Reforming Building & Planning Laws

Submission to the Senate Economics Reference Committee

Inquiry into Non-Conforming Building Products 3 August 2015

ABOUT THE HOUSING INDUSTRY ASSOCIATION............................................................................................................... 3 OVERVIEW ....................................................................................................................................................................... 4 1.

INTRODUCTION ....................................................................................................................................................... 6 1.1 1.2 1.3

2.

IS THERE A PROBLEM? ............................................................................................................................................. 8 2.1 2.2 2.3

3.

TERMS OF REFERENCE .................................................................................................................................................. 6 SCOPE OF NON-CONFORMING PRODUCTS ........................................................................................................................ 6 THE BUILDING PRODUCT SUPPLY CHAIN ........................................................................................................................... 7

THE IMPACT ON THE RESIDENTIAL BUILDING INDUSTRY ....................................................................................................... 9 INDUSTRY’S RESPONSE ................................................................................................................................................ 11 OTHER ACTIVITIES ...................................................................................................................................................... 12

MARKET ENTRY ......................................................................................................................................................14 3.1 PRODUCT APPROVAL FRAMEWORK ............................................................................................................................... 14 3.1.1 Mandatory Product Certification Schemes ....................................................................................................... 15 3.1.2 Voluntary Product Certification Schemes ......................................................................................................... 16 3.1.3 Codemark ......................................................................................................................................................... 17 3.1.4 Product Standards ............................................................................................................................................ 18 3.1.5 Product Testing ................................................................................................................................................. 19 3.1.6 Summary........................................................................................................................................................... 20 3.2 PRODUCT IMPORTATION FRAMEWORK........................................................................................................................... 22 3.2.1 Australian Customs (Department of Immigration and Border Protection) ....................................................... 22 3.2.2 Australian Trade Commission (Austrade) & Free Trade Agreements (FTAs) .................................................... 25 3.2.3 Department of Foreign Affairs & Trade and World Trade Organisation (WTO) ............................................... 25 3.2.4 Summary........................................................................................................................................................... 26

4.

PROCUREMENT & USE ............................................................................................................................................27 4.1 SUPPLY & DISTRIBUTION FRAMEWORK .......................................................................................................................... 27 4.1.1 Manufacturers and Suppliers ........................................................................................................................... 28 4.1.2 Disclosure at Point of Sale ................................................................................................................................ 30 4.1.3 Summary........................................................................................................................................................... 31 4.2 BUILDING APPROVAL FRAMEWORK ............................................................................................................................... 32 4.2.1 The National Construction Code & Australian Building Codes Board ............................................................... 32 4.2.2 Summary........................................................................................................................................................... 35 4.2.3 State Building legislation .................................................................................................................................. 35 4.2.4 Summary........................................................................................................................................................... 37

5.

PERFORMANCE & MAINTENANCE ..........................................................................................................................39 5.1 CONSUMER PROTECTION FRAMEWORK .......................................................................................................................... 39 5.1.1 Australian Consumer Law ................................................................................................................................. 39 5.1.2 Australian Competition and Consumer Commission ........................................................................................ 40 5.1.3 Consumer dispute mechanisms ........................................................................................................................ 41 5.1.4 Summary........................................................................................................................................................... 41 5.2 COMMON LAW AND CONTRACTUAL FRAMEWORK............................................................................................................ 42 5.2.1 Negligence ........................................................................................................................................................ 42 5.2.2 Contract Law..................................................................................................................................................... 43

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5.2.3 Summary........................................................................................................................................................... 44 5.3 PRODUCT SAFETY FRAMEWORK .................................................................................................................................... 44 5.3.1 Consumer products ........................................................................................................................................... 44 5.3.2 Product Safety Recalls ...................................................................................................................................... 45 5.3.3 Summary........................................................................................................................................................... 46 5.4 SURVEILLANCE AND ENFORCEMENT ............................................................................................................................... 47 5.4.1 Surveillance....................................................................................................................................................... 47 5.4.2 Penalties ........................................................................................................................................................... 48 5.4.3 Reporting .......................................................................................................................................................... 49 5.4.4 Summary........................................................................................................................................................... 49 6.

COSTS OF NON-CONFORMING BUILDING PRODUCTS .............................................................................................51 6.1 ECONOMIC VALUE OF THE BUILDING INDUSTRY ............................................................................................................... 51 6.2 ECONOMIC IMPACTS .................................................................................................................................................. 52 6.2.1 Brand Reputation ............................................................................................................................................. 53 6.2.2 Health & Safety................................................................................................................................................. 53 6.3 RECTIFICATION COSTS ................................................................................................................................................. 54 6.3.1 Infinity Cable: the perfect storm ....................................................................................................................... 54

7.

INTERNATIONAL EXPERIENCES ...............................................................................................................................57 7.1 INTERNATIONAL HOUSING ASSOCIATION ........................................................................................................................ 57 7.1.1 Counterfeit and Non-Conforming Products Working Group ............................................................................. 57 7.2 EUROPEAN UNION CONSTRUCTION PRODUCT REGULATION ............................................................................................... 58 7.3 OECD TASK FORCE ON CHARTING ILLICIT TRADE ............................................................................................................. 59 7.4 PRODUCT RECALLS ..................................................................................................................................................... 59

8.

CLOSING THE GAPS IN THE SUPPLY CHAIN ..............................................................................................................62 8.1 BETTER MANAGEMENT OF PRODUCT APPROVAL.............................................................................................................. 62 8.1.1 Model Product Certification Scheme ................................................................................................................ 63 8.1.2 Product Register & Labelling ............................................................................................................................ 64 8.2 BETTER MANAGEMENT OF IMPORTED PRODUCTS ............................................................................................................ 65 8.3 BALANCING OBLIGATIONS: POINT OF SALE...................................................................................................................... 67 8.4 IMPROVING CONSUMER PROTECTION ............................................................................................................................ 67

APPENDICES: ...................................................................................................................................................................69 ATTACHMENT 1: ATTACHMENT 2: ATTACHMENT 3: ATTACHMENT 4: ATTACHMENT 5: ATTACHMENT 6: ATTACHMENT 7: ATTACHMENT 8:

GLOSSARY OF TERMS ....................................................................................................................................... 70 SUBMISSION TO BUILDING MINISTERS’ FORUM - CONSTRUCTION PRODUCT ALLIANCE ................................................. 71 STATE & TERRITORY BUILDING LEGISLATION ENABLING PROVISIONS FOR THE NATIONAL CONSTRUCTION CODE ................. 76 EXTRACTS FROM AUSTRALIAN CONSUMER LAW 2010 ........................................................................................... 77 STATE & TERRITORY BUILDING LEGISLATION - THE BCA AND BUILDING APPROVALS .................................................... 81 INTERNATIONAL HOUSING ASSOCIATION MEMORANDUM OF UNDERSTANDING .......................................................... 84 INTERNATIONAL HOUSING ASSOCIATION DEFINED TERMS FOR NON-CONFORMING BUILDING PRODUCTS ........................ 87 INTERNATIONAL HOUSING ASSOCIATION – MEMBER COUNTRY INFORMATION SHEET .................................................. 88

Housing Industry Association contact: Kristin Brookfield Senior Executive Director, Building, Development & Environment Housing Industry Association 79 Constitution Avenue, CAMPBELL ACT 2600 Phone: 02 6245 1300 Email: [email protected]

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ABOUT THE HOUSING INDUSTRY ASSOCIATION The Housing Industry Association (HIA) is Australia’s only national industry association representing the interests of the residential building industry, including new home builders, renovators, trade contractors, land developers, related building professionals, and suppliers and manufacturers of building products. As the voice of the industry, HIA represents some 40,000 member businesses throughout Australia. The residential building industry includes land development, detached home construction, home renovations, low/medium-density housing, high-rise apartment buildings and building product manufacturing. HIA members comprise a diversity of residential builders, including the Housing 100 volume builders, small to medium builders and renovators, residential developers, trade contractors, major building product manufacturers and suppliers and consultants to the industry. HIA members construct over 85 per cent of the nation’s new building stock. HIA exists to service the businesses it represents, lobby for the best possible business environment for the building industry and to encourage a responsible and quality driven, affordable residential building development industry. HIA’s mission is to: “promote policies and provide services which enhance our members’ business practices, products and profitability, consistent with the highest standards of professional and commercial conduct.” The residential building industry is one of Australia’s most dynamic, innovative and efficient service industries and is a key driver of the Australian economy. The residential building industry has a wide reach into manufacturing, supply, and retail sectors. The aggregate residential industry contribution to the Australian economy is over $150 billion per annum, with over one million employees in building and construction, tens of thousands of small businesses, and over 200,000 sub-contractors reliant on the industry for their livelihood. HIA develops and advocates policy on behalf of members to further advance new home building and renovating, enabling members to provide affordable and appropriate housing to the growing Australian population. New policy is generated through a grassroots process that starts with local and regional committees before progressing to the National Policy Congress by which time it has passed through almost 1,000 sets of hands. Policy development is supported by an ongoing process of collecting and analysing data, forecasting, and providing industry data and insights for members, the general public and on a contract basis. The association operates offices in 23 centres around the nation providing a wide range of advocacy, business support including services and products to members, technical and compliance advice, training services, contracts and stationary, industry awards for excellence, and member only discounts on goods and services.

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OVERVIEW Over the last decade the building and construction product supply chain has undergone a structural shift in its procurement pathways, compliance complexity, and upstream regulatory enforcement. This shift reflects the reality that building products used across Australia are now part of a global supply chain. This trend is likely to become more pronounced into the future. The changing structure of the building and construction product supply chain has now highlighted the inadequacies of the existing regulatory frameworks that apply to building products in Australia. The building and construction product supply chain is complex. There is no single cause for non-conforming building products entering the Australian market. Gaps exist throughout the supply chain, starting at the point of manufacture and ending at the completion of construction. Therefore there is no single solution that will address the diverse and overlapping reasons for non-conformance. For the housing industry, there is an expectation that the building product supply chain provides certainty to home builders and trade contractors, and hence to consumers, that the items available in Australia, for both wholesale and retail purchase, and used in the construction of new homes and renovations are ‘fit for purpose’ and will stand the test of time. The choice to build a new home, or to undertake renovations to a home, is generally the largest single purchase a family will make in its lifetime. The expectation that home owners can rely on the products selected and installed in their home to perform in the way they are intended is a reasonable one. The gaps identified by the housing industry lead to the conclusion that there has been a failure to effectively support the supply chain for residential building products. These gaps are underpinned by:       

the complexity of the supply chain for building products; the ease with which the obligation for checking compliance can be shifted up and down the supply chain; the paucity of information available to manufacturers on the legislation, regulations and methods to demonstrate a product’s compliance with the National Construction Code; the absence of a regulatory body with overarching responsibility for verifying that a building product complies with the National Construction Code; a failure to identify which government agencies should be responsible along the stages of the supply chain; the lack of political will to address the problem of non-conforming products entering or being manufactured in Australia; and a failure to separate the intention to provide a regulatory framework that supports conforming building products with protectionism interpretations.

The practical outcome of these gaps has been the evolution of an environment where:   

building product manufacturers operate on an un-level playing field; building product suppliers are not responsible for ensuring the products they offer for sale are ‘fit for purpose’; building designers, builders, contractors and building certifiers encounter different levels of information about a product’s suitability for use;

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 

builders and trade contractors have a responsibility to remedy and replace non-conforming products after installation, regardless of supplied evidence that the product was ‘fit for purpose’ and the product was made available for sale in Australia; and building certifiers carry a disproportionate responsibility for checking the conformance of building products at both design and installation and do not have the capacity to check ‘every product’.

Rather than redressing upstream deficiencies, the current regulatory framework relies on the last people in the supply chain, the builder and building certifier, to correctly identify that a problem exists - that a product is non-conforming. Often even a keen eye is unable to distinguish the difference between a conforming and a non-conforming building product. This is not how the system should operate. The regulatory frameworks across the building product supply chain need to place the requisite responsibility for compliance on the appropriate players at each stage of the supply chain. This submission canvasses a number of options and improvements to address the gaps in the building product compliance framework which warrant closer examination by the Senate Committee and Commonwealth, state and territory governments more broadly.

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1. INTRODUCTION The impact of non-conforming building products on the residential building industry has been a significant issue for the Housing Industry Association (HIA) over many years. Given the composition of HIA’s membership we are uniquely placed in understanding the effects of increased non-conforming building products in the Australian supply chain. HIA has a significant membership from building product manufacturers and suppliers, in addition to our representation of residential builders and trade contractors, building designers and building certifiers. The management of the building product supply chain must be achieved nationally - building products are not effected by state and territory borders. This Inquiry is an important part of recognising this fact. The Inquiry also provides an opportunity for industry to put forward the long held concerns being encountered on a regular basis in doing business.

