Introduction and overview

1.1        On 23 June 2015, the Senate referred the matter of non-conforming building products to the Economics References Committee (the committee) for inquiry and report by 12 October 2015.^[1] The committee was granted a number of extensions and the inquiry lapsed at the dissolution of the 44^th Parliament. On 11 October 2016, the Senate agreed to the committee's recommendation that this inquiry be re-adopted in the 45^th Parliament.

1.2        Under its terms of reference, the committee was to inquire into:

1. the economic impact of non-conforming building products on the Australian building and construction industry;
2. the impact of non-conforming building products on:
   1. industry supply chains, including importers, manufacturers and fabricators,
   2. workplace safety and any associated risks,
   3. costs passed on to customers, including any insurance and compliance costs, and
   4. the overall quality of Australian buildings;
3. possible improvements to the current regulatory frameworks for ensuring that building products conform to Australian standards, with particular reference to the effectiveness of:
   1. policing and enforcement of existing regulations,
   2. independent verification and assessment systems,
   3. surveillance and screening of imported building products, and
   4. restrictions and penalties imposed on non-conforming building products; and
4. any other related matters.[2]

1.3        On 13 October 2016, as part of its broader inquiry, the committee resolved to inquire into the illegal importation of products containing asbestos. The committee adopted the following additional terms of reference for this part of the inquiry:

The illegal importation of products containing asbestos and its impact on the health and safety of the Australian community, with particular reference to:

1. the prevalence and sources of illegally imported products containing asbestos;
2. the effect of illegally imported products containing asbestos on:
   1. industry supply chains, including importers, manufacturers and fabricators, and
   2. workplace and public safety and any associated risks;
3. possible improvements to the current regulatory frameworks for ensuring products containing asbestos are not illegally imported to Australia, with particular reference to the effectiveness of:
   1. policing, enforcement, surveillance and screening of imported products, including restrictions and penalties imposed on importers and end users of products containing asbestos;
   2. preventing exposure and protecting the health and safety of workers and other people affected by the illegal importation of products containing asbestos,
   3. establishing responsibility for remediation of sites where illegally imported products containing asbestos has been found;
   4. coordination between Commonwealth, state and territory governments and the role of the Australian Government in coordinating a strategic approach to preventing the importation of products containing asbestos;
4. any other related matters.[3]

1.4        In light of the tragic fire at the Grenfell Tower in London in June 2017, the committee agreed to prepare an additional interim report on the implications of the use of non-compliant external cladding materials in Australia as a priority.

Conduct of the inquiry

1.5        The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting submissions.

1.6        The committee received 164 submissions, as well as a number of supplementary submissions. The submissions range from government departments and agencies to peak industry bodies, unions, individuals working in the industry and consumers. A list of submissions to the inquiry is at Appendix 1.

1.7        Public hearings were held on:

• 13 November 2015 in Canberra;
• 15 February 2016 in Melbourne;
• 30 January 2017 in Brisbane (asbestos);
• 9 March 2017 in Perth (asbestos);
• 14 July 2017 in Melbourne (asbestos and cladding);
• 19 July 2017 in Sydney (cladding);
• 31 July 2017 in Adelaide (asbestos and cladding);
• 3 October 2017 in Sydney (asbestos);
• 17 October 2017 in Canberra (asbestos); and
• 2 August 2018 in Canberra.

1.8        The names of witnesses who appeared at the hearings are listed at Appendix 2.

1.9        The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made written submissions and participated in the public hearings.

Definition of non-conforming and non-compliant building products

1.10      In understanding the issues and findings in this inquiry, it is important to understand the distinction between non-conforming building products and non-compliant building products.

