Following on from our original 2017 Member Alert on non-conforming building products, the use of flammable cladding on the facade of Australian buildings has come under further scrutiny.

There has been widespread removal and replacement of non-compliant cladding. Building owners are commencing legal proceedings against building professionals, including architects, to recover costs of dealing with aluminium composite panel (ACP) and expanded polystyrene (EPS) products in their buildings. In large buildings, such claims amount to many millions of dollars.

As well, strict controls are being placed on future use of ACP and EPS products, particularly in high-rise buildings. The insurance market has also changed considerably.

Many statements are being made about ACP and EPS products, which should be treated with caution and should be scrutinised by expert consultants.

As practising architects, you would be aware of your responsibilities to meet your professional competencies and to perform your professional services with reasonable skill, care and diligence, and you should take measures to ensure that you do not expose yourself to future risks of specifying non-compliant cladding.

The following is a summary of recent changes in the legislative and insurance environments as well as links for members to obtain further information.

 

Legislative change

Some of the latest legislative initiatives include the following:

• • Amendment to the BCA with respect to bonded laminate products. These amendments also introduced a new verification method, CV3, which requires testing under AS5113 in conjunction with other specified protections.

• • The introduction of an Australian Standard (AS5113) for full facade fire testing.

• • In Victoria, the introduction of Ministerial Guideline 14 in relation to building permits for the use of Prescribed Combustible Products, which requires approval from the Building Appeals Board before using certain ACP and EPS products on certain multi storey buildings.

• • The NSW Commissioner for Fair Trading imposed a building product use ban to prohibit the use of aluminium composite panels with a core comprised of greater than 30 per cent polyethylene by mass in any external cladding, external wall, external insulation, facade or rendered finish in certain multi storey buildings, subject to specific exceptions. The cladding taskforce has completed its assessment of over 1500 buildings with 400 more to be assessed.

• • The Queensland government introduced Non-Conforming Building Products ‒ Chain of Responsibility legislation introducing various duties regarding building products upon supply chain participants in the ‘chain of responsibility’ (designers, manufacturers, importers, suppliers and installers of building products) and established a Building Products Advisory Committee. They have also introduced the Building and Other Legislation (Cladding) Amendment Regulation 2018 (Qld).

• • The Tasmanian government is proposing to strengthen its regulations to provide guidance on how cladding should be accredited, installed and used.

• • Audits continue in South Australia with 77 buildings currently requiring further assessment to determine if they need remedial works. The government has introduced the Development (Building Cladding) Variation Regulation 2018.

• • In Western Australia, audits continue with risk assessments to be performed over 242 buildings. The Building Amendment Regulations (No 2) 2018 make it mandatory to have cladding products tested to meet the new verification method CV3 if using a performance solution to meet performance requirement CP2 of the Building Code of Australia.

• • In the ACT, audits continue with a review group established to help guide the ACT government on whether manner of installation poses an unacceptable risk to occupants.

 

A more complete legislative update, current to September 2018, can be found on the MinterEllison website.

 

Insurance

The cost of insurance and corresponding excess contributions are rising rapidly for residential owners’ corporations and bodies corporate of buildings with cladding risks. Building surveyors’ professional indemnity premiums are reported to have doubled, with some rising up to 400% in recent renewals.

Of more importance to architects, most professional indemnity insurers are imposing exclusions on insurance policies for ACP/EPS or non-conforming building product. These exclusions could leave you uninsured for past projects. The market exclusions appear to be for both legal/defence costs and indemnity.

Professional indemnity insurance coverage is offered on a “claims made and notified” basis. This means there must be a valid policy in place at the time you first become aware of, and notify a claim or circumstance to your insurer, regardless of whether the claim relates to activities performed in a previous policy period. Therefore, the PI policy you have in place today will be the policy that you notify a claim under if you became aware of a matter today. Not the policy you held when you did the work.

Planned Cover are insurance brokers who specialise and manage the insurance programs for the majority of Australian based architectural practices. They offer the following advice:

“Before obtaining or renewing professional indemnity insurance, check the policy wording and schedule carefully to find out exactly what is excluded. We recommend that you discuss any non-compliant product exclusion with your insurance broker to ensure you fully understand the extent of the exclusion and the potential impact it may have on your business. The level of cover can vary greatly from one policy to the other.

Some exclusions are very broad and exclude “any building material that is non-conforming or non-compliant with the National Construction Code, the Building Code of Australia, the Australian Standards or any other applicable laws or regulations”. This type of exclusion goes well beyond non-compliant cladding and leaves the architect uninsured for claims arising from any non-compliant material or potentially design. This could include tiles, screws, glass, railings etc.

On the other hand, there are more moderate exclusions which seek to exclude claims arising only from the use of non-compliant Aluminium Composite Panels or even narrower ones which just exclude Aluminium Composite Panels with a Polyethylene core. It is important to note that no matter how narrow or broad the exclusion, it will apply to all projects, past and future, unless it specifically states that it only applies to future work or work after a certain date.

Once an exclusion is imposed, architects should review the cover provided and adjust their activities to reduce their ongoing exposure. They should also be aware of engaging sub-consultants. If you engage a sub-consultant, you become liable to the client for the work of that sub-consultant. Most PI policies provide cover for your legal liability when engaging sub-consultants. However, if a subsequent claim is made against you for the actions or errors of your sub-consultant and that claim is in connection with non-compliant cladding, you may be faced with no cover. For example, if you engage a fire engineer as your sub-consultant, and there is a subsequent claim arising from non-compliant cladding, the client will usually bring the claim against you as lead consultant. Depending on the nature of the exclusion, you may have no cover for your liability nor defence costs relating to the claim. This scenario can be avoided if the client engages the sub-consultant directly.”

 

More information

Australian Institute of Architects Acumen Note – Non-complying building products.

Australian Building Codes Board – Advisory Note: Fire performance of external walls and cladding

ACT Environment, Planning and Sustainable Development Directorate Building Cladding Review

CSIRO – Fire safety for external walls of buildings

Northern Territory Building Development – Building Notes

NSW Fair Trading 

• Fire safety and external wall cladding
• Proposed ban on the use of certain types of Aluminium Composite Panels 

Queensland Fire and emergency services – Combustible external cladding

Queensland Government Department of Housing and Public Works – Non-Conforming Building Products Code of Practice
Safer Buildings for Queensland- What’s happening across Australia?

Queensland Building and Construction Commission – Non-Conforming Building Products

South Australia Planning and Property  – Building news and Practitioner forms

Tasmania Consumer, Building & Occupational Services – Changes to the Building Regulations 2016

Victorian Building Authority

• Minister’s Guideline MG-14 – Issue of building permits where building work involves the use of certain cladding products
• Building Product Safety Alert – Use of ACP and EPS as external wall cladding

Government of Western Australia Building Commission – State-wide cladding audit