1.1

TERMS OF REFERENCE

This submission has been prepared to address the terms of reference for the inquiry into non-confirming building products, being: a) the economic impact of non-conforming building products on the Australian building and construction industry; b) the impact of non-conforming building products on: (i) industry supply chains, including importers, manufacturers and fabricators, (ii) workplace safety and any associated risks, (iii) costs passed on to customers, including any insurance and compliance costs, and (iv) the overall quality of Australian buildings; c) possible improvements to the current regulatory frameworks for ensuring that building products conform to Australian standards, with particular reference to the effectiveness of: (i) policing and enforcement of existing regulations, (ii) independent verification and assessment systems, (iii) surveillance and screening of imported building products, and (iv) restrictions and penalties imposed on non-conforming building products; and d) any other related matters.

1.2

SCOPE OF NON-CONFORMING PRODUCTS

Building product non-conformance comes in many forms. For the purposes of this Inquiry, it is considered the focus must be on the individual products and the supply chain that brings those products to market, and the process of design, approval and construction of buildings. Taking this approach this submission focuses on products that:  do not conform with 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.

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Instances of non-conforming product failures that relate to a conforming product being incorrectly installed or a conforming product being used in the wrong manner fall outside the scope of the Terms of Reference. Poor installation of a product, which leads to it not meeting the relevant standards, is not the fault of the product.

1.3

THE BUILDING PRODUCT SUPPLY CHAIN

There are many building and construction products used outside the residential building industry in the construction of infrastructure projects, commercial and industrial building work and the like. For the purposes of this submission, the range of products, materials, components and assemblies used in either building work or construction projects are generically referred to as building products. Similarly the building product supply chain is intended to refer to manufacture, sale and use of all products and materials. This submission proposes that there are three distinct stages in the building product supply chain. Market entry covers the design and manufacturing of building products, the testing and verification of products where required, and the importation of products manufactured off-shore. Procurement and use includes the placement of a building product ‘on the shelf’ for purchase, the selection of building products in the building design and approval process, and their purchase and use in a building project. Performance and maintenance covers the performance of the product once installed and includes the consumer protection regimes, product safety requirements and the remedies available when problems arise. Using this approach it becomes easier to highlight the regulatory and non-regulatory frameworks that exist in Australia to manage the supply and use of building products and to identify the gaps and weaknesses in these frameworks. This submission also sets out the impacts and potential costs to the residential building industry, and hence to consumers, operating within the current frameworks and recommends a number of options available to government and industry to improve the operation of the building product supply chain.

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2. IS THERE A PROBLEM? The extent of the reach of non-conforming building products in the Australian supply chain is impossible to quantify. However, the incidence of non-conforming building products provides compelling evidence that the problem exists and this Inquiry provides an important opportunity to collect that evidence. There are several reasons why quantifying the reach of non-conforming building products is difficult. Primarily, there are a number of different types of non-conforming building products. These occur for different reasons at different points in the building product supply chain. This creates confusion about what a nonconforming building product is. The responsibilities for supplying a product that is ‘fit for purpose’ is shared across several players in the supply chain. This can make identifying who is ultimately responsible for the failure of a particular product and seeking a remedy a difficult process. The other significant reason that makes quantifying the problem difficult is the range of regulatory bodies with both direct and indirect responsibility. This overlap and confusion has led to a situation where industry stakeholders do not know who to report problems to, where agencies refer complaints to other agencies, and where little or no action is taken, or perceived to be taken, by those agencies that do have responsibility and legislative capacity. This response leads industry to question the value in reporting problems. Many product sectors such as plumbing and sanitary ware, electrical fittings, windows, engineered wood and steel reinforcing have numerous examples of fraudulent certification and product marking being used. In most instances, these products also fail the primary test to be ‘fit for purpose’ and therefore safe to be used in building and construction work. Since 2004, the Australian Consumer and Competition Commission (ACCC) has effected a recall on a range of building products. Whilst the annual figures are small, the significance of a recall should not be underestimated. The ACCC does not act lightly to take such steps, given the potential ramifications. The recall of Infinity Cable in 2014 provides an example of how poor or fraudulent material testing of a building product with significant consumer safety implications can enter the supply chain. This example highlights the limitations under the Australian Consumer Law (ACL) to act, along with showcasing the scope of the task to take effective remedial action. The ACCC also has responsibility to act on evidence of false and misleading claims, which may not warrant a product recall. A number of manufacturers and industry associations have committed significant resources to identifying false and misleading claims associated with building products. These have been reported to the ACCC and many challenges have been successful. However, the outcomes of this type of action are limited and the costs generally fall directly to the aggrieved party. Therefore, many choose not to use this pathway to take action as there is little remedy that can be derived. In 2012 HIA contacted all state and territory consumer affairs agencies seeking information on the extent of the problem of non-conforming products in residential building work. The majority of jurisdictions did not respond as they do not appear to collect this information as part of their dispute resolution processes. However, NSW was able to provide advice that 10 per cent of building disputes in that state related to product failure, as distinct from issues of workmanship.

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What is clear is that over the last decade there has been a shift in the supply chain to an increasing use of offshore sources along with the decreasing level of local manufacturing of these products. Further, the ease of purchasing online has brought into the market a plethora of less educated buyers, sourcing small quantities, who do not have the knowledge to ensure products are ‘fit for purpose’. Once these products are in the supply chain, the provenance is often lost and seeking a remedy when a problem arises becomes extremely difficult. The extent of the problem, and the impact on specific product sectors, has been significant enough to warrant a number of discrete industry led certification schemes to be established in the Australian market. These include windows, reinforcing steel and engineered wood products. Mandatory certification schemes currently only exist for plumbing products and electrical products (although this scheme is yet to be implemented nationally). There would appear to be some differences in the reach of non-conforming building products across the different building sectors. This is considered to reflect the difference between building products that are manufactured off-site, using factory processes, and building products that are manufactured on-site. The lack of effective reporting of non-conforming products in the building product supply chain is a key reason for the limited data collection by relevant agencies. This is also the key reason that this Inquiry needs to occur. This Inquiry provides a much needed vehicle to investigate and identify why gaps exist in the current regulatory frameworks and determine what actions can be taken to ensure compliance of building products available throughout Australia.

2.1

THE IMPACT ON THE RESIDENTIAL BUILDING INDUSTRY

In March 2012 HIA undertook an online survey of members on the subject of building product noncompliance. The survey was open for a period of 2 months and 138 responses were received. The majority of responses came from manufacturers and suppliers. In July 2015 HIA undertook another online survey of manufacturers and suppliers, builders and contractor members. The survey was open for a period of 3 weeks during which time 958 responses were received. 189 responses were from manufacturers and suppliers, whilst 739 responses were from builders and trade contractors. The significant difference in response rates indicates the extent to which members are both aware of and exposed to non-conforming building products in their business, particular builders and contractors. The survey responses provided an insight into the impact of non-conforming building products on residential building businesses and provided an update on the views of manufacturers and suppliers since 2012. Overall 94 per cent of respondents to the 2015 survey believe that non-conforming building products are creating a risk for their business. “The risk is not winning projects and our business (and others including suppliers) being put in a position that we can't continue. If the overseas products were required to meet the same standards/requirements then that would be a fair & level playing field. When large corporations want Australian companies to adhere to their strict requirements, and even to the point where they audit your company, but don't apply the same to overseas suppliers then it creates a higher risk in competing.” Respondent to HIA member survey, July 2015

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The view of manufacturers and suppliers has changed little over the 3 years, with 84 per cent of members saying they are competing against products that are non-conforming with Australian building standards, compared to 87 per cent in 2012. Responses about the level of competition are also reasonably consistent with between 2012 and 2015 with the highest proportion of members believing 25-50 per cent of the market is non-conforming (38 per cent 2015 compared to 34 per cent 2012). In relation to direct costs to business 73 per cent of manufacturers and suppliers indicated that they incur costs to test the compliance of their products and supply the required documentation, with costs ranging vastly from hundreds of dollars per job to hundreds of thousands per annum across their product inventory. Many companies quoted costs of at least $50,000 ranging up to $200,000 for several respondents with the highest cost being $2 million per annum. Manufacturers and suppliers also incur costs testing competing products, with 38 per cent of respondents saying they undertake this activity, with costs ranging from $10,000 to $750,000. Respondents believe that the risks to their business include damage to reputation, reduced competitiveness which ultimately impacts on job security for staff and that Australian manufacturing is at risk. “We risk the industry being tainted as customers views are influenced with inferior product as an overall view of our industry. We don't have a level playing field when competing with imports. We are heavily regulated and have to use safe methods and products. We are unable to compete due to these factors. We pay high costs for waste management which is directly attributed to added costs in disposing of nonconforming goods which only last a few years. Our products last a life time. There are serious health risks with using non-conforming goods.” Respondent to HIA member survey, July 2015 For builders and contractors, 47 per cent said they commonly use building products manufactured off-shore but only 3 per cent said that they directly import these products. Significantly 21 per cent of builders and contractors indicated that they have had products supplied to a project that have failed to meet relevant building standards, whilst 26 per cent said they have received product without the necessary documentary evidence or markings to verify they meet the required standards. It is telling that 32 per cent of builders and contractors have had to replace materials supplied to a project due to their failure and 42 per cent said that they have refused to use products supplied due to the lack of evidence. “It would cost many hours of work, around $10,000-20,000 a year (to check product compliance). The suppliers should be making sure their products are compliant not the consumer buying them who is the builder. Imported products shouldn't be allowed to be sold if they don't meet the standards. All documentation should be on line from the manufacturer of the products.” Respondent to HIA member survey, July 2015

Interestingly, 63 per cent of builders allow the owner to supply products, but 45 per cent indicated that they have been supplied with non-conforming products by an owner.

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There was a broad view that products purchased ‘off the shelf’ should comply and that the builder should not be responsible for checking every single product before use. The cost would be prohibitive, even if it was practicable. There was also a strong contention that the builder can only work with the information provided to them at the time of purchase. “If it looks like a duck (all the right markings and as per the 'law' had a certification) and quacks like a duck (it works and feels OK), how do you know it’s faulty.” Respondent to HIA member survey, July 2015 In asking what else should be done to improve the current regulatory framework, most members said information and education is needed in every part of the supply chain.

2.2

INDUSTRY’S RESPONSE

HIA has been actively working to support members to better understand the risks associated with nonconforming building products. Over the last five years, members have sought our support in various ways, ranging from members seeking legal advice on how to manage disputes with consumer supplied nonconforming products, advice on how to get products approved for use in Australia, technical advice on how to repair defects arising from the use of a non-conforming product and even what should be the relatively simple task of accessing replacement components. HIA manufacturing and supplier members have sought support to raise awareness of the problems they encounter on a daily basis with unfair competition from non-conforming building products, and to help give voice to their call for a ‘level playing field’. HIA has also been working closely with a range of industry stakeholders to understand the many factors at play in product compliance and determine what practical steps can be taken by government and industry to improve the level of compliance of building products and ensure they are ‘fit for purpose’. HIA Summit – Building Products: A compliance free zone? HIA held a national Summit in March 2012 which raised the profile of product compliance as an industry issue. Speakers included the Australian Building Codes Board, representatives from the European Union and Canada, and Australian manufacturers. Building Product Register In 2012 HIA commenced investigation on the development of a product register to assist manufacturers and suppliers list their products on a national database and provide access to compliance information for each listed product. Extensive consultation spanned 2013 with a view to seeking clear industry support for the register, including input from builders, as well as manufacturers and suppliers, on the form and nature that a register should take to be most useful, and input on the appropriate method to fund the development and ongoing operations of a register. HIA approached all state and territory building administrations and consumer affairs agencies in 2013 seeking support for the project. The consumer affairs agencies provided a combined response through the NSW Government on behalf of Consumer Affairs Australia and New Zealand expressing general support.

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HIA sought seed funding from the Federal Government to establish the framework for the register. As part of this submission HIA gained letters of support from a number of manufacturers and suppliers, along with in kind support from a number of industry associations. However, the funding was not forthcoming and progress was subsequently delayed. Member Information HIA has prepared a suite of information sheets to provide members with guidance on what to look for, ask for and consider to ensure that the building products they use are both conforming and reliable. The information is tailored to suit the different HIA membership groups, with some sheets aimed at builders, and other sheets aimed at manufacturers and suppliers. The information sheets currently available via hia.com.au include:       

Chain of custody - do you know where your products are from? Building product technical information Client supplied products: what should the builder check? Builder's Legal & Statutory Obligations in Verifying & Using Conforming Building Products Technical Information on your Building Products: What should you be providing? What should suppliers know when releasing new building products? Product conformance & the BCA - Determining when and how the BCA applies (in 3 parts)

HIA has published a range of articles and information for members with the intention of raising awareness. Articles have also been prepared by HIA for external publications such as Building Connection and ACCI’s magazine, whilst other associations are joining the debate publishing their own articles including AWISA, Australian Window Association (AWA) and Australian Glass and Glazing Association.

