Joanne McCarthy | Two ways to look at accountability in the building industry

THIS is a column about two articles, both written by me last week.

The first was about unit owners in a building facing large special levies because of defects, where the builder/developer’s companies were voluntarily wound up. The second was union fines after industrial action.

The two articles are unrelated but a few things struck me as I worked on them, which is why I’m writing about it.

The second article first. A judge fined the Construction Forestry Mining and Energy Union $51,000, and CFMEU organiser Pomare Auimatagi $7500, after workers left a Newcastle building site for three days in January, 2014. The judge was scathing of the union’s “woeful regard for lawful conduct”. 

At issue was construction company John Holland’s “Two longs” safety policy requiring workers to wear long pants and long-sleeved shirts. Mr Auimatagi was criticised for failing to use available dispute resolution mechanisms when, apparently, some workers favoured shorts and short-sleeved shirts.

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The Australian Building and Construction Commissioner told the court Mr Auimatagi’s actions were “deliberate, intentional and designed to put significant pressure on John Holland not to enforce the policy” and industrial action was unlawful. The judge noted the union had contravened 136 pieces of industrial law since 2000.

The Australian Building and Construction Commissioner’s office alerted media to the decision and provided comments, including the commissioner’s concern about the union’s “failure to acknowledge the consequences” of its actions.

In 2015 a Senate inquiry into construction industry insolvencies said the scale of their total economic cost “has been largely ignored for many years”.

The take-away message is that when it comes to unlawful union action there is a clear pathway available from alleged offences to investigative process, judicial outcome, transparency and public accountability. 

And now to the other article.

I was approached by some people with units in the Landmark building at Charlestown. It was built in 2008 and won the NSW Master Builders Association excellence in construction award for 2009.

The Landmark’s developer/builder is Peter Durbin, who wound up his two companies associated with the project after legal action by 59 unit owners, most retired and many on pensions. They’re left with the bill for significant repairs costed at between $730,000 and $2 million.

Mr Durbin is a prominent Hunter businessman and sole director of a number of building and investment companies, and long-standing director of other companies in the construction industry.

Mr Durbin is not denying the Landmark has defects, but said the “ambit of the claim” pursued by the unit owners in court was such that his building company “could not continue to meet the expense associated with responding to it, and the company therefore entered into liquidation”.

Mr Durbin, as sole director, wound up his building company in October last year and a liquidator was appointed. In his statement Mr Durbin confirmed the creditors were other companies owned by him that were owed $128,000.

“The owed monies are effectively to myself and companies I operate,” he said.

Mr Durbin confirmed unit owners could not make home warranty insurance claims because the residential part of the Landmark building is above three storeys, where apartments are not covered by the insurance under NSW legislation.

The Australian Securities and Investments Commission declined “formal intervention by ASIC’s investigators” after unit owners complained.

Unit owner Aidan Ellis was quoted in the article saying “The current system we have doesn’t hold anybody to account when things go wrong. And the cost is all back on the unit owners.” 

There have been many inquiries and reports in recent years about building industry insolvencies and their knock-on effects. A recent Australian insolvency update said construction tops the list of industries rated at high to severe financial risk, with more than 2000 building companies across the country in that band.

In 2015 a Senate inquiry into construction industry insolvencies said the scale of their total economic cost “has been largely ignored for many years”.  

The Senate committee said it was particularly concerned about a culture within sections of the construction industry where “the consequences of non-compliance (with the Corporations Act) are so mild and the likelihood that unlawful conduct will be prosecuted is so low” that compliance could be seen as “optional”.

In other words some sections of the building industry might “fail to acknowledge the consequences of their actions”, to borrow the Australian Building and Construction Commissioner’s term as he applied it to the CFMEU.

The union made a comprehensive submission to the Senate inquiry about the devastating impact of insolvencies on sub-contractors and the broader community.

The CFMEU also played a central role in shutting down the notorious Chinese-backed construction group Hightrade over a few years from about 2006, when ASIC appeared to do very little and the Newcastle Herald exposed the trail of destruction Hightrade left in NSW. Pomare Auimatagi played a prominent role in that campaign.

In January the NSW Government announced new developer defect bonds in response to rising public concern and anger about an apartment-building boom and reports that a worrying percentage of unit developments have defects to varying degrees.

The bonds, while welcomed, were also strongly criticised for their limits and loopholes.

Better Regulation Minister Matthew Kean said the new law was the result of “extensive industry consultation”. With all due respect to the minister, if you want to change an industry with a problem culture your “extensive consultation” should start with those left holding the bills.

This story Two ways to look at accountability in the building industry first appeared on Newcastle Herald.