David Chandler reforming the NSW Construction Industry

Sydney - M E Times Int'l: David Chandler OAM, NSW Building Commissioner addressed The Australian Lebanese Chamber of Commerce in late September 2021. David Chandler is a highly experienced professional in the construction industry with a distinguished career, notably as Project Manager of Parliament House in Canberra. Before his appointment as NSW Building Commissioner he was Adjunct Professor in Construction at Western Sydney University and championed the Centre for Smart and Modern Construction. David Chandler is pursuing reform in the construction industry and with his department are demanding improvement in the performance of builders and the quality of construction in NSW.

ALCC President Joe Khattar has worked very hard to develop relations between business leaders from the Lebanese community in Australia both locally and internationally. He is highly respected by business leaders and Government officials. The seminar was sponsored by abal Banking/Arab Bank Australia Limited. Alan Todhunter represented the Middle East Times International.

PETER BADER FROM THE (ALCC)

Our guest today and to our virtual business seminar with our special guest Mr. David Chandler OAM, New South Wales Building Commissioner. My name is Peter Bader, and I'm the director of the Australian Lebanese Chamber of Commerce and on behalf of the Board of Directors of the ALCC, I would like to express my great appreciation for all of you here today, and especially those that are on the screen too, that we hope to see you in the near future. And we can go back to some normality.

I like to acknowledge a few of our important partners and sponsors, our partner, Arab bank, Australia, our diamond sponsor, Tradelink, our Platinum sponsors CBA, Daikon and JJ Metro West air conditioning Tico Energy Trade, Deluxe in energy Australia. I'd also like to thank our large cohort of gold and silver sponsors and for their support and for those that have renewed their membership and sponsorship even during these unprecedented extended COVID times. We look forward to seeing you all soon at the next events and in person.

I have the great pleasure to introduce our guest speaker, the New South Wales Building Commissioner Mr. David Chandler OAM. 

David Chandler OAM was appointed New South Wales Building Commissioner in August 2019. After an impressive 40-year career in the Australian construction industry, in his capacity as New South Wales building Commissioner, David is improving the quality of construction and restoring the industry through leading the delivery of construct New South Wales in collaboration with the sector.

Highlights of David's career include project management in some of Australia's most iconic developments including Sydney Tower and Canberra’s Parliament House. As adjunct professor in the School of Computing, Engineering and Mathematics (now the School of Engineering, Design and Built Environment) at Western Sydney University, David helped shape the next generation of construction professionals. David founded the Centre of Smart Modern Construction at Western Sydney University which invests in new academic and research capabilities for the construction sector. He was the deputy chair of the BER implementation review, and is a regular industry commentator and presenter. David was awarded an Order of Australia medal for his services to the construction industry. I'd now like to ask Mr. Chandler to join us and present the topic on the role of finances in restoring consumer confidence. I'm sure many developers and finances would love to hear what he has to say.

MR. DAVID CHANDLER OAM

Thank you, Peter. And thank all of you. And let me also say that two years into this journey, I am indebted to the fact that so many of you have reached out. And so many of you are so committed to getting this industry back to a place where it should be so the last time I spoke with you, I think I probably hung up some headlines and started to show you the news that was shining us all out of town.

I think we're having less than less than that these days. And frankly, I think we're starting to get some good stories as opposed to ones that are, the ones that we want to leave behind this. So I'm indebted to all of you. Because I'm now starting to go into projects where I'm starting to see green shoots, starting to represent the fact that everybody is very focused on how we can make this industry as good as it possibly can be. Still some disappointments and I'm afraid that people will, will find that that's something that they'll have to deal with. But I'm going to say just I came off one project this morning.

It was high core project. And I've got to say that, you know, there were a few things there that will need attention. But you know, I'm starting to see things that start to restore my confidence that this industry can do good work again and again. And it's not just that project.

There's an increasing number of them.  Where the enthusiasm shows me the changes that people are making their commitment to do things better, their willingness to fix things that need to be fixed, I've got to say to you that that's really starting to make the back end of this reform program, a lot more pleasing than it's been at the front end.

ALL BUILDERS TO GET A RATING

So, we're now turning our mind to the fact that we've signaled that we would like everybody to have a rating by March next year, this is really the bit that brings all of this home. And that is that we want consumers to have a choice to be able to deal with a rated player. Now, we don't want to provide that rating ourselves, we want the market to provide that rating. And so today, I'm going to talk to you a bit about that. And I'm going to talk to you about the fact that we do need the financers to become part of what we're trying to do here. Because they're an essential part, they actually loan the developers the money for the projects, they then provide the drawdowns for that. And on a couple of occasions recently, of course, I've had to run into some developer some finances and say, “Well, I think you could have paid more attention to this particular development than you have.”