• Non-conforming building products are 'products and materials that claim to be something they are not; do not meet required standards for their intended use; or are marketed or supplied with the intent to deceive those who use them'.
• Non-compliant building products are products that are 'used in situations where they do not comply with the requirements of the National Construction Code (NCC). A building product can be both non-conforming and non-compliant'.[4]

1.11      The Australian Building Codes Board (ABCB) illustrated the distinction between non-conforming and non-compliant building products with the following example:

A building product that is labelled or described as being non‐combustible but which is combustible is a non‐conforming product. A building product that is combustible, and described as such, but is used in a situation where a non‐combustible product is required under the NCC, is not fit for purpose (it is a non‐complying product).[5]

1.12      The Housing Industry Association (HIA) explained that non-conforming building products are products that:

• do not conform with the required Australian building regulations and technical standards including incorrect certification;
• are counterfeit copies of legitimate conforming products;
• are supplied with fraudulent certification or documents attesting to their conformance; and
• are substituted for the original product at the point of sale or installation.[6]

Previous committee reports

1.13      The committee has heard from a range of stakeholders about the widespread use of non-conforming and non-compliant products in the Australian construction industry. The committee has tabled three interim reports in relation to this inquiry:

• Interim report: Safety—'not a matter of good luck' on 4 May 2016;
• Interim report: aluminium composite cladding on 6 September 2017; and
• Interim report: protecting Australians from the threat of asbestos on 22 November 2017.

1.14      In addition, the committee's inquiry into the future of Australia's steel industry examined the issue of non-conforming building products in relation to steel. The report—Australia's Steel Industry: forging ahead—was tabled on 1 December 2017.

1.15      Prior to these inquiries, the committee conducted an inquiry into insolvency in the Australian construction industry, which examined issues within the building and construction industry more broadly that may impact on the use of non-conforming and non-complying building products. This report was tabled on 3 December 2015.

Inquiry into insolvency in the Australian construction industry, 3 December 2015

1.16      The committee's inquiry into insolvency in the Australian construction industry found that businesses operating in the Australian building and construction industry face an unacceptably higher risk than any other stand-alone industry of either entering into insolvency themselves, or becoming the victim of insolvency further up the contracting chain. The committee stated:

In an industry characterised by low barriers to entry, small profit margins and inequitable allocation of risk, an effective licensing regime is necessary to protect participants from both unscrupulous and hapless operators.[7]

1.17      The committee is concerned that the structure of the building and construction industry, in which contractors and subcontractors are working with razor-thin profit margins, may lead to sub-optimal choices when procuring building products. Such market structures, power imbalances and supply chain profitability differences can incentivise, both consciously and unconsciously, actions such as product substitution. At one end of the spectrum, it might involve a sub-contractor, with little conscious thought, installing a slightly inferior, cheaper product that is more expensive when rationally assessed over its full life cycle. At the other end of the spectrum, such market structures could incentivise conscious, deliberate product substitution that may compromise the health and safety of both workers and building occupants, especially when supervision and enforcement is lacking.

1.18      In addition, insolvency and illegal phoenix activity[8] can also make it difficult to assign responsibility for remediation when non-conforming building products have been installed in a building. This issue is highlighted in the case of Infinity cables.

1.19      In 2014, the Australian Competition and Consumer Commission (ACCC) issued a national recall of Infinity and Olsent-branded Infinity cables which failed to meet electrical safety standards due to poor quality insulation (plastic coating).[9] The ACCC advised that electrical retailers and wholesalers have recalled Infinity and Olsent-branded electrical cables, warning that 'physical contact with the recalled cables could dislodge the insulation and lead to electric shock or fires'.^[10]

1.20      In its recall notice, the ACCC reported that the cables were supplied in:

• NSW (2010–2013);
• ACT (2011–2013);
• Victoria, Queensland, South Australia and Western Australia (2012–2013); and
• Tasmania (2013).^[11]

1.21      The importer and supplier of Infinity cables declared bankruptcy and liquidated shortly after identification of the safety issue; consequently retailers and electrical installers are meeting the cost of the remediation. Four years on, and remediation is still ongoing, with the ACCC noting that it had been advised by experts that any Australian locations of unremediated cable could now present a safety risk.[12]

Interim report: Safety—'not a matter of good luck', 4 May 2016

1.22      The committee's 2016 interim report, Safety—'not just a matter of good luck', noted that prior to the referral of this inquiry, industry had already taken steps to address the issue of non-conforming building products.