2.3

OTHER ACTIVITIES

The momentum around product compliance within industry has been growing rapidly in recent years. HIA has been invited to participate in a range of industry led projects that align with HIA’s efforts to assist members and raise awareness of non-conforming products. Construction Product Quality Working Group - Australasian Procurement & Construction Council (APCC) HIA is a member of the APCC Construction Product Quality Working Group. The APCC established the Working Group in 2012 and has since gathered over 30 industry associations as participants. The Working Group published a guide Procurement of Construction Products: A guide to achieving compliance to increase awareness of the need for purchasers and specifiers (including builders and contractors) to take steps to ensure the products they receive on site are ‘fit for purpose’. The guide is intended to create a change in the business practices of everyone involved in the supply chain process in relation to how they check and verify product compliance as part of their procurement process. The Guide was formally launched by the then Parliamentary Secretary for Industry, the Hon. Bob Baldwin MP on 1 September 2014.

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Australian Industry Group In June 2013 HIA joined the Australian Industry Group project advisory committee for their research report The quest for a level playing field: the non-conforming product dilemma. The Ai Group received funding to undertake a research project into the extent and impact of non-compliance in building products as a result of their involvement in the Manufacturing Australia Taskforce. A project advisory committee was formed to assist with the project which included Clipsal, Bluescope, HIA and CSIRO. The project involved a two stage survey of industry members and groups, focusing on steel products, engineered wood, paints and varnishes, doors and windows, plumbing and electrical products. Released in November 2013, the report’s findings clearly show that there is a high level of industry concern about the prevalence of non-conforming building products. Following the release of the report, HIA was invited to participate in a steering committee to hold an industry forum, which occurred in March 2014. The purpose of the forum was to bring together government and industry and highlight the report’s findings, and to showcase a small number of potential solutions that could be expanded more broadly to assist with promoting better compliance of all products. Construction Products Alliance Arising from the Ai Group’s report and subsequent forum, an industry alliance was established to promote awareness of non-conforming building products and identify opportunities for improved supply chain solutions. In 2014, the Construction Product Alliance formed a Steering Committee with membership from Ai Group, Australian Constructors Association, HIA, CSR, Australian Steel Institute, Australian Institute of Building Surveyors, AWA, APCC, Engineers Australia and Joint Accreditation System of Australia and New Zealand (JASANZ). The Steering Committee has endorsed a road map and established three working groups which are currently preparing reports on the regulatory framework, certification and surveillance models, and undertaking industry engagement and education. HIA is chairing the Working Group investigating the current regulatory framework and identifying the barriers to effective management. More recently the Alliance brought together over 40 building industry associations to develop a broad industry communication to governments, including an agreed Action Plan to put forward to the Building Ministers’ Forum. HIA provided its support to the Action Plan. (Attachment 2) ACCC Industry Reference Group – Infinity Cable HIA participated on the industry reference group established by the ACCC to determine the implications of the voluntary recall of Infinity Cable installations in up to 40,000 buildings. The ACCC recall was published on 27 August 2014 and HIA is now assisting members as required to manage the impacts of the recall on both building and contracting businesses.

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3. MARKET ENTRY The first stage in the building product supply chain is the entry to the market. This stage covers the design and manufacture of building products, the testing and approval of products where required, and the importation of products manufactured off-shore. The rules and information available to potential importers of building products about how the Australian building product supply chain operates is scant. This is not limited to importers of products. Local manufacturers also have limited access to guidance information that clearly sets out for manufacturers, when they are required to comply with the National Construction Code (NCC) or other technical standards, and how evidence should be supplied to the market. The manufacture, importation, labelling and sale of many building products in Australia is controlled through a complex framework of domestic and international legislation and agreements. The current legislative framework for building products applies to goods produced both domestically and overseas. Therefore the country of origin is not a limitation on the obligation for building products to meet the relevant Australian building and consumer laws and standards.

3.1

PRODUCT APPROVAL FRAMEWORK

“The end user are not aware that the product does not conform and buy on price the importers are also to blame because they do not do their homework or check with the AS but buy on price and resell to the larger hardware chains In return when we manufacture our product and conform with the AS our price is much high as we are importers our product are manufactured to our spec and I make sure that they conform with the building code.” Respondent to HIA member survey, July 2015 The majority of building products do not require formal or statutory ‘approval’ to be placed on the market in Australia. There are only three mandatory compliance schemes for building products in operation in Australia. These cover electrical products, plumbing products and water efficiency labelling of plumbing products, with the latter not relating directly to the products fitness for purpose. For all other products, whether used in building work covered by the NCC, or in infrastructure and civil works projects which are managed through contractual arrangements, there is a responsibility for the supplier of a product to offer a product that is fit for the purpose it is sold. The responsibility is framed around ensuring that the supplier does not act in a manner that is false or misleading to the buyer. However, this responsibility does not necessarily align with an obligation to ensure that the product meets relevant standards that may exist under building or other relevant legislation. Many building products are subject to the requirements of the NCC when they are used in building work (including ‘exempt’ building work that does not require formal approval). Evidence is required to demonstrate compliance with certain technical standards referenced by the NCC to the satisfaction of the building approval authority (including a building certifier where relevant).

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The type of evidence that is required can vary from product to product. Further, most manufacturers can choose which form of evidence they provide to a consumer. This information may involve the products being tested through either first, second or third party verification, or not tested at all. The documents range from technical information, test reports and product certificates, to product labels and stamps. Labelling legislation, including requirements in standards, can dictate the type of information required to be placed on a product, or supplied with that product. Labelling may indicate adherence to specific standards. However, it is not universally required across product sectors and the purpose of labelling can vary from product to product. Where building products are not subject to the requirements of the NCC, such as infrastructure projects and civil works, the standards of performance will be those nominated by the designer or engineer, and set out in the project specification and other contractual documentation. The actual use of a building or construction product may require the demonstration of adherence to requirements in the NCC and/or tailored engineering specifications. However, this is not required to be verified at the point of manufacture or the point of sale, and falls to the purchaser to take responsibility for checking – a function that is often not practical. 3.1.1

Mandatory Product Certification Schemes

Certain electrical products are required to be verified prior to sale through the Electrical Equipment Safety Scheme (EESS). The EESS is managed by the Electrical Regulatory Authorities Council (ERAC) and adopted by participating electrical safety regulators. The scheme commenced on 1 March 2013 in Queensland, and Tasmania and Western Australia have now recognised it. Other jurisdictions are considering their implementation and all jurisdictions are participating in an Inter-Governmental Agreement (IGA) process. New Zealand will have complementary legislation in due course. The EESS covers in-scope electrical equipment which is equipment designed, or marketed as suitable for household, personal or similar use. All in-scope electrical equipment is within one of three risk levels (level 1, level 2 or level 3). Under the EESS, all suppliers of “in-scope” equipment (“responsible suppliers”) must be registered before placing equipment onto the market. In addition electrical equipment must be registered with level of detail of registration dependant on the risk level classification of the equipment. Suppliers must also declare that all equipment they supply conforms to the relevant electrical safety standard. In the EESS, level 3 in-scope electrical equipment must have a Certificate of Conformity. This is obtained from an electrical safety regulator or private certification body (accredited by a regulator). Level 2 or level 1 inscope electrical equipment may also have a voluntary Certificate of Suitability. All Certificates are issued in accordance with the Equipment Safety Rules and rely on accredited laboratory type testing to the relevant standard. Under the EESS, all Level 1, 2 or 3 electrical equipment offered for sale in Australia and New Zealand by Responsible Suppliers must be marked with the Regulatory Compliance Mark (RCM). The use of the RCM on equipment is only permitted if the equipment is in conformance with the EESS.

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Certain plumbing and drainage products are required to be certified and authorised for use through the WaterMark Scheme and listed on the WaterMark Product Database. The Scheme was first introduced 1988 as the National Certification Plumbing and Drainage Products Scheme – a voluntary arrangement between Standards Australia and plumbing regulators. The current WaterMark scheme commenced in 2004 as part of the Plumbing Code of Australia (PCA) and was developed by the National Plumbing Regulators Forum and operated via an MOU between the Forum and Standards Australia. With the inception of the NCC, which incorporated the PCA, the operation of the Scheme was transferred to the Australian Building Codes Board (ABCB). The Scheme applies nationally under the NCC and requires certain third party certification of the product through an accredited scheme based on levels of risk. The WaterMark certification process requires that a plumbing or drainage product is:    

tested by a recognised testing laboratory; complies with an approved specification (either a relevant existing standard or an approved WaterMark Technical Specification); manufactured in accordance with an approved Quality Assurance Program; and carries a warranty.

Products are certified by a WaterMark Conformity Assessment Body, which is an independent third party testing authority. Once a product is tested and meets the technical requirements, it can be listed on the WaterMark Product Database and must display the WaterMark trademark. The third scheme is the Water Efficiency Labelling and Standards (WELS) Scheme which requires testing of potable water fittings in buildings to verify their water efficiency level. The scheme does not set any benchmarks for performance, other than water efficiency. Hence it does not address the technical standards for the manufacturer of these products. This aspect is addressed under the WaterMark scheme. In addition to quality assurance, batch testing and after manufacturing assurance mechanisms, mandatory certification schemes inherently create a need for downstream surveillance and enforcement. These three schemes all incorporate processes to identify non-conforming products and remove them from the supply chain. However the resourcing and commitment by the relevant regulator for each scheme varies. 3.1.2

Voluntary Product Certification Schemes

In the absence of mandatory product approval requirements for the majority of building product sectors, the Australian market has seen an emergence of voluntary product certification schemes. These schemes are generally established and operated by the relevant industry association for that product sector. There are no minimum standards for the development of these schemes. Therefore the industry takes responsibility for setting the benchmarks for performance of a product and the level of evidence that they consider is acceptable to verify that a product is ‘fit for purpose’ and meets a certain level of quality. To establish these schemes, industry associations generally work with a conformity assessment body, such as the National Association of Testing Authorities Australia (NATA) and the JAS-ANZ. However, this is not mandatory and the schemes can operate in any manner they so choose.

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The building product sectors that currently offer voluntary product certification schemes in Australia include reinforcing and structural steel, cementitious materials for concrete, engineered wood products, glazing and window products, electrical cables, lighting and insulated panels. HIA assisted in the development of an industry guide, published by the APCC, aimed at providing the building industry with reliable information on the operation of product testing and certification of building products. The guide also highlighted a range of mandatory and voluntary product certification schemes that are currently operating in Australia. The Procurement of Construction Products: A guide to achieving compliance has been well received by the building industry and in the absence of any guidance material from governments, appears to be achieving recognition as a useful adjunct to NCC and the building regulations. Work is currently underway to update the document to incorporate additional industry schemes. Many of the voluntary schemes adopt the same approach as mandatory schemes by including a process for surveillance and enforcement of their schemes to maintain its integrity for the benefit of those manufacturers who do the right thing, and for the benefit of industry and consumers who rely on the scheme to deliver quality products. Whilst the voluntary schemes have similar hallmarks to the mandatory schemes, they are not able to exercise the same level of upstream enforcement as regulated schemes. Voluntary schemes are upstream ‘opt in’ mechanisms, and should not be expected to stand in the shoes of the regulator in preventing non-conforming building products from entering the supply chain. The schemes also take different approaches to the scrutiny and obligations on the company supplying the product, in addition to the testing of individual products. 3.1.3

Codemark

Codemark is a national product certification scheme that operates under the auspices of the ABCB. Codemark is a voluntary scheme that offers new and innovative products a pathway to test and certify that the product meets the performance requirements of the NCC. Building legislation in each jurisdiction makes specific reference to any product that has obtained ‘Codemark’ certification as a product that the building certifier may rely upon without the need for further evidence of compliance with the NCC. Codemark is recognised in the NCC as one of the five types of certification that a product can use to show it meets the performance requirements of the NCC. Therefore it is not mandatory but aims to provide an avenue for products where no technical standards currently exist to assess performance to gain certification and acceptance. Whilst the administration of Codemark is similar to the administration of the mandatory schemes, there is no limitation on the products that may choose to seek certification under the scheme. Further, the scheme makes no reference to the risk profile of the product or its function regarding health, safety or the structural integrity of a building. The scheme is simply available to any product that chooses to use it. The use of Codemark over the last two decades has been limited as most building products do have technical standards in place. The ABCB is currently reviewing the operation of Codemark.

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The retention of this type of scheme in the product approval framework is important to ensure there is an avenue for new and innovative products to be used in building work before they become widely adopted forms of construction. However, the use of a scheme like Codemark for all products would not be appropriate when technical standards exist and other more cost effective conformity assessment models can be used. 3.1.4

Product Standards

Whilst there are limited mandatory requirements to have building products approved in Australia, a broader conformity assessment framework arises through a combination of technical standards, the NCC and state building legislation, to create an obligation to test the performance of many building products. Technical Standards Over the last 20 years, a significant number of technical standards has been developed in Australia for building products. In particular building products which are considered high risk, or have a safety aspect in their use are generally covered by relevant Australian Standards or equivalent technical publications. These standards are typically product specific and generally address the different steps in the product’s development and manufacturing process. Standards provide guidance on how a product is:     

designed (material properties); manufactured (including labelling); tested; used or installed; and commissioned and maintained.