So, we've started to sort of bring this home with the view that everybody's got a role to play. And this is about financers. So let me just move, ask you to move forward with these slides. If you move to the next one, which will be great. I just want to give you a quick snapshot of where we been, because when we started this journey, these things look very, very theoretical and very, in a way they were they were ideas that were put out and said, “Oh, yeah, that's fascinating. But what's that mean?”

NEED MORE REGULATION

Well, we did have to make the case that it was much more than regulation. It was much more about getting the built industries capability back, starting to get people to understand standards, starting to understand how the supply chain comes together. Because buildings are all these things stitched together. They're not just these things on their own.

We started with that conversation back in August 2019. We talked about a way that we were going to move in resetting the scales. Bring the insurance back into this industry. And that's what we're well advanced, we are well advanced in New South Wales, of bringing the insurance back into this industry. And we'll have some very, very big news. The minister will announce the formation of a working group to stand up a product for 10-year warranty insurance, so that not only can we build better buildings, but we can say to the customers, “these buildings have also got a warranty that comes with them from day one.”

So, none of this business of having to worry about what might happen, we want them back.

We have made substantial strides in getting the regulator, Fair Trading, to shift these resources from applying itself, two and three years after jobs have been finished, to shifting those resources to the front. So that's why you're seeing as occupations certificate audits.

That's why you're going to see us in designers’ offices, studying all of the drawings that have been loaded up to the planning portal, you're going to be seeing a much more front of the bus type organization than you've ever seen in the past. And I can see this happening really rapidly every single day that we now move forward.

BUILDING STRONG FOUNDATIONS

So, it's taken us a while to build his momentum. But we've got the momentum rolling. So a quick summary of the construct New South Wales strategy, just simply six pillars, building strong foundations, legislation, risk ratings, industry capability building, contracts and transactions, a digital economy and making sure that everything we do is informed by research.

You will also see us release a survey that we've done in conjunction with the strata communities, Australia SCA, that's all your strata managers. We've got 500 completed surveys back for buildings that are up to six years old. And it's got very important data evidence, research that will allow us all to make some decisions about going forward. But one of the things is really interesting that we can now see is that, that survey was finished in March. And in March, the most predominant defect that was president buildings was in wet areas.

As far as we're now in September, and we're now seeing on the Audits, and in fact, the big-ticket item is no longer wet areas, I think we've really started to turn wet areas around big time. So well, we're now focusing on fire, the fire rating. That's the next big area that will focus on, fire by structure, there are still too many issues in structure.

But I can tell you, you've all been listening. It's almost it's amazing to go and jobs and people come and say, Commissioner, I want you to come and have a look at our wet areas, this is what we're doing. We don't do that anymore. We do it this way. It's a credit to all of you the way that you're actually embracing this movement.

So, by the middle of next year, we want to make it quite clear that every other state in Australia, and the consumers believe that New South Wales is the best place in Australia to buy an apartment, we've got nearly 100,000 apartments approved to commence development in this state. Now, what we now need to do is to get the deposits back, none of this is going to turn around, we're not going to get this economy right, unless we get the deposit. So, we've got to make sure that customers are saying, we think it's safe to go back in the water. And I'm hearing stories now that that's what they think.

NSW to be the preferred state for financiers

We want to make sure that New South Wales is the preferred place for financers, not only to fund new projects, but to invest in supporting purchases of projects, I'm starting to get positive messages back from the banks that they're seeing those changes. I want New South Wales to be the most insurable state to build buildings. And then to insure the buildings when they've been built, I can tell you that we are leading in terms of the commentary that's being provided on Insurance Council of Australia, they think that New South Wales is the standout state in terms of solving these insurance risks. So, this work that we've all been doing together, is now starting to come together, and we can put a bow around it.

So, the next big piece is this writings were talking about. And you've all been hearing a lot about over the last year. Well, we're serious. From the first of March next year, I will be messaging to consumers in New South Wales, that if I was buying an apartment in New South Wales, I would only buy an apartment of a rated developer.

I would not be buying an apartment of an unrated developer. So, consumers from the first of March next year will have a choice. Deal with somebody who's rated, three stars, four stars, five stars, all fine by me, you don't get five stars overnight. So as long as you've got three, I will be saying to consumers, three stars you're a person people should doing business with.