1.23      In 2012, HIA held a national summit, Building Products: A compliance free zone, which raised the profile of product compliance as an industry issue.[13]

1.24      In November 2013, Ai Group released a research report on non-conforming building products, The quest for a level playing field: The non-conforming building product dilemma. The Ai Group's report analysed the steel, electrical, glass, aluminium, engineered wood and paint sectors to gauge the scale of the problem and its causes. In brief, the report found that the product conformance framework—'all regulations, codes of practice, standards, certification scheme (first, second or third) or accreditation schemes that bring about product conformance in the building and construction sector including the regulators, regulation, codes of practice and standards'[14]—does not operate effectively. The report found:

Gaps and weaknesses were identified in the building and construction conformance framework allowing nonconforming product onto the market. These include inadequacies of: surveillance; audit checks; testing; first party certification and enforcement. The report suggests that building certifiers bear a disproportionate share of the burden for ensuring product conformance. Greater emphasis on conformance at point of sale and increased responsibility on product suppliers and builders may be required.

The product conformance framework, that is collectively made up of the regulators, regulation, codes of practice and standards, does not operate effectively. There is confusion among stakeholders about who has responsibility and the arrangements for recourse when non-conforming product is found.

The end result is an uneven playing field. Companies, including importers, manufacturers and fabricators that are playing by the rules are adversely impacted by suppliers of NCP paying scant regard to the standards and requirements set by Government and industry. Industry needs to show leadership and cohesion to tackle this issue.[15]

1.25      In March 2014, following the release of the report, Ai Group convened a forum, including government and industry stakeholders, to determine an action plan to address the matters identified in the report. The Construction Product Alliance was formed to facilitate industry involvement.[16]

• In September 2014, the Australasian Procurement and Construction Council (APCC) together with 30 key industry stakeholders developed and launched the Procurement of Construction Products—A guide to achieving compliance. The guide was produced in response to the increasing evidence of, and concerns about, the market penetration of non-conforming construction products, particularly for many 'safety critical' products.[17]

1.26      The 2016 interim report raised concerns in relation to: the illegal importation of building products containing asbestos; the 2014 Lacrosse apartment fire in Melbourne and the use of non-compliant aluminium composite cladding; and national recall of Infinity cable, which was found to be non-conforming. The committee observed that:

Clearly there has been a serious breakdown in the regulation and oversight of both non-conforming and non-compliant building products, which requires determined action. The committee notes progress already underway, especially the work of the [Senior Officers' Group]. Given the seriousness of the problem, the various areas of glaring weakness in the regulatory regime, including the certification process, and the disjointed regulation of the use of building products, both manufactured in Australia and overseas, the committee has formed the view that it should continue its inquiry.[18]

Interim report: aluminium composite cladding, 6 September 2017

1.27      The committee's interim report on aluminium composite cladding was brought about by the events of the Lacrosse apartment building fire in Melbourne in 2014 and the tragic Grenfell Tower fire in London in 2017.

1.28      The report found that deregulation and privatisation in recent decades, without proper controls, audits and enforcement, as well as the increase in product importation following the significant decline in Australia's manufacturing base, have led to the proliferation of unsafe building products over the last few decades.

1.29      The committee heard evidence that there is little accountability for non-conforming and non-compliant products in the supply chain.

1.30      In the case of the Lacrosse apartment fire, it appears that no party has accepted responsibility:

While the owners' corporation blames a range of contractors for the fault, LU Simon [the builder] is largely passing blame for the fire to architect Elenberg Fraser and other consultants.

The architects say they are not responsible because they merely designed the building. At fault, they say, were the builder, fire engineer and surveyor.

The building surveyor says that while it was not at fault, if it is found to have in part caused the fire, the occupants of the building must share the blame, because the owners' corporation "failed to conduct any routine inspections to ensure balconies of the Lacrosse apartments were not used for storage".[19]

1.31      A lack of accountability has led to the risks of non-conforming and non-compliant products being left to building owners, particularly in cases where hidden faults emerge many years after any warranties have expired. The Owners Corporation Network lamented that there is a 'greater duty of care in the sale of a refrigerator than in the delivery of people's homes'.[20]

1.32      The committee heard evidence about the reliability of certification documentation, particularly the prevalence of fraudulent certification. In addition, product substitution was identified as perhaps the most significant contributing factor to the prevalence of non-compliant products in Australian buildings. There were also concerns raised about a lack of nationally consistent standards for licensing for building practitioners.