Not all products will have standards addressing these five aspects, and many standards provide a combined approach using one or two standards to address all five aspects. The majority of building products have a design and manufacturing standard for the product, along with a use or installation standard. Many products will have testing standards and some will have maintenance standards. In relation to the testing of a product, this may only be a recommendation in the standard (informative) or it may be a mandatory requirement (normative). The provisions that relate to the testing of a building product are generally referred to as conformity assessment. An Australian Standard, or any other technical standard, has no legal statutory effect unless it is referenced in some manner in legislation. For the majority of key structural building components in residential buildings, Australian Standards have been developed. These Australian Standards, and some other technical standards prepared by industry sectors, are referenced by the NCC, through one or more volumes of the code. The NCC is in turn referenced in all state and territory building legislation (Attachment 3). Through this chain of referencing, Australian Standards provide a formal means to verify that a building product meets the requirements of state and/territory building laws. Standards Australia & Australian Standards Standards Australia is a technical standard writing body. Standards Australia publish Australian Standards that set out specifications and procedures for a wide range of building products. These standards aim to establish an agreed level of safety, reliability and performance for the products covered.

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Standards Australia has no role in assessing the degree of compliance with Australian Standards or policing their application in product manufacturing, point of entry to the market, or in building or construction work. 3.1.5

Product Testing

The Australian market relies upon a framework for product certification through the use of conformity assessment bodies that offer services to test and certify that a product meets a required level of performance, generally using the reference documents of the NCC as the minimum requirements, or the starting point if an alternative (compliance) solution is proposed. There are two key bodies that support Australia’s conformity assessment framework in relation to building product testing:  

the Joint Accreditation System of Australia and New Zealand (JAS–ANZ); and the National Association of Testing Authorities, Australia (NATA);

JAS–ANZ is the government–appointed accreditation body for Australia and New Zealand, which is responsible for providing accreditation of conformity assessment bodies (CABs) that undertake management system, personnel and product certification and inspections. JAS–ANZ accreditation is built upon a competency-based assessment process, and provides confidence in CABs’ capability to deliver reliable certification and inspection services. NATA is recognised by governments as Australia’s national authority for the accreditation of laboratories and reference material producers. NATA is also recognised as a peak body for the accreditation of inspection bodies and proficiency testing scheme providers. NATA accreditation is based on a process of peer assessment of a facility’s competence, and its capability of producing reliable results. This conformity assessment framework operates independently of any regulatory requirements to test products. Therefore for most building products a manufacturer has no obligation to undertake conformity assessment testing of their products or materials until that product is selected for use in a specific application, in this case, for building work of a particular type, and the purchaser of the product seeks confirmation that the product is conforming. The WaterMark and Codemark scheme both rely on JAS-ANZ to accredit certification bodies to undertake product assessments. Several of the voluntary industry schemes have also worked with JAS-ANZ and NATA to establish the framework for their certification schemes. The process of establishing a scheme is costly and can take years to deliver a fully operational scheme. Mutual Recognition The operation of mutual recognition in product testing has been attributed by some as a reason that building products may enter the Australian supply chain with inappropriate evidence of conformity. Many product sectors have identified examples of products which purport to meet Australian technical standards but have been supplied with certification against other countries standards without demonstrated comparison of equivalence with the Australian requirements. Other examples have found products tested against one standard that is referenced by the NCC but not tested against other standards (at time more relevant to the products use) which can give a misleading view on the compliance of the product with the NCC requirements.

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Overarching these concerns remains the increasing incidence of fraudulent documentation and labelling from offshore testing bodies and manufacturers, who may or may not have undertaken adequate testing of products. Mutual recognition as it relates to conformity assessment for building products (including test reports, inspections reports, product certificates and the like) is based on the concept that these results are mutually recognised and accepted in two or more jurisdictions. Mutual recognition is often the result of a long process of peer review of each other’s technical competency to a point where trust and equivalence have been established. NATA and JAS-ANZ are both signatories to regional and international mutual recognition arrangements. Because of this, conformity assessment results produced by conformity assessment bodies in Australia that are accredited by JAS-ANZ and NATA are often accepted overseas when accompanying Australian exports. Similarly conformity assessment results produced by conformity assessment bodies in other countries should also be accepted in Australia if those conformity assessment bodies have been accredited by their national accreditation body, and that national accreditation body is also a signatory to the same regional and international mutual recognition arrangements as NATA and JAS-ANZ. Despite this framework, it is evident that many overseas testing authorities, whether accredited by their national body or not, are supplying test reports and certification against Australian technical standards, without relevant expertise and understanding of the Australian requirements. This is creating confusion for manufacturers and suppliers, who may believe that they are receiving appropriate testing and certification for product manufactured off-shore, yet this may not necessarily be the case. Once a product enters the supply chain for sale it is extremely difficult to remove it should a problem arise. The Infinity Cable recall demonstrates the practical complexities, and costs. In this instance, product testing documents were provided from an offshore testing authority and were later found to be incorrect. 3.1.6

Summary

The most fundamental gap in the market entry stage of the building product supply chain is the fact that the majority of building products do not require any form of approval or have any requirement to attest to their performance and fitness for purpose prior to being offered for sale. In many instances, a conforming and a non-conforming product can look and feel the same. Establishing compliance at the point of sale is impractical without manufacturer compliance documentation, product approval, forma; certification or similar. Whilst it is not considered necessary that all building products receive such an approval before being offered for sale, there are many products which warrant closer consideration as to whether such a requirement should exist, such as products affecting fire safety and the structural integrity of a building. A framework for mandatory and voluntary product certification schemes could be established to set benchmarks for the type of testing and the type of certification for key structural elements that should be provided to the market giving greater certainty at the point of sale.

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Alternatively, government may see value in supporting industry to continue developing product certification schemes and to bring these together in some formal manner to create a more holistic product certification system. This option has been used in the European Union as a way to effectively manage different products and different levels of certification (Section 7.2). Formal recognition of voluntary schemes could give greater weight to the value of certification and provide awareness across industry. Labelling of products is also not a mandatory requirement for many products and may offer an efficient method of providing the market with evidence of compliance, whether in conjunction with an approval process, or potentially as a separate requirement. The majority of structural building products are covered by agreed national technical standards, primarily being Australian Standards. There are some product sectors that are not currently covered by a baseline standard for the design and manufacture of the product. There may be scope for bodies such as the ABCB and Standards Australia to work together to develop a list of product sectors not currently supported by a technical standard and then proactively work with those sectors to prepare the required standards. The administration of product testing in Australia is considered to be effective. However, the development of effective working relationships with testing authorities internationally is ongoing. There is a general need for more detailed knowledge amongst product manufacturers and suppliers about how product testing and mutual recognition operates. There is confusion around what to ask for and what to look for when testing is undertaken, which results in different information being supplied to the market. This creates confusion for the buyer and inhibits effective product-compliance comparisons. Identifying how the Australian product approval framework currently operates and providing accurate information and education for industry and consumers about how the product approvals operate would better enable compliance within the downstream product procurement chain and assist residential builders and contractors. Again, this could be an opportunity for the ABCB, Standards Australia and potentially the ACCC to work together and produce guidance material. The other significant element in operating such schemes is the need to have strong surveillance and reporting processes, and to have penalties that can be applied. Voluntary industry schemes, such as those operated by the AWA and Engineered Wood Product Association of Australasia (EWPAA) include surveillance and reporting processes. However, the application of penalties in voluntary schemes is more difficult. Products can be removed from the scheme, but any acts of fraud or misleading conduct or legal recourse must be managed through the appropriate channels. Effective enforcement and penalties can only exist with the support of governments.

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3.2

PRODUCT IMPORTATION FRAMEWORK

“Our sales compete against foreign (typically low cost) alternative products purporting to meet standards, yet which do not, or at least they do not go through the same level of testing and process auditing rigour to ensure CONFIDENCE in the standards being consistently achieved. Our channels to market, through their ignorance of the issue, the consequences, or out of a sense of "it won't happen to me" frequently opt for inferior products. In many cases appropriate products specified for a project are traded down to inferior foreign alternatives during the "value-engineering" process. This would be fine in a free-economy sense, save for the fact that the standards are not equivalent nor effectively enforced. As a local manufacturer, and selective importer with rigorous acceptance testing processes and a Brand reputation at stake, this damages our competitiveness in the market.” Respondent to HIA member survey, July 2015 Building products being imported into Australia are not required to positively attest that they are ‘fit for purpose’ and meet Australian technical standards. The rules and information available to potential importers of building products about the Australian regulatory framework for building products is scant and has little regard for the domestic housing market and the technical standards referenced through the NCC. Yet this problem is not limited to importers of products. Local manufacturers similarly have trouble finding adequate information that clearly articulates their obligations to achieve technical compliance where they are required to comply with the NCC or other regulated standards. Building products entering Australia are managed through a number of regulations and relevant agencies involved in trade. The primary agencies include:    3.2.1

Australian Customs & the Department of Immigration and Border Protection; Australian Trade Commission (Austrade); and Department of Foreign Affairs & Trade. Australian Customs (Department of Immigration and Border Protection)

Australian Customs has extensive investigation, search and seizure powers. However, its focus when checking building products entering the country is generally limited to product labelling and country of origin. A range of legislation provides for the importation of certain goods into Australia to be prohibited absolutely or conditionally. The seizure of prohibited or restricted goods on entry into Australia is often carried out by Customs on behalf of other government agencies. Currently, to clear goods through customs the importer is required to submit an import declaration. This declaration requires:        

a correct and completed import declaration; evidence of Identity (EOI) of the owner; a Customs Client Identifier (CCID)/ Australian Business Number (ABN); register as a Client in the ICS using Form B319; provide invoices, bills of lading, air waybills and commercial documents if requested to do so; provide permits, licences and/or approvals if required to do so; answer any additional questions if required to do so; and pay duty taxes and charges as required.

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Import Licenses There is no requirement for companies or individuals to hold an import license. In fact import licenses are considered non-tariff barriers to trade and are ‘regulated’ under General Agreement on Tariffs and Trade and World Trade Organisation (WTO) agreements. Where a license is called for, the WTO protocols require that the administrative procedures for obtaining the license be simple, neutral, equitable and transparent. Where possible they should be given automatically and quickly and should not obstruct trade unnecessarily. However, the WTO Agreement on Technical Barriers to Trade does enable the Government to impose product quality and safety standards on imported and domestically produced goods. Reasonable spot checks are allowed to ensure compliance with the relevant safety and other standards. Additionally, depending on the nature of the commodity, regardless of value, owners may need to obtain an ‘import permit’ to facilitate the clearance of the goods. Permits must be obtained from the relevant Australian government department prior to the goods being imported into Australia. Goods that are currently subject to import prohibitions and restrictions, and hence permits and customs checking, include:             

certain animal, marine and plant life and their products; goods bearing certain official emblems and designs; goods that might be hazardous to health (including chemicals, radioactive material and therapeutic substances); goods bearing incorrect or misleading labelling or markings; goods that infringe trademarks, copyright or Olympic insignia; certain goods relating to cultural heritage; goods subject to quarantine controls; ozone-depleting substances; weapons; narcotic and psychotropic substances; goods subject to censorship controls; certain goods imported from certain countries that are subject to UN trade restrictions; and commodities banned or restricted by the ACCC.

Labelling Laws Australian Customs administers the Commerce (Trade Descriptions) laws, which requires importers to ensure that goods entering the commerce of Australia are correctly labelled. The Commerce (Trade Descriptions) Act 1905 and the Commerce (Imports) Regulations 1940 set out the labelling requirements for goods imported into Australia. It is an offence to import goods that do not bear a required trade description, or bear a false trade description.

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Imported goods that require a trade description must be marked with the name of the country in which the goods were made or produced, and where specified, a true description of the goods. When a trade description is required, it must be:    

in the English language; and in prominent and legible characters; and on a principal label or brand affixed in a prominent position and in as permanent a manner as practicable; and if labelling on the goods includes a weight or quantity, it must also say if that weight or quantity is net or gross.

Any other information included must not contradict or obscure the required trade description. This includes illustrations, wording or size of lettering. A false trade description can be any description of goods that is incorrect or misleading. This may include direct or indirect details of size, weight, quality, quantity, origin, manufacturer, ingredients or the application of a patent, privilege or copyright, and includes all possible alterations of a trade description, whether by way of addition, effacement, or otherwise. A trade description may also be false if information is omitted from the description and this misleads the consumer as to the true description of the goods. For a building product, there is no requirement that information be supplied that verifies it has been tested to an Australian Standard or that it is NCC compliant. However, should the product declare this, then Customs have the authority to check it conforms with such a declaration. In most cases this would mean costly laboratory testing to obtain a report on whether the product complies. This action is rarely undertaken. The primary information Customs look for is a country of origin label, and this can be limited to superficial checks. Intellectual Property Rights Import provisions under the Trade Marks Act 1995, Copyright Act 1968 and Olympic Insignia Protection Act 1987 allow Customs, under certain circumstances, to seize goods that infringe trademarks, copyright and protected Olympic insignia. There is evidence of a significant problem of pirate copies of consumer (and other) products entering Australia, including building hardware such as hinges, cupboard tracks, electrical products, sanitary ware and tapware. The Australian owners/licensees of the intellectual property typically attempt to restrain local sale of ‘reverseengineered’ copies of their products, with mixed success. It is often very difficult, even for experts, to tell whether the imported product is an unauthorised copy or a genuine article legitimately obtained overseas and resold here.