So that's going to be a very strong messaging from March next year. And I urge you, I really plead with you get rated because I am going to be making that call out to the market. And I don't mince my words when I make these sorts of statements. So, then what we've got to do is to count the first 20,000 apartment deposits back.

The goal that I want to see by the end of next year, is that we've got 20,000 new deposits in from people who want to come back into the market. Now if it's 25 or more, I'm really pleased about it. But what I'd rather do is under promise and over deliver. So, we've got to get those 20,000 deposits back in the market ASAP.

And then what we're going to do is to start making sure that the brand, and what we've got the industry standing for, is in fact, something that's going to attract tomorrow's constructors, because there's some really great young people out there, but we need more. I've seen some really, really good people. People are back hiring cadets, that's fantastic. I've been speaking to the universities, universities are telling me that they've got developers ringing up saying, “Can we get some people with these skills? Can you add that cost to your program “? 

UNIVERSITIES TO LISTEN TO THE CONSTRUCTION INDUSTRY

You are telling the universities what you want now, and that's the way we need it to be. So please make sure that you're open door with universities, and we're going to get tomorrow's professionals really pointed at our industry.

So, a quick report back to you of the changes that have happened since we've started the reforms in New South Wales.

Now, when I came on board, these things were criticized as being the cancer of the industry.

Now, none of these things are the cancer of the industry.

Off the plan apartment purchases, is the way that housing is supplied in the multi-unit space in Australia.

We have added to making sure that can be an attractive proposition, the powers of the Residential Apartment Buildings Act.

So, we say to people who want to criticize off the plan sales, saying you're dreaming, the way that we get a housing supply in New South Wales is off the plan apartments sales, that's not changing, get used to it, but we will do what we need to do to make sure you can feel confident buying those apartments.

So, these are what we call the givens that we're saying to people stop throwing rocks at these things, these things are the reality.

So, the second reality that we can now speak about is the use of SPV’s, all a legitimate process to put a project together. SPV’s in the right hands are a good thing. SPV’s in the bad hand are not a good thing. So that's why we're introducing the ratings tool. Because the moment that you've been SPV using rating, then you can see the good SPV, and those that are not so good, won't get a rating. So that's the positive step we've taken. Because we wanted to make sure that we are not embarrassed about the fact that SPVs are legitimate and most appropriate way to actually put projects together.

UPDATE ON PRIVATE CERTIFIERS

Private Certifiers, again, there were rocks being throwing at Private Certifiers those rocks have stopped, mostly.  There's a couple of old hang around to like to just throw rocks, because they've got nothing else to do. But I think we've changed the compass of developers out there at the moment and telling me that they're committed to hiring the better certifiers. I'm hearing from the certifiers that they're now getting much more respectful engagement from developers and it's much clearer that their role is more respected. So, the Burden Building and Development Certifiers Act was formalized in September, sorry in July last year.

I'm going to say to you that I am blown away by the change of attitude and certifiers and the change of trust and work that I can see by certifiers going on out there.  We've still got a couple of bad lemons. There's about 11 of them that we've got our eye on. I can't tell you who they are, but you know who they would believe and so, it's important that we deal with those people and deal with a very firmly because right today, those 11 certifiers and currently the PCA on 58 projects.

So those 58 projects are going to get a lot of attention to let finished because I'm not having those 11 certifiers undo the work that we've been doing in the last two years.

A lot of criticism has been made of designer construct contracts. Now, again, designer construct contracts are going to be 60 to 80% of the way most projects are organized, nothing wrong with design and construct contracts.

In the right hands, they're a good thing in the wrong hands, they're not a good thing. What we've done there is we've introduced the Design and Building Practitioners Act. And I can see now that most people are well advanced in adopting the design of building practitioners.

I can see it through the questions that are coming. And we're also dealing with the feedback that we're getting from the industry. So, for example, we got feedback that we created an unintended problem with the staging of CCs. And you'll know that the regulations were amended to actually take the 12 months sunset that we had on stage CCs, and push that out for three years. And that won't be reviewed for another three years. But that's a direct response to the feedback that you've been giving us in making sure that this stuff works as much for you as it does for us.

Criticism on Strata Management

And then finally, there's been a fair bit of criticism about the way that strata management works. I'm not going to go into that now in great detail, just to say that over the next year, there will be a review and amendments to the strata titles act, and we'll clean up some of the things there that need to be cleaned up.