1.33      The committee made a number of recommendations, including:

• implementing a total ban on the importation, sale and use of polyethylene core aluminium composite panels as a matter of urgency;
• establishing a national licensing scheme, with requirements for continued professional development for all building practitioners;
• introducing nationally consistent measures to increase accountability for participants across the supply chain;
• making all Australian Standards and codes freely available;
• imposing a penalties regime for non-compliance with the NCC such as revocation of accreditation or a ban from tendering for Commonwealth funded construction work and substantial financial penalties;
• ensuring the Federal Safety Commissioner is adequately resourced to ensure the office is able to carry out its duties in line with the new audit function and projected work flow;
• expediting the process of introducing Director Identification Numbers in order to prevent directors from engaging in illegal phoenix activity; and
• developing a nationally consistent statutory duty of care protection for end users in the residential strata sector.

1.34      The recommendations from the interim report on aluminium composite cladding are listed in full at Appendix 3.

Australian Government response to the Interim report: Aluminium composite cladding

1.35      The Australian Government response to the Interim report: Aluminium composite cladding was tabled on 26 February 2018. The response stated that the Australian Government:

• Did not support the total ban on the importation, sale and use of Polyethylene core aluminium composite panels as a matter of urgency (Recommendation 1);
• Noted the recommendation to establish national licensing scheme national licensing scheme, with requirements for continued professional development for all building practitioners (Recommendation 2);
• Supported the recommendation that the Building Ministers' Forum (BMF) give further consideration to nationally consistent measures to increase accountability in the supply chain (Recommendation 3);
• Supported in principle that the Commonwealth make all Australian Standards and codes freely available (Recommendation 4);
• Noted the recommendation that the Commonwealth government consider imposing a penalties regime for non-compliance with the NCC such as revocation of accreditation or a ban from tendering for Commonwealth (Recommendation 5);
• Noted the recommendation to ensure the Federal Safety Commissioner is adequately resourced to ensure the office is able to carry out its duties in line with the new audit function and projected work flow (recommendation 6).
• Supported the recommendation to give further consideration to Director Identification Numbers and recommends that it expedites this process in order to prevent directors from engaging in illegal phoenix activity (Recommendation 7); and
• Noted the recommendation for a nationally consistent statutory duty of care protection for end users in the residential strata sector (Recommendation 8).[21]

Interim report: protecting Australians from the threat of asbestos, 22 November 2017.

1.36      The committee's interim report on asbestos found that, although the importation, use and sale of asbestos has been banned since the end of 2003, Australians remain at risk of exposure to asbestos through the illegal importation of asbestos containing products including; gaskets, insulation, brake pads and even children's toys. The committee heard evidence that frontline workers and community advocates were too often the last line of defence in identifying asbestos in building and consumer products.

1.37      The interim report included 26 recommendations aimed at:

• pursuing a coordinated, strategic approach to enforce Australia's strict asbestos prohibition at the border, including whole of government coordination of activities to address unlawful asbestos imports;
• providing increased funding for the Asbestos Safety and Eradication Agency (ASEA);
• making sure those in supply chains are more accountable for illegal asbestos importation;
• continuing Australia's information campaign on the risks of asbestos in the Asia-Pacific region and pursuing global restrictions on chrysotile (white) asbestos through the 2019 Rotterdam Convention;
• strengthening asbestos-related regulations, including increased penalty levels;
• improving product testing standards;
• establishing a national public asbestos register; and
• providing better information and training for industry participants.

1.38      The recommendations from the interim report on asbestos are listed in full at Appendix 4.

Australian Government response to the interim report: Protecting Australians from the threat of asbestos

1.39      The Australian Government response to the Interim report: Protecting Australians from the threat of asbestos was tabled on 22 August 2018. The government noted the substantial number of the recommendations set out in the report.[22] There is further discussion of some of these recommendations Chapter 5.

Australia's Steel Industry: forging ahead, 1 December 2017

1.40      The committee's inquiry into the future of Australia's steel industry received evidence indicating that some imported products pose a considerable safety risk because they do not comply with Australian Standards, or their certificates stating compliance are fraudulent.

1.41      The committee's recommendations sought to:

• Improve certification processes for structural and fabricated steel and harmonise standards between jurisdictions and regulatory bodies.
• Develop a confidential reporting mechanism for non-conforming building products, impose stricter penalties for non-conforming or fraudulent materials, and establish a public database to register these products and their origins.