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Agency Resources Australian Customs and Border Protection Service works with other government and international agencies, in particular the Australian Federal Police, the Australian Quarantine and Inspection Service, the Department of Immigration and Citizenship and the Department of Defence, to detect and deter unlawful movement of goods and people across the border. Australian Customs is mostly complaints’ driven, and similar to other agencies in this area, appears to lack the resources to be proactive. With respect to building products, HIA understands that Customs officials do not currently assess building products for building compliance or conformance reasons. Tariffs Goods imported into Australia require classification under the Customs Tariff Act 1995. Some building and construction materials either in raw form, or as finished products, are captured by the legislation. Examples incude mineral products including salt, sulphur, earth and stone, plastering materials, lime and cement; ores, slag and ash; certain plastic and rubber products; pulp of wood and other fibrous cellulosic material; stone, plaster, cement, asbestos, ceramic products, glass and glassware and iron and steel. The legislation allows an importer to self-assess the correct tariff classification. Penalties can apply for providing incorrect or misleading information, whether intentional or not. Tariffs appears to have little impact on the building product supply chain. 3.2.2

Australian Trade Commission (Austrade) & Free Trade Agreements (FTAs)

International Trade Agreements are administered on behalf of the Federal Government by Austrade and are referred to as Free Trade Agreements (FTAs) between at least two countries. The FTAs must comply with domestic laws and in the case of building products, this relates to compliance with the building code. The FTAs can include a range of limitations to restrict the entry of illegal substances and products. Austrade has no role in overseeing the import of products into Australia. Monitoring compliance with an FTA is the responsibility of the Australian Customs and Border Protection Service. 3.2.3

Department of Foreign Affairs & Trade and World Trade Organisation (WTO)

Agreement on Technical Barriers to Trade Technical barriers to trade generally result from the preparation, adoption and application of different technical regulations and conformity assessment procedures. Technical barriers to trade are generally considered to be the greatest non-tariff barrier and therefore the Agreement provides guidance on how countries should manage the adoption and enforcement of technical standards. Australia is a party to the Agreement on Technical Barriers to Trade prepared by the World Trade Organisation. The intention of the agreement is to “ensure that technical regulations, standards and conformity assessment procedures do not create unnecessary obstacles to trade.”1 1

2014, World Trade Agreement Series Technical Barriers to Trade, World Trade Organisation, p.5

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The differences between one country and another in their technical regulations and conformity assessment procedures may have legitimate origins. The Agreement seeks to have countries adopt international standards and processes where they exist. Therefore the Agreement does provide scope for any country to apply its own regulations where they can show justification for the difference. For example, countries with areas prone to earthquakes might have stricter requirements for building products, others facing serious air-pollution problems might want to impose lower tolerable levels of automobile emissions. Through international agreements that Standards Australia is party to, similar limitations to those set out in the Agreement on Technical Barriers to Trade apply to the development of Australian Standards. Where an international standard exists, Standards Australia may only prepare a unique Australian document where there is adequate justification of local needs to either make changes to the international document or to prepare a wholly Australian document. In Australia, the majority of building products used in residential building work are covered by an Australian technical standard of some type. Primarily these are Australian Standards, prepared by Standards Australia and they are formally referenced by the NCC or state and territory building regulations. However, there are other standards that have been developed by other bodies that have been referenced by the NCC. Therefore based on there being an extensive library of Australian Standards for building products that have been duly prepared in accordance with the WTO requirements, and have legal effect through the building approval framework, all building products imported into Australia should meet the relevant Australian Standards, in the same manner as those manufactured locally. Section 4.2 sets out in more detail how Australia’s technical standards apply to building products through the building approval process. 3.2.4

Summary

Whilst there are a number of federal agencies with responsibilities to manage the importation of building products, there is no obligation on any one agency to monitor or seek evidence that a building product meets relevant Australian technical standards. Without specific obligations to confirm a product meets relevant standards, these agencies also have limited authority to monitor and take action should a non-conforming product enter the Australian market. This creates a situation where the product must enter the market before any action can be taken using other powers available to other authorities, such as the Australian Competition and Consumer Commission or state consumer protection authorities. In the same way that it is not considered necessary or practical for all building products to require approval, it is also not considered necessary or practical for all building products to require approval or checking when being imported. However, where a building product performs an integral role in safety or structural integrity, for example, it should be required to comply with the NCC and respective technical standards. There may be scope for Australian Customs to play a more significant role in policing and deterring non-conforming building products, with appropriate penalties for those products which affect the structural integrity of buildings, by applying this approach.

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4. PROCUREMENT & USE The procurement and use of building products includes the placement of a building product ‘on the shelf’ for purchase, the selection of building products in the building design and approval process and their purchase and use in a building project. Over the last decade one of the significant shifts in the building product supply chain has been the increase in offshore sources, at the same time as local manufacturing of these products has been decreasing. Combined with this shift, online purchasing of building products has become easier, bringing to the market a plethora of less informed suppliers, less aware buyers, sourcing small quantities of products, with little or no knowledge of the Australian regulatory framework and how to ensure the products are ‘fit for purpose’. Once these products enter the supply chain, their provenance is lost and seeking a remedy when a problem arises becomes extremely difficult. When a product has been selected, purchased and used in building work, it becomes subject to the requirements of state and territory building legislation. The Australian building approval framework relies on the NCC, along with associated technical reference standards. However the application of the NCC to the building approval process relies on eight different state/territory administrative systems.

4.1

SUPPLY & DISTRIBUTION FRAMEWORK

“The issue is that mostly you assume that the particular company who supplies your product may substitute a 'known' product for a generic product that is supposed to have the same qualities and compliance and yet quite often you can’t tell who it is manufactured by. For example I might purchase fibre cement sheeting for a wet area and may refer to "villaboard" (a trade name) and I am supplied with a generic 6mm board product that appears to have the same qualities etc. I become reliant on my building product supplier (large national chain) to which I presume they have confirmed that this is compliant.” Respondent to HIA member survey, July 2015 The supply and distribution framework for building products involves a number of players and levels, and as with other parts of the building product supply chain, the legislation that regulates suppliers is limited. The manufacturer is in the best position to ensure goods are safe and compliant, as they have intimate knowledge of the product and are the experts in its design and use. They employ the necessary technical staff to ensure product design and quality is acceptable, and complies with any legal requirements. They can confirm test results and certify compliance with any Standards or Codes, whether voluntary or mandatory. Suppliers are not normally able to influence the safety of goods they supply – safety can only be built in – nor can they be expected to apply expert scrutiny to every item that passes through their hands. However, with the rise of large retail supply chains, there are more and more instances of products being ordered by suppliers to conform with the supplier’s requirements rather than the manufacturer’s preferences and obligations. In some cases the supplier explicitly claims to be the manufacturer (‘own brand’). In other cases, the manufacturer produces a distinct product which is only sold through that supplier chain (so suppliers can give ‘price guarantees’). Suppliers are therefore more likely now to be in a position to directly affect safety considerations, along with all other aspects of the products they sell.

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On the other hand, the decline of Australia’s manufacturing industry and the increasing sourcing of products (notably building products) from offshore has also meant that there is much less opportunity for suppliers and importers (often the same person) to ensure that the products they sell are safe and ‘fit for purpose’. The tendency towards importation of products on an opportunistic ‘one off’ basis, may mean that the manufacturer is unknown and the importer may no longer exist by the time any safety defects become apparent, such as ultimately occurred for Infinity Cable. The difference between the liability of suppliers and manufacturers under the ACL is partly practical and partly historical. Legislative History The ACL had its origins in the Trade Practices Act 1974. Part V Division 2 of that Act contained non-excludable consumer warranties binding on corporate suppliers, and modelled on traditional Sale of Goods Act provisions relating to fitness for purpose, merchantable quality and correspondence with description. Safety was not expressly mentioned but would normally be implied in the concepts of merchantable quality and fitness for purpose. Product safety provisions related only to supply of goods where a Product Safety Standard had been declared by the Minister – there were relatively few of these (e.g. Bicycles, Pyjamas, Flotation Devices) because of the time and effort required to develop such standards. These product safety provisions still exist in the ACL as Part 3-3, Division 1. Following similar 1974 legislation in South Australia, Part V Division 2A was inserted in the TP Act in 1978 to make manufacturers and importers concurrently liable with the actual seller of the goods by providing for similar statutory actions against them. Sellers were given (s.74H) a right to seek indemnity from manufacturers for their Part V Div 2 liability. Again, safety was not expressly mentioned. When the TPA was replaced by the Australian Competition and Consumer Act 2010, which contained the ACL, the opportunity was taken to re-write all the statutory warranty (now guarantees) provisions to expressly include safety in the manufacturers’ liability and suppliers’ warranty provisions, but not in exactly the same terms, presumably for reasons of practicality. 4.1.1

Manufacturers and Suppliers

Under the ACL, a manufacturer includes a person who:     

produces goods; holds themselves out to the public as the manufacturer of goods; allows their name, brand or mark to be applied to goods; allows another person to hold them out as a manufacturer of goods; or imports goods into Australia where the manufacturer of the goods does not have a place of business in Australia.

For the purposes of the ACL, a supplier or retail distributor is deemed to be the manufacturer where the manufacturer is not based in Australia. Hence the supplier takes on the manufacturer’s obligations. Manufacturers have an obligation to their customers to deliver a product that is ‘fit for purpose’. This means that they need to understand:  

what the product will be used for and how it should not be used; whether the product will be used in work that needs to conform to the NCC;

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 

what factors need to be considered when demonstrating conformance to the customer; and how evidence of suitability can be presented.

Building products traditionally pass downstream in the supply chain from manufacturer or importer to a wholesaler who distributes both directly to trade buyers and to retailers. In recent years this picture has changed, with major retailers both importing directly and selling goods manufactured in Australia as their own brand products, thus taking on the liabilities of a manufacturer. There has also been a significant shift in the approach to retail sales of building products with the emergence of large corporate hardware chains in place of smaller individually owned and operated stores. Improved ease of import, declining availability from Australian manufacturers, international design trends and intensifying competitive pressures has also led to more instances of ‘one off’ direct imports of small quantities (e.g. one shipping container load) of particular building products by builders and project managers for use on a particular project. Such imports often come from suppliers with whom no ongoing commercial relationship exists or is contemplated, and whose quality compliance performance is often unknown or unknowable. Under these circumstances, it is not surprising that greater potential exists for non-compliant, mislabeled, and counterfeit building products to enter Australia undetected. Liability for unsafe building products, however, is significantly different to liability for unsafe consumer products, as the supplier (as distinct from the manufacturer/importer) has no statutory liability when building products are bought by builders rather than consumers. Extracts of the relevant provisions from the ACL are set out in Attachment 4. Current Liability - Suppliers A person who supplies unsafe goods to a consumer (other than by auction) is in breach of the guarantee of acceptable quality in s.54 of the ACL. Goods may also not be of ‘acceptable quality’ where they are not fit to be used for all of the purposes for which goods of that kind are commonly supplied, for example because they would not be safe if used for one or more of such purposes. This guarantee may not be limited or excluded, but applies only to the extent it is ‘reasonable’, having regard to the relevant circumstances, the nature, price, and labelling of, and representations about, the goods. Such a consumer (including a company as well as an individual) has an action for breach of contract and may recover damages from the supplier for all losses naturally flowing from the breach. This may include consequential damages, and damages for personal injury to an individual consumer. However, a third person (e.g. a member of the consumer’s family) who suffers personal injury will not be covered by the guarantee and will need to proceed in tort. Also, the guarantee does not apply to goods over $40,000 if these are not of a kind ordinarily acquired for personal, domestic or household use or consumption, nor to goods acquired for resupply or production or repair.

