Victorian Government to fast-track cladding rectification scheme and give builders a chance to rectify their own work

As reported in our 17 October 2019 update, the Victorian Government introduced reforms aimed at funding rectification of non-compliant ACP cladding, including through litigation directed at wrongdoers responsible for the use of such products. In this regard, the Crown now has the power to ’stand in the shoes‘ of an owner who receives or received government funding to bring recovery claims against building practitioners involved in the installation or use of non-compliant cladding.

In our article on 6 April 2020, we spoke about a series of problems with the rectification approach adopted by the Victorian Government, which can be summarised as follows:

1. The Victorian Government’s decision to allow certain building practitioners to maintain their registration despite their professional indemnity insurance containing an exclusion for claims concerning cladding means that judgments may not be enforceable. Even if the Crown succeeds in a claim against the relevant building practitioner, it may be unable to enforce any monetary award if the claim is caught by the ‘cladding exclusion’ in the practitioner’s professional indemnity policy.
2. The approach fails to account for buildings with non-compliant ACP cladding, which also have other non-related defects (such as design defects or workmanship issues). Owners may find themselves out of pocket for the rectification of non-ACP cladding related defects, which require addressing at the same time as cladding issues.
3. Further, if the Crown is empowered and prepared to pursue claims in respect of non-ACP related defects as part of its mandated claim for non-compliant ACP products, and to the extent that it is, whether this would require a contribution from the relevant owners to its litigation costs.

Following our last update on 27 May 2020 about the Victorian Building Authority’s (VBA) tough stance on practitioners’ in light of the cladding crisis, there have been further developments with the cladding rectification scheme.

On 24 June 2020, Cladding Safety Victoria (CSV) announced it has fast tracked rectification works to support the construction industry in the wake of COVID-19. The program funding has been brought forward and it is in the process of identifying and selecting builders of ‘good repute’ to undertake rectification works on their original buildings.¹ CSV expects the time it takes to have rectification plans in place to be cut from 33 weeks to 16 weeks where the original builder is involved. Strict vetting and oversight processes around practitioner conduct will provide robust assurance that the practitioner is able to work in the program. Relevantly, the process will not extend to negligent builders.

Further to the announcement, Planning Minister Richard Wynne has commented that “those found to have done the wrong thing will not be able to participate” however “this is a chance for the original builders to become part of the solution and keep their workers employed during these challenging times.”² It has been reported that the scheme would run on a no-profit basis.³

The scheme appears to be premised on ‘good builders’ coming back to make right their initial projects with the rationale that it would keep rectification costs down for the government whilst also avoiding litigation and reputational damage for the builder.

Whilst this approach appears to be sensible and pragmatic, further clarification is needed. Potential issues include the following:

1. It is unclear what is meant by builders who have ‘done the wrong thing’ and how this will be determined. For example, is it contemplated that builders will only be approved if they are exonerated by the Judiciary? Such a process would be lengthy and costly and would be at odds with the intent of fast-tracking necessary rectification works. Alternatively, is it proposed that the CSV or another body determines whether a builder has ‘done the wrong thing’? This in turn poses questions of procedural fairness and natural justice.
2. Industry experts have raised concerns that a ‘no-profit’ scheme is problematic as it may result in builders being able to “inflate their costs from other parts of their business to show the cladding rectification was not profitable.”⁴

No doubt further guidance about builder eligibility requirements for the scheme will become apparent in the coming weeks and months.