACN 130 534 244) and Anor [2023] VCC 1473, this can include individual building practitioners who were ‘officers’ at the relevant time.

Noting the prevalence of non-cladding defects being identified on CSV funded properties, and given complexities arising from the nature of ownership of the affected buildings (largely arising from the existence of owners corporations and multiple individual lot owners), it is unlikely that the process will be straightforward.

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