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For this reason suppliers will normally not be liable to either owners or builders where unsafe building products are supplied by them to a builder and then are incorporated into an owner’s building. They may be liable for building products bought directly by owners, unless the owner is using them to repair their building. Current Liability - Manufacturers and Importers A manufacturer of goods is liable to compensate a person whose consumer goods, or domestic property and/or land, are damaged or destroyed because of a safety defect in the goods. ‘Safety’ is subject to a variety of reasonableness tests. In addition, the manufacturer is liable to compensate an individual who suffers personal injury, and family members who suffer loss and damage because of that personal injury, because of a safety defect in the goods. ‘Manufacturer’ includes an importer where the goods are manufactured outside Australia, and also the supplier if they do not identify the actual manufacturer or importer. The liability of manufacturers for unsafe goods is therefore considerably wider than suppliers. 4.1.2

Disclosure at Point of Sale

“Over the years we have noticed new products failing faster than those bought ten years ago. For example softer metal used in screws and fixings - we do not get told by our Australian supplier that they have changed the source of the product (or if the overseas fabricator starts using cheaper materials). We only find out at the point of use, or when the product fails on site at a later stage putting our clients at risk. 10 years ago we used to buy a plastic side spacer for cabinets with inner drawers. They were used without incident and are still safely in operation to our knowledge. In recent years these plastic spacers changed to a different and brittle plastic. In the short time we used them every job failed on site - with inner drawers collapsing in clients homes. This was at great cost to our business.” Respondent to HIA member survey, July 2015 As set out in Section 3.1.1, there are currently three mandatory certification schemes that apply to building products in Australia. These are WaterMark, the WELS Scheme, and the Electrical Equipment Safety Scheme (EESS). The WELS Scheme and the EESS scheme create an obligation at the point-of-sale to verify that the product meets relevant technical standards and to label the product. The EESS provides a model framework for product testing and certification of electrical products. But of equal importance is the inclusion of point of sale labelling for products covered in the scheme. Under the EESS, all Level 1, 2 or 3 electrical equipment offered for sale in Australia and New Zealand by Responsible Suppliers must be marked with the Regulatory Compliance Mark (RCM). The use of the RCM on equipment is only permitted if the equipment is in conformance with the EESS. The WELS Scheme, which operates separately to the WaterMark scheme, addresses the water efficiency of many plumbing products. It does not attest to the technical safety of the product. The WELS legislation was developed as a national scheme, with both Commonwealth legislation and mirror legislation in all states and territories.

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The WELS legislation creates an offence to offer for sale a water using product that does not include a label stating its water rating (in stars). Therefore a product supplier has an obligation to test and correctly label the product and the person or entity offering the product for sale, which may be a wholesale or retail supplier or a builder, must disclose this rating. In contrast, the WaterMark scheme places an obligation on the person or entity manufacturing or supplying certain plumbing or drainage products covered by the scheme to undertake certain actions. This includes placing a WaterMark label on the product once it has been tested and certified. However this obligation does not specifically refer to the label being present at the point of sale. State and territory plumbing regulations create an obligation on plumbers to only install a product that requires a WaterMark. Therefore it is an offence to install a product without a WaterMark being present. This type of scheme is considered to apply at the point of installation, rather than the point of sale. This means that a plumbing product can legally enter the Australian market without a WaterMark, can legally be purchased without a WaterMark, but cannot be legally used or installed unless it has a WaterMark. Placing the obligation on the installer to verify that a product is ‘fit for purpose’ provides a level of protection for the consumer that the product, in this case plumbing product, being used in their home will be ‘fit for purpose’. If the product is not ‘fit for purpose’, and is installed, the plumber would be exposed to the relevant recourse that applies under state plumbing legislation. This recourse may occur at the time of installation, through a regulatory inspection regime if that exists. Or it may occur at a later date after installation, when a failure occurs and a defect is identified. In both cases, the consumer and the plumber will incur costs (direct and indirect) associated with rectifying the problem. All other building products not captured under the WELS Scheme or the EESS are not required to prove that they meet specific technical standards to be legally offered for sale. The obligation instead falls to the purchaser and the person using the product to ensure they are ‘fit for purpose’. 4.1.3

Summary

The supply and distribution framework for building products provides a critical point in the supply chain. Any lack of accurate information, or in most cases, lack of any information to confirm to the purchaser that the product is ‘fit for purpose’ at the point of sale, perpetuates a situation where products can be sold for any purpose and the obligation falls to the user of the product to be solely responsible for the correct selection. Placing the appropriate obligation on the supplier of the product can significantly reduce the risk to the purchase, in particular, builders and trade contractors, and the consumer. Under the ACL, a builder or consumer is still required to identify the fault, and potentially incur the costs of rectification, before they can seek a remedy from the supplier or manufacturer. And where the supplier is at arms-length from the manufacturer, there can be confusion about who can take action and how far back through the supply chain action may be taken. Further to the lack of mandatory approval requirements for market entry of building products, there is an absence of mandatory labelling requirements or the provision of technical information or certificate at the point of sale for many building products.

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The provision of point of sale information, whether through certificates or labels, places a level of responsibility on the both the product manufacturer and the supplier to confirm what they are offering for sale is ‘fit for purpose’. This approach does not remove the responsibility on the builder or trade contractor to use the correct products. Similarly it does not remove the responsibility on the building certifier to appropriately check that the products specified in a building application are used in construction. But it would direct greater compliance responsibility to those parties responsible for manufacturing the product and distributing it to verify that the product is ‘fit for purpose’. Most importantly, this approach would provide much greater certainty for builders, trade contractors and consumers that the products available for purchase and used in the homes we build are ‘fit for purpose’ and will stand the test of time.

4.2

BUILDING APPROVAL FRAMEWORK

“We invest heavily in compliance & sell products that all meet the requirements of Australian Standards, however the particular standards are not included in the Building Code of Australia, therefore builders, developers and construction companies are able to install "lower cost" possibly non-conforming product without any real fear of retribution. There is no compliance driver for them, leaving the market open.” Respondent to HIA member survey July 2015

4.2.1

The National Construction Code & Australian Building Codes Board

The Australian Building Codes Board (ABCB) is responsible for writing nationally agreed technical codes for building work and plumbing work. These codes are known as the National Construction Code (NCC). The ABCB prepares the NCC on behalf of the Commonwealth and all state and territory governments, under the auspices of an Inter-Governmental Agreement. This agreement was first established in 1994 and continues today as the basis of a nationally harmonised building code. The NCC includes two parts set out in three volumes - the Building Code of Australia (BCA) Volume One and Two and the Plumbing Code of Australia (PCA) Volume Three. As outlined in Section 3.1.4, the NCC makes reference to a range of Australian Standards and other technical reference documents. These standards cover different aspects of the product lifecycle being product design, manufacture, testing, installation and maintenance. The NCC sets out the technical requirements that all building work in Australia must meet. The NCC is given legal effect through state and territory building legislation (Attachment 3). The NCC is referred to as a performance-based document in that it provides flexibility when designing a building. The performance requirements set out the minimum standards a building must achieve in relation to such matters as the structure, damp and weatherproofing, fire safety, health and amenity, safe movement, access and egress, and energy efficiency. The flexibility allowed under the performance-based NCC means that building designers and builders are not locked into a specific construction recipe and are able to achieve compliance in several ways. The NCC provides two pathways for design and compliance to meet the performance requirements – following a deemed to satisfy specification or using an alternative solution.

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In practice, for low rise residential building work, alternative solutions have limited use and the majority of residential builders will seek to follow the deemed to satisfy pathway. The deemed to satisfy pathway provides two options for design and construction – using an Acceptable Construction Practice or using an Acceptable Construction Manual, referred to as reference documents. An Acceptable Construction Practice is a traditional practice that has been used by the building industry and proven over time to deliver the expected outcome for that part of the building. In respect to the performance of individual building products, an Acceptable Construction Practice generally cross references to a specific technical standard (reference document) that sets out how the product should perform. Acceptable Construction Manuals are technical standards (reference documents). For some elements of building work, these manuals provide the most commonly used design option for builders and designers. For example domestic timber framing is almost exclusively designed using the Timber Framing Code (Australian Standard 1684 series). Therefore using the NCC deemed to satisfy pathway inherently creates a connection with the suite of reference documents for building products, which are primarily Australian Standards, as discussed is Section 3.1.4. Where an alternative solution is used in lieu of a deemed to satisfy specification there is still a strong connection with the reference documents. An alternative solution will generally seek to show that it can meet an equivalent level of performance to the deemed to satisfy pathway. In relation to the physical performance of building products, this will normally lead to a comparison with the reference documents. On this basis, Australian Standards effectively provide the ‘how to’ for the performance of building products to meet the requirements of the NCC. Evidence of Suitability In respect to building product conformance, the NCC also provides a framework for designers and builders to use when determining the correct technical information that should be supplied with a building product or material to verify it meets the expected level of performance. For building Classes 2 to 9 (NCC Volume One), Part A2.1 requires that: “Every part of a building must be constructed in an appropriate manner to achieve the requirements of the BCA, using materials that are fit for the purpose for which they are intended.” For building Classes 1 and 10 (NCC Volume Two), Part 1.2.1 requires that: “Every part of a building must be constructed in an appropriate manner to achieve the requirements of the Housing Provisions, using materials that are fit for the purpose for which they are intended.” Part A2 (Volume One) and Part 1.2 (Volume Two) of the NCC set out the requirements for acceptance of design and construction for building products (excluding plumbing and electrical products). These provisions explain how to provide evidence of suitability for ‘a material, form of construction or design’, specifying the types of evidence that are required to demonstrate that a product meets a Performance Requirement. These can also be referred to as conformity assessment paths and may include one or a combination of the following:

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i.

ii. iii.

A report issued by a Registered Testing Authority, showing that the material or form of construction has been submitted to the tests listed in the report, and setting out the results of those tests and any other relevant information that demonstrates its suitability for use in the building. A current Certificate of Conformity or a current Certificate of Accreditation. A certificate from a professional engineer or other appropriately qualified person which: a. certifies that a material, design or form of construction complies with the requirements of the BCA b. sets out the basis on which it is given and the extent to which relevant specifications, rules, codes of practice or other publications have been relied upon.

iv. v. vi.

A current certificate issued by a product certification body that has been accredited by the Joint Accreditation System of Australia and New Zealand (JAS-ANZ). ***** Any other form of documentary evidence that correctly describes the properties and performance of the material or form of construction and adequately demonstrates its suitability for use in the building.2

The Codemark scheme, outlined in section 3.1.3 of this submission, provides a Certificate of Conformity as referred to in (ii) above. As outlined in section 3.1.5, some reference documents do include mandatory testing requirements which should be used to guide the interpretation of evidence of suitability by designers, builders and building certifiers. In addition, some Australian Standards include requirements for marking or labelling of conformance e.g. AS 2047–1999 Windows in buildings – Selection and installation and AS 1684.2–2010 Residential timber-framed construction - Non cyclonic areas. However, many standards do not specify the types of evidence and certification considered acceptable for different types of building products. Therefore choosing the level of testing and type of evidence to be obtained with many building products becomes a matter for the designer, builder or trade contractor. The building certifier responsible for issuing a building approval also has a role in requesting and accepting evidence of suitability. Evidence of suitability may take a number of forms including conformance labelling, stamping, test reports, certificates from various types of conformity assessment bodies, or product technical information. In the absence of a requirement for marking or labelling of conformance, separate evidence of suitability in one of the other forms of evidence is generally sought. Under the PCA, these provisions are mirrored, however they also include an additional mandatory category of evidence, which leads directly to the Watermark certification scheme. The obligation falls to the person obtaining building approval to verify that the products they intend to use will meet the relevant standards. In most cases, this will be the builder, or their contractors.

2

Extract from Part A2 and Part1.2 of the Building Code of Australia, Volumes One and Two.

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4.2.2

Summary

There is a perception that the ABCB has responsibility to monitor and enforce compliance with the NCC. This is not the case, as enforcing compliance with the code is a matter for state and territory building regulators. The NCC creates a broad framework for the certification of building products, providing five methods (evidence of suitability) for a product manufacturer or supplier to verify that their product meets the relevant performance requirements. The intention of offering alternative methods to confirm a product meets the performance requirements is most likely a reflection of the risk that individual building products have on the structural integrity of the finished building work. For example, products with limited structural importance may reasonably be considered ‘fit for purpose’ based on first party testing by the product manufacturer (clause vi). Whereas products of high structural importance may reasonably be expected to offer independent third party certification of some type (clause i, ii or iv). The example of the PCA referencing the operation of WaterMark suggests that the NCC could seek to mandate evidence of suitability requirements for particular building products. However, it would be an extremely complex process to gain agreement from all stakeholders on which products are high risk and which are low risk, and then agree on the level of testing and evidence to be provided for each risk category. As an interim step, it would be more practical for the ABCB to prepare guidance information on the types of evidence of suitability and the building products that should be aligned with each type of evidence based on their risk. HIA has raised this approach with the ABCB and referred them to the New Zealand Department of Building and Housing publication Using the Product Assurance Framework to support building code compliance - A guide for manufacturers and suppliers of building products3 which takes this approach. It is understood that the ABCB has included the preparation of such a guide in their recently approved work program. The evidence of suitability provisions were developed in 1994 and have only been amended slightly in the last 20 years. During that time changes have occurred in product certification process and international agreements regarding product certification have been endorsed by Australia. To support the development of guidance material by the ABCB, it is considered timely that a review of these provisions be undertaken to ensure they reflect latest practice. Such a review may also provide the opportunity to consider whether any types of evidence should be mandated in a similar way to WaterMark. 4.2.3

State Building legislation

“We have costs of compliance to Australian Standards - the imports do not. The inspection/compliance regime is flawed and the building inspector only requires a piece of paper - easily copied and amended!” Respondent to HIA member survey, July 2015

Each state and territory operates legislation setting out a process for obtaining relevant approvals to undertake building work. These building Acts make direct reference to the NCC as the means of setting technical standards for building work and plumbing work. Attachment 3 sets out the manner in which each state and territory adopts the NCC to give it legal effect.