So, we're telling the marketplace, these are the things that are the realities, they're unavoidable. But working with the industry, we're going to make each one of those things come together and rebuild the confidence of this industry.

We have pivoted the way that the regulator looks at projects. And we now look at them through the eyes of the developer First, the designer Second, the contractors and the certifiers. The developer appoints those people. The developer appoints the designers, appoints the contractors, and appoints the certifies.  You could make good choices, and you can make bad choices. They're your choices.

The developers take deposits of customers. And at the end of the day, developers settle with those customers. And then those customers end up owning those projects.

So, you'll see that we spend most of our time these days applying our regulatory effort there. So, the act is going to be a big feature here, the Design and Building practitioners act is going to be a big feature here. And so, as the Building and Developers certifies that all of these things are very focused at that absolute top level of the transaction, so when I hear people tell me, I can't get a bricklayer that I make good bricklayers anymore, well, I say, Well, if you paid for bad brick work venture problem, but that won't be the consumers problem. Nobody can believe that anybody would, except and pay for brick work or block work that looks like that. I'm certainly not going to let that happen while I'm Building Commissioner.

And I think that most people are ashamed by that sort of exhibit. So that's not happening a lot. But where we do find it, we're going to deal with it. And I got to say to you that the other thing you've all got to give some attention to is cracks in slabs.

I can't get over how bad the basement slabs of buildings are cracking.

Now, it's okay to find an engineer that says “aww that's normal, or whatever.”

Cracks like we're seeing are not normal. Now. I've been into two buildings, one yesterday, one today. And while I was driving back to the office, I thought, you know, if you put all the cracks that I saw together in to any two buildings that I looked at yesterday, and today, I think all of those cracks, if you join them up, would be enough to get you across the Harbour Bridge.

So, I just want to put it to you guys much more attention required to that.

We want to have 60 to 80% of players rated, and we want them publishing those ratings on their sales material. We want those consumers to be able to see that material and those ratings.

Now, we see that the product that we've got to achieve here is how many developers and how many builders, trusted developers and trusted builders does New South Wales need to build 30,000 apartments year on year?

WE NEED 150 GOOD QUALITY DEVELOPERS

Well, the advice I've got back from the industry is, we need about 150, good quality developers, and 150 good quality builders. And we need them right across the spectrum. So, we need them, for people who do 20 or 50 apartments a year, average 100 apartments a year. And at the big end 750 or more across that full spectrum. Because we don't want an industry that is just dominated by big players.

We've always got to have good new people coming into the industry, we think we need about 150 developers, and 150 builders, and frankly, if they're not trustworthy, we do not need them, we just need those numbers of people, or people like that, because we don't need the bad guys.

So, on the next slide, I just want you to understand, I think many of you have seen this. But this is where we've now got to in terms of the way that Fair Trading is allocating its resources. So, on the right-hand side, what you'll see is that, that's where the market ratings are, that's where the independent ratings that we're asking you all to get. These are the ones that allow you to publish, whether you've got three, four, or 5000. Certainly, don't be ashamed as three or four, five is good if you get it eventually. But you don't have to be there on day one. So please, do not be embarrassed about three stars be embarrassed about one or two.

So that work focuses on the character, the capability and the capital adequacy of the businesses that are being rated. Now, we reckon that 60% of the builders and developers are largely in that space once they’ve got their ratings. So, for the regulator of the future, we think there's 20 to 40% of people that we've got to focus our time on.

So, these are the people that we're going to be in their face more often than they would like us to. And here, we have a slightly different radius approach, where we're looking at the character, the motivation, and the opportunities that are out there for those people to achieve the things that they want to achieve if we don't get in their way.

So, you'll find that we've got many, many more resources to put that sort of work, as opposed to not having any resources applied to where we can see market rating.
So we want to get out of everybody's face as best as we possibly can.

So, the next slide, it just simply reinforces this issue that where we want to have ratings of the SPV's. So, what we're seeing out there at the moment is on the front fences got this is a development by Dream Build Group. And the SPV is Dream Build Development company SPV one.

We want that SPV one rated, we don't want Dream Build group, rated, and we want the SPV rated because that's what the consumer buys when they receive that wadded paper, which is their contract. That's who is the person named on that contract. So, we want that person rated. And that's what we're looking for from the first of March next year is that everybody's publishing that rating for each SPV on their sales brochure.