1.42      At the time of reporting, the Australian Government had yet to table a response to this report.

Shergold and Weir Report

1.43      In mid-2017, following the Grenfell Tower fire, Professor Peter Shergold and Ms Bronwyn Weir were commissioned by the Building Ministers' Forum (BMF) to independently assess broader compliance and enforcement problems within the building and construction systems across Australia.

1.44      Their report, Building Confidence—Improving the effectiveness of compliance and enforcement systems for the building and construction industry across Australia (Shergold and Weir Report), stated:

We have heard suggestions that large numbers of practitioners operating in the industry either lack competence, do not properly understand the NCC and/or have never had proper training on its implementation.

We have consistently heard that the adequacy of design documentation is generally poor and that, on occasion, builders improvise, making decisions on matters which affect safety without independent oversight. This exacerbates disputes about the quality and compliance of building work. It also results in inadequate information to guide the future maintenance of safety systems in buildings. These issues undermine public accountability in building approvals processes.

We have been told that oversight by licensing bodies, state and territory regulators and local governments can be weak due either to inadequate funding or a lack of skills and resources to undertake effective enforcement. We found that, until relatively recently, there has been almost no effective regulatory oversight of the commercial building industry by regulators. Those involved in high-rise construction have been left largely to their own devices. Where there has been supervision, this has generally been by private building surveyors whom critics argue are not independent from builders and/or designers.

The compliance and enforcement systems have not been adequate to prevent these problems from emerging and they need to change as a matter of priority.[23]

1.45      As such, the Shergold and Weir Report proposed a significant package of reforms to strengthen effective implementation of the NCC, including:

• a nationally consistent approach to registration of certain categories of building practitioners, and compulsory continuing professional development, including mandatory training on the NCC and supervised training;
• broader powers conferred on regulators and greater collaboration between state and local government bodies to improve regulatory oversight;
• mandated early engagement with fire authorities on designs, which include, performance solutions on fire safety matters;
• focus on the integrity of building surveyors, including minimum statutory requirements for their engagement and role, and a code of conduct with legislative status;
• a central regulatory database to provide information sharing to inform regulatory activities, accessible by appropriate authorised persons, including owners and purchasers;
• statutory obligations on design practitioners to prepare documentation that demonstrates that proposed buildings will comply with the NCC, and a more robust approach to third party review of designs, and to the documentation and approval of performance solutions and variations;
• mandated on-site inspections of all building works, and greater oversight of the installation and certification of fire safety systems in commercial buildings;
• the production of a comprehensive digital building manual for commercial building owners, which may be passed on to successive owners, to include
  as-built construction documents; details of fire safety systems and maintenance requirements; and
• that the BMF agree its position on the establishment of compulsory product certification system for high-risk building products.[24]

1.46      The Shergold and Weir Report recommended a commitment to a three-year timetable for implementation of the recommendations.[25] The Shergold and Weir report's recommendations are listed in full at Appendix 5.

1.47      The Shergold and Weir Report was presented to the BMF in February 2018, and published in April 2018. The committee had the opportunity to consult some stakeholders on their views on the report at a public hearing on 2 August 2018.

1.48      At its meeting on 10 August 2018, the BMF noted that the Shergold and Weir Report 'makes 24 recommendations fundamental to the effective delivery of Australia's National Construction Code (NCC)'.[26] The BMF directed the development of a paper that sets out an implementation plan for reform, incorporating feedback from industry stakeholders, for consideration at the BMF's next meeting. The paper will focus on recommendations 9 to 11 (which relate to the integrity of private building surveyors), with further consideration of recommendations 1 and 2 (relating to nationally consistent registration of building practitioners) and recommendation 13 (relating to documentation provided by design practitioners).[27]

1.49      The Department of Industry, Innovation and Science advised the committee that the BMF meeting on 10 August 2018 included an industry forum where the ministers heard directly from industry stakeholders about their views on the report and the key priorities.[28]

Structure of the report

1.50      This report consists of five chapters, including this introductory chapter:

• Chapter 2 provides examples of building products where non-conforming products have been identified.
• Chapter 3 explores the actions taken by government to identify and respond to non-conforming building products.
• Chapter 4 examines options to lift professional standards in the building and construction industry.
• Chapter 5 considers other measures to address non-conforming building products.

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