3

Department of Building and Housing Using the Product Assurance Framework to support building code compliance - A guide for manufacturers and suppliers of building products April 2010

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The approval process is undertaken by building surveyors/certifiers, based on applications made by owners, builders and designers. There are three distinct steps in the approval process:   

The building approval (plan checking) Progress inspections The occupancy approval (as built final check)

Based on state legislation, different obligations apply to the applicant, the building certifier and the builder for each of these stages. Attachment 3 sets out the legal relationship between these approval stages and the NCC. Building approval The building approval, in its various forms across states, is a paper based check of the design plans for a building, along with supporting specifications and information about how the building will be constructed, including details of the products to be used and their specifications. Part of this information will be details of key structural materials proposed to be used in the building work. In undertaking an assessment of the building plans, a building surveyor/certifier has an obligation under each building Act to confirm that the building work “will comply” with the NCC if built in accordance with those plans. There is a strong consistency across the building Acts in this provision (Attachment 5 Column 1). The building surveyor/certifier has a role to check the proposed building products are consistent with the requirements of the NCC as part of the building approval. There are two factors that affect how this process operates that create significant complications for the applicant, commonly being the builder, and the building surveyor/certifier. Firstly as set out above the NCC offers five alternate ways to verify that a material or product meets the requirements of the NCC. Secondly, there are in excess of 70 discrete building items used in the average single storey residential dwelling. In most instances there are multiple building product options for each item. For example a kitchen benchtop may be stone, laminate, timber, reconstituted wood, concrete, etc. It is not considered appropriate or necessary that specific details of every building product be required to be provided as part of the building approval. It is also not considered reasonable to expect that the building surveyor/certifier has the necessary expertise or capacity to verify that every building product has been correctly tested and certified. Progress inspections When building work commences, the builder, along with any trade contractors engaged to undertake the work, are responsible for the purchase and installation of the approved products in accordance with the building approval. Some jurisdictions require progress inspections to be undertaken by the building surveyor/certifier during work and/or at completion of the building work. The legislation differs significantly across Australia in relation to the inspections required and the role of the building surveyor/certifier to check the building products used on a specific project (Attachment 5 Column 2).

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Where these inspections exist, they generally refer to the building surveyor/certifier being satisfied that the work complies with the building approval, which inherently means that the work complies with the NCC. However as with the plan approval, it is not practical to check every building product installed is the one specified in the plans, nor to check that every building product has been correctly installed. Occupancy approval Occupancy permits go by many names across Australia. Again differences exist in respect to the direct reference made to the NCC and compliance (Attachment 5). Differences also exist with respect to which residential buildings require an occupancy permit prior to the owner/occupier moving into the building. The occupancy approval is not required by legislation to provide a definitive endorsement that the building work complies with the NCC. When considering physical building work that has been undertaken in accordance with a set of plans and specifications, it is generally accepted that minor changes may occur during the work. The legislation provides guidance on how significant variations to work should be ‘re-approved’. However, for minor changes that do not materially alter the finished building outcome, the building surveyor/certifier may attest that the work has been completed in accordance with the building approval and relevant legislation. The primary role of the occupancy approval is to verify that the building is “suitable for occupation or use in accordance with its classification” under the NCC. To support this endorsement by the building surveyor/certifier, general practice is to request that the builder supplies certification that key structural elements in the building work have used the products which were specified and approved in the building approval, and that their installation meets the requirements of the NCC. Certification or documents will generally be sought for element such as windows, timber framing, roof trusses, water proofing and termite barriers. 4.2.4

Summary

The building approval (plan check) appears to place consistent and manageable obligations on the building designer and the building surveyor/certifier to confirm that the correct products will be used in the building work. State/territory legislation is silent on the type of evidence required to verify that a building product is ‘fit for purpose’, when issuing both building approvals and occupancy approvals, deferring to the NCC, which provides five options. Therefore building surveyors/certifiers are solely responsible for determining which products should provide verification of compliance with the NCC and what type of verification is adequate. The builder is generally responsible for the purchase and correct installation of building products, often in the absence of accurate technical information and in the absence of knowing that the certifier will approve the product. There are differences in the approach by all jurisdictions in relation to progress inspections. These differences go to what is inspected, who can inspect and what documentation the building surveyor/certifier may rely on to confirm that work has been undertaken in accordance with the NCC. However, overarching this is the reality that the building surveyors/certifiers are not in a position to inspect and verify all products used in a building. Based on the mandatory inspection regimes that do exist, it would appear that building regulators

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acknowledge this limitation and rightly do not require mandatory inspections for every element of construction. Whilst the occupancy permit provides a different type of verification to the building approval, its purpose is consistent across the jurisdictions. Differences exist in the types of supporting information, such as inspection reports and certificates from installers, e.g. builders and trade contractors, required by the building surveyor/certifier to allow them to issue the certification. Again, the evidence of suitability for specific building products is a matter at the discretion of the building surveyor/certifier. Underlying these approval processes, the builder is responsible for making judgments about the type of information that should be obtained with each building product at the time of purchase. This may not be sufficient to meet the requirements of the building surveyor/certifier, however it may be some time later, after purchase of the products, that they have the opportunity to check the evidence of suitability and advise the builder a problem exists. The suggested development of guidance material by the ABCB to assist manufacturers will also assist building surveyors/certifiers to determine the appropriate evidence of suitability for building products based on an assessment of their risk and structural importance. In the absence of this, or in combination with this, there may be scope for state and territory building regulators to revisit the benefits of national harmonisation of the administrative framework for building approvals. This process commenced at the same time as the creation of the ABCB. However, the development and implementation of nationally consistent approval processes, including obligations of builders and building surveyors/certifiers has not been achieved some 20 years later.

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5. PERFORMANCE & MAINTENANCE The performance and maintenance of building products is the final stage in the building product supply chain. This covers the performance of the product once installed and includes the consumer protection regimes, product safety requirements and the remedies available when problems arise. Consumers who ultimately acquire materials through their builder should be able to rely on suppliers to supply materials that are safe to use, acceptable quality, ‘fit for purpose’ and compliant with description, in the same way as those consumers would if they bought the materials directly.

5.1

CONSUMER PROTECTION FRAMEWORK

“We have come across non-compliant cement powder of which as a builder I have to put a warranty on. ALL products bought into this country MUST be made to our standards or not allowed into Australia.” Respondent to HIA member survey, July 2015

5.1.1

Australian Consumer Law

Australia has one national law for fair trading and consumer protection – the Australian Consumer Law providing Australian consumers and businesses with the same rights and obligations wherever they are in Australia. The ACL commenced on 1 January 2011 and applies in all states and territories, and applies to all Australian businesses. It replaced around 20 different Commonwealth, State and Territory laws addressing consumer protection. The ACL includes national laws and mirrored state laws that:      

prohibit misleading and deceptive conduct, together with a range of specific types of prohibited conduct; prohibit unfair contract terms in standard form consumer contracts; provide guarantees of consumer rights when buying goods and services (except at auction where the consumer must pursue their own legal action to enforce such a claim); provide for product safety law and enforcement; regulate unsolicited consumer agreements, door-to-door sales, telesales and layby agreements; and provide penalties, enforcement powers and consumer redress.

The ACL is enforced and administered by the Australian Competition and Consumer Commission (ACCC) and each state and territory’s consumer agency. Australian businesses have similar rights, as well as responsibilities and obligations under the ACL. Businesses must not make false, misleading or deceptive claims about a product or service. All businesses are entitled to not be treated in an unconscionable way by other businesses. When a business purchases a consumer good, of a value of $40,000 or less, the law provides that the business supplying the product guarantees that the product is safe, durable, and free from defects, ‘fit for purpose’, acceptable in appearance, matches its description and matches any sample or demonstration model.

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Consumer goods are those ordinarily acquired for personal, domestic or household use or consumption, but not if they are acquired for resupply or production or repair. Manufacturers and Importers under the ACL As discussed in section 4.1.1, under the ACL, manufacturers of goods (and importers if the manufacturer of the goods does not have a place of business in Australia) must guarantee that products are of acceptable quality. Goods are of acceptable quality if they are:     

fit for all the purposes for which goods of that kind are commonly supplied; acceptable in appearance and finish; free from defects; safe; and durable

Liability attaches to products if they were defective at the time brought into the market. 5.1.2

Australian Competition and Consumer Commission

The ACCC promotes competition and fair trade in the market place to benefit consumers, business and the community. Its primary responsibility is to ensure that individuals and businesses comply with the Commonwealth's competition, fair trading and consumer protection laws through the administration of the Competition and Consumer Act 2010 (previously the Trade Practices Act). The ACCC has substantial powers under the Act and can initiate prosecution proceedings in respect of:    

Misleading and deceptive conduct; Sale of non-merchantable product (quality and fitness for purpose); Non-compliance with a product recall – that is based on an unsafe product; and Non-compliance with a safety standard issued by the Minister.

Successful prosecutions under the Act carry penalties up to $1.1 million for a body corporate and $220,000 for an individual. However, the ACCC relies where possible on voluntary compliance and consumer education rather than prosecutions. The Act deals with almost all aspects of the marketplace: the relationships among suppliers, wholesalers, retailers, competitors and customers. It covers anti-competitive conduct, unfair market practices, industry codes, mergers and acquisitions of companies, product safety, product labelling, price monitoring, and the regulation of industries such as telecommunications, gas, electricity and airports. There may also be enforcement action by the ACCC itself where there is a contravention of the prohibition on misleading conduct, for example if the supplier stated that a building product met Australian Standards or NCC requirements when it did not. ACCC Resources While the ACCC constantly monitors marketplace conduct, it chiefly relies on complaints from the public to alert it to the need for an investigation. The ACCC investigation process can be lengthy and costly, and investigations are prioritised in terms of their likely costs and public benefits.

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While very willing to enforce the Act, the ACCC has limited material and financial resources for performing investigations and launching prosecutions, and building products and understanding the NCC compliance requirements is not core business. In many cases, compliance cannot be judged by a superficial examination of the product – for example, tensile strength or lead content of a metal cannot be determined by visual inspection only. Therefore in the case of allegations of non-compliance, where that can only be established by scientific testing, the complainant generally needs to approach the ACCC with sufficient evidence to demonstrate that a product is non-compliant and that the supplier has acted in a misleading or deceptive manner. This means that the complainant must pay for any necessary testing. 5.1.3

Consumer dispute mechanisms

Some building work is captured by state building or consumer protection legislation in respect to provisions that apply when a dispute arises between a builder or tradesperson (supplier of residential building work services) and a consumer. In general, this is limited to residential building work. Other types of building work, including commercial infrastructure projects, are generally managed solely through contractual obligations. A dispute with respect to product failure may arise due to the product failing to perform as intended, or the method of installation causing the product to fail, or a combination of the two. Where legislation does apply, a dispute resolution mechanism provides scope for a consumer to seek a remedy for the failure. In the first instance, this would generally be the responsibility of the builder (principal contractor) for the project. Where the builder fails to rectify a defect and is bankrupt, dead or disappeared, in most jurisdictions the consumer (except in Tasmania) has access to statutory home warranty insurance to indemnify them against the costs to undertake rectification. 5.1.4

Summary

The ACCC’s approach to misleading and deceptive conduct is retrospective. Investigation is limited to actions after a ‘potential’ breach has occurred. They have no direct role in managing the conduct of a supplier at the point of entry to the supply chain or at the point of sale, other than the deterrent threat of ACCC action. Typically, any enforcement action will arise only sometime after installation, when a consumer complains that the product has failed to perform in accordance with its represented qualities and characteristics. The ACCC then has to prove that the person who made the representations did not believe the representations were true at the time they were made, or was reckless as to whether they are true or not. In many cases this is difficult to prove. The ACCC has no facilities for testing products, and rely on a complaints-driven process which, in the case of complaints requiring scientific testing of building products, often places significant costs on the aggrieved party, regardless of the outcome. Builders are directly responsible for rectifying their own poor workmanship, which is appropriate, but are not well placed to deal with latent defects in the building products they use in good faith. Such defects, which can affect many builders at one time who may have installed the same product, such as occurred with Infinity Cable, are the individual builder’s legal responsibility under state home building laws, as proportionate liability legislation does not ordinarily apply to home building claims, and liability cannot normally be passed back to the manufacturer or supplier as the guarantees under the ACL do not apply.