Then we've got a situation where those people that have got that they can be outside of the purchase as well, you've got a choice, you can deal with me, I'm rated. Or you can go across the road and deal with somebody else who's not rated. But you are in your own hands. If you make that decision, you will hear pretty well, all of my messaging between now and March next year will be on that subject alone.

FINANCING PROJECTS

So, financers. We think we've set up a landscape going forward where they can distinguish between the risky and the trusted fliers.

I talked to the banks very regularly, because I've got to have a good relationship with the banks.

Because from time to time when they need when they attack the project or difficult situation to deal with. They need to feel free to ring me and say, “David, we've got a problem on this job, can you give us some sort of guidance as to how we might go forward.”

So, I'm dealing with receiver managers, I'm dealing with banks, the door is open, because I don't want banks feeling as though this is another mash up of banks. It's not that at all. But as we move towards the back end of next year, I'll be less inclined to be helpful to banks, that, that start to buy into this fact of you deal with the trusted advisors.

And you deal with the risky players at your own risk. But please don't come and see me about the fact that you dealt with a risky player, and the wheels fell off, not my problem. So, what we want them to do then is to focus on the branded players, those branded rated players who prepared to say, I've got three stars deal with me.

They're the people that I want consumers dealing business doing business with.

And then the message to the banks then is that I want you to make sure you don't go to sleep once you've issued the loan.

So many banks have just simply gone to sleep after they've issued the loan. And they paid no real attention to the developer drawdowns or the builder’s drawdown to the developers. This is not a set and forget, you know, when you're financing projects that are worth $20, $30 million, the bank should be much more interested in, are there risks coming out of this project that need to be observed?

So those risks once the organizational governance, once they are they're conflicted pipe players between the developer and the builder, because organizational governance, we engage cause to go and have a look at 10 projects that we've done the audits on and we can see a real correlation between where you've got the same director as the developer, and the same director is the builder, then you don't have really good organizational governance. And there was a correlation between those projects and building works rectification orders or delays to the profit that the issue of the occupation certificate.

They should pay attention to the D&C contracts. They should make sure that the people who are doing those contracts are competent deserve them. My observation at the moment is that only 50% of the people out there doing developer D&C contracts right now have the capabilities to do that. There's a lot of work to build back D&C capability. So, if you want to use DN&C, fine by me, just make sure the people you've got doing it, know what they're doing.

CONCERNS WITH NON-COMPLIANT WORK

My next point, then is payment for non-compliant work. I was on a job yesterday.

And there was a couple of $100,000 worth of defects that had to be fixed on this job, in my opinion, and the superintendent's there from the client. And I said, “mate, have you been authorizing the progress payments for all this work?”

“Oh, yeah.”

And I said,” well, how are you going to get it done?”

He said, “that's what I've got retentions for”.

I said “no, retentions mate is about the contractor completing the project, they're not as a scheme to accommodate the defects and payments for defects, because defects don't get fixed, they get covered over.”

So, I ripped into this project managing the superintendent yesterday. Honestly, I reckon he had nothing between these ears. But he certainly had that and the noise of my conversation with him rattling after I left.

The cost of remediation is huge.

You'll see on that little post I put up recently where just that little bit that cost $10,000. To make the first time I reckon they saved $500 in making it, it's going to take them $5,000 to pull it apart and put it back probably the cost of remediation or rework is out of control.

For those people who don't know what that means, you know, there are some developers out there now that they've actually collect the data. And they know how much it cost them in defects after they've finished the building.

And there are many developers out there that now tell me that those costs are less than $1,000 an apartment, I mean, that's an amazing outcome that those developers can say confidently across our entire portfolio of projects, then, we need to make sure that we get these trailing costs of remediation now, because the legacy from consumers are still high.

The Legacy costs are still a bit of a shocker for some projects. And I'll be publishing some case studies on some of those projects in the next six months. Just so nobody forgets the fact that if you leave these legacy defects in these buildings, just what it costs consumers, it is substantial. So, my job in the next year is to focus on what can we do about the legacy costs that are still in buildings that have been built. So, you'll hear more about that going forward. Now, I only plan to stop there and take questions and answers, there's a couple of slides that are in the back end of this that I'm not going to go into.

So, if you just moved to the next slide, that sort of brings you to the end of my formal presentation, the slides that are in your pack, which will be shared with you. In addition, you can have a look at them. And if you've got questions, feed them back through the association. And let's see if we can clarify those for you.

In the, in that slide, there are links to some pieces that should be of interest to you.

So that's just a communications and easy link page. So, playing around up for questions.

The Good, the Bad, and the Ugly, I guess.