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5.2

COMMON LAW AND CONTRACTUAL FRAMEWORK

Apart from legal compliance with the provisions of the National Construction Code, the manufacture, supply and use of building products in Australia is also covered by common law. Common law is the uncodified body of precedents, rights, obligations and remedies developed by courts over the centuries in civil procedure cases. The common law can be contrasted with the statutory, written legislation made by Parliament. The common law tort of negligence and contract law are the two most common, non-statutory bases for product liability. 5.2.1

Negligence

Tort law is perhaps the most fundamental law upon which users of building products may fall back on in cases where contractual law, state and territory fair trading and trade remedies or building legislation cannot be relied upon. A tort is a civil rather than criminal wrongdoing that causes physical, economic or legal harm to someone. Under common law, if this harm can be proven compensation may be awarded. Tort law applies to a wide range of persons, known or unknown, to whom you owe a duty of care who may be harmed by your actions. By contrast, contract law applies only to known persons who have entered into a specific agreement with you (the principle of “privity of contract”). The tort laws of negligence emerged during the twentieth century and flow from the existence of a duty of care and one’s failure to exercise reasonable care in the exercise of that duty4. Where loss or damage occurs as a result of that breach, the wrongdoer may be liable. The relationship arises from conduct and creates a duty notwithstanding the absence of a contractual tie between the parties. Over the years, the common law has evolved to further develop the scope of duty, to recognise the classes of persons to whom a duty may be owned and proximity of breach of duty to loss or damage suffered. It is now generally accepted that the manufacturer of goods owes a duty of care to the purchaser and user to safeguard them against reasonably foreseeable risks of injury when using the product as intended. However merely distributing or supplying a defective building product will not ordinarily expose the supplier to a claim in negligence, there must be something more than a mere relationship of seller and buyer for a duty in negligence to be owed by the former to the latter. Accordingly there is no duty to inspect building products for latent defects, so the seller owes no duty to warn of dangers of which it would have been aware if it had made such an inspection. Strict liability tort in particular, may be used by parties that have suffered harm (physical, emotional, economic, or legal) from products (including building and construction products) in order to seek compensation from the relevant manufacturer or supplier. Recent legal developments have favoured all persons injured by a tort joining together in a ‘class action’ to sue the perpetrator. So-called ‘opt in’ class actions allow new plaintiffs to join an ongoing action and share in any compensation, while ‘opt-out’ actions are brought on behalf of all persons injured or potentially injured, and require individuals to make a deliberate decision to remove themselves from the case. Class actions are often driven by legal firms and have significantly increased the likelihood of litigation against manufacturers of unsafe or defective products. 4

See Donoghue v Stevenson, [1932] AC 562

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5.2.2

Contract Law

Building and construction works in Australia are nearly always undertaken in the context of a contract between the parties wishing to have the building works undertaken (the principals) and the parties doing the construction (the contracting parties). Ultimately, should problems arise in relation to the sourcing and use of building products that are defective or fail to conform to the stated product specifications then this can be a matter for dispute resolution, arbitration or legal action in the courts for breach of contract. However contractual remedies are only available to parties to the contract. The principal can be a private individual, company or government procurement agency. The principal will prescribe the building and construction projects to be undertaken, including the scope of works, and often will rely on standard contract forms, for example those based on AS 4000 General conditions of contract. Principal contractors and builders often use several subcontractors to perform parts of the project. Those subcontractors may in turn engage further subcontractors (commonly referred to as the “third tier”). Using written contracts, the contracting parties principal contractors and subcontractors may be able to pass on legal responsibility (and risk) for ensuring the use of acceptable building products and methods to lower levels of subcontractor within the project. In some instances this is a recognised and legitimate transfer of risk. In other instances it is not reasonable to pass on risk to contractors and others who are not in a position to effectively manage that risk. Many, if not most, large building and construction projects are the subject of competitive tendering between potential contractors. For large commercial and publicly funded projects, tendering arrangements will be quite prescriptive. On the other hand, tender arrangements for domestic or residential clients are much less formal and may simply involve clients obtaining multiple quotes. Contract management activities (e.g. quality assurance systems, supervisors, assessment procedures and inspection activities) oversee stages of the project and the completion of the works. The level of effective oversight is greatly affected by the amount of resources allocated to contract management activities and to the competence of those resources. The use of a defective or non-conforming building product may constitute a breach of contract by the builder/principal contractor. A breach of contract claim needs to be made against the parties to that contract, so may provide no contractual remedy for a consumer or home owner against the manufacturer or supplier of that product (although a statutory or tortious remedy may be available). In domestic construction, statutory implied warranties and recourse to home warranty insurance provides clear legal remedies for consumers although the focus is on the (often innocent) builder and other contracting parties rather than the manufacturer or supplier of the non-conforming product. In commercial construction, contractual remedies will depend on the contents of the building contract. Most standard form commercial contracts provide the client with very detailed and expansive remedies against the contractor for defective work. The contractor in appropriate cases will seek to join the supplier and manufacturer, in what is usually protracted and fiercely contested litigation. In some States, home warranty insurance does not cover high rise apartment buildings and apartment owners must fall back on tort remedies where building defects become apparent.

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5.2.3

Summary

Failure to use specified compliant building products may be a breach of the construction contract, but this may provide no remedy to the final user/occupier as they are not necessarily parties to the building contract (for example, apartments).

5.3

PRODUCT SAFETY FRAMEWORK

5.3.1

Consumer products5

Under the ACL, the Commonwealth, states and territories each have legislation aimed at protecting consumers when they purchase consumer goods and product-related services. The focus of this legislation relates to ‘consumer goods’ and product safety. Consumer goods are things:   

ordinarily acquired for personal, domestic or household use or consumption, or acquired for less than $40,000 (or such higher sum as may be prescribed), but were not acquired for resupply, repair or use in a production process in trade or commerce.

Product-related services are services for or relating to:    

installation of consumer goods, maintenance, repair or cleaning of consumer goods, assembly of consumer goods, or delivery of consumer goods.

Building products are not specifically referred to as ‘consumer products’ and would normally not fit the definition if acquired by a builder for use in construction of a building. The ACL’s product safety provisions set out how the Australian, state and territory governments can regulate consumer goods and product related services to ensure they are safe. These can include:   

imposing mandatory safety standards or information standards on goods or product related services; banning goods or product related services, either on an interim or permanent basis; or issuing a compulsory recall notice requiring suppliers to recall a good.

They also regulate what a supplier has to do, including:     

responsibilities if a Minister bans a product or imposes a safety or information standard on a good or product related service; when to recall a good and how to do this; what to do if a Minister issues a compulsory recall notice; when to report an incident associated with a good to the Minister; and when a manufacturer may be liable for loss or damage caused by a good with a safety defect.

5

The information in this section is based on information set out on the Australian Consumer and Competition Commission’s webpage www.accc.gov.au

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Mandatory safety standards or information standards Under the ACL, the Commonwealth Minister has the power to make or declare a mandatory safety or information standard for a good or product related service. These apply nationally. There are currently no mandatory standards or mandatory information standards for building and construction products. A mandatory safety standard means a product must meet certain requirements before you are allowed to sell it. These can relate to:     

the way the product is manufactured or processed; what it contains; how it works; tests it must pass; and warnings or instructions that must accompany it.

It is illegal for a business to sell products that do not comply with a mandatory safety standard. The ACL also allows the regulation of products by imposing information standards. These standards require you to provide consumers with certain information about a product for example, a list of ingredients. It is illegal for a business to sell products that do not comply with an information standard. 5.3.2

Product Safety Recalls

Safety-related recalls – voluntary or otherwise – are the responsibility of the supplier under the Competition and Consumer Act. Australian law does not require people to pursue a product liability claim back to the country of manufacture – just to the last link in the local supply chain. This means that importers are treated as manufacturers in the supply chain and are liable. If other suppliers, such as retailers, cannot identify the manufacturer or importer, they may be deemed liable for the damages. A product will be deemed defective if it fails to meet the safety standard expected of it. If a product is used for its intended manner it is not expected to pose a safety risk. This is why packaging laws and instructions to use can be important for manufacturers and importers. The test for a defective good is objective, based on community knowledge and expectations. The product must be actually unsafe, not just of poor quality or inoperative. Just because goods may cause injury, however, does not mean they are defective. Goods may be harmful not due to a defect in them but simply because of their inherent nature. The circumstances to be taken into account in determining the extent of the safety of the goods include the manner in which the goods have been marketed, their purposes, packaging, the use of any mark in relation to them, what reasonably might be expected to be done, or in relation to them, any instructions for use or warnings and the time when they were supplied. A product can be held to be defective even if it operates as intended in circumstances where the warnings attached to the product are insufficient to alert consumers of the possible dangers of using the product. Under the ACL, a defect must not be inferred only from the fact that after the product was supplied, a safer good was supplied by the manufacturer.

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No Australian authority requires retailers, sellers, or distributors to test products. However, authorities suggest that manufacturers may have an arguable defence to liability where they reasonably anticipated that the distributor or supplier would carry out an intermediate examination of the product which would reveal any defects. The Minister may, by written notice published on the internet, make a safety standard about the following matters as are reasonably necessary to prevent or reduce risk of injury to any person:   

the performance, composition, contents, methods of manufacture or processing, design, construction, finish or packaging of consumer goods of that kind; the testing of consumer goods of that kind during, or after the completion of, manufacture or processing; and the form and content of markings, warnings or instructions to accompany consumer goods of that kind

Standards under other legislation, and Australian and ISO Standards, will not constitute safety standards for the purpose of the ACL. Building products are not generally included in this process as they are not defined as ‘consumer goods’. The Infinity Cable recall was deemed by the ACCC to be permissible under the ACL based on the risk to consumers, being home owners, of electrocution or fire. Manufacturers and Importers Manufacturers (and where there is no manufacturer in Australia, importers) are liable to compensate a person who suffers loss or damage from goods supplied in trade or commerce because the goods have a safety defect. The loss or damage compensated includes death or personal injury, and damage to other consumer goods, land, buildings or fixtures on property, but does not include the cost of replacing/rehabilitating the unsafe product itself, which in the case of building products may be very significant. 5.3.3

Summary

Under the ACL, building products do not generally fall within the scope of a consumer good. Therefore the ACCC has effectively no authority to take action in relation to non-conforming building products, either by instigating a recall or adopting a safety standard. If the scope of the definition of consumer goods was expanded to include building products, which are used in residential building work, then the ACCC would have a head of power to act. This change could include mirroring the adoption of reference standards in the NCC as safety standards under the ACL. The ACCC would also then have authority to carry out a recall of products found to be defective either before or after installation in a building. When the ACCC does take action against a manufacturer, the range of loss and damage compensable under the ACL should be extended to include the cost of removing, replacing or making safe the unsafe product itself. Again, the Infinity Cable recall shows the extensive reach that failure of one single product can have and the ability to recover the costs of rectification from the appropriate party should be possible.

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5.4

SURVEILLANCE AND ENFORCEMENT

The Australian building product supply chain includes many of the fundamental elements to manage nonconforming products, however as this submission seeks to highlight, there are also many gaps in how these elements work together, who is responsible to comply and who is responsible to monitor and enforce compliance by the many and varied parties involved. In respect to the conformance of building products, there is confusion amongst industry on how to report problems and who to report them to. Similarly there is confusion amongst regulators, both federal and state, about which body(ies) should be taking action to check products are ‘fit for purpose’. The Ai Group report6 completed in 2013 found that confusion was also a key to the lack of reporting by industry of non-conforming products. “43% of respondents had not lodged a complaint when encountering NCP. Of these, close to half indicated that: they did not know who to complain to; or how to lodge a complaint; or reported that complaints previously lodged did not achieve a result.” In HIA’s 2015 member survey respondents were asked which aspect was most important to their business to improve building product conformance using the terms of reference as the basis for the question. 617 respondents believed that surveillance and screening of imported products was important. 559 respondents want to see improvements in the restrictions and penalties imposed on non-conforming building products, and 400 respondents cited greater policing and enforcement of existing regulations. A significantly lower 269 believed independent verification and assessment systems were an important area for improvement. 5.4.1

Surveillance

The role of most authorities associated with building product compliance does not include any effective surveillance of building products. The Schemes which operate point of sale controls and which are operated by a single authority, such as WELS, appear to be more likely to undertake active surveillance and auditing. However these types of schemes are few. Primarily surveillance has fallen onto industry. Voluntary industry certification schemes include a element of surveillance and this work appears to be increasing to respond to the increasing demand. For example the AWA has stated that a decade ago, they received 5 complaints and requests to check window assemblies. Today they receive 5 to 8 complaints a week. The EWPAA has a long history of random auditing through purchasing product in the market place and undertaking testing. The Association has successfully challenged products under the ACL, however the time and expense to do this is extremely prohibitive. The consequence of a successful challenge also appears to be quite limited in respect to the removal of a product from the market place. HIA’s 2015 member survey found that manufacturers and suppliers spend time and money on testing of competing products. On average the costs can be as much as $200,000 with 38 per cent of companies indicating they undertake this type of surveillance.

6

The Australian Industry Group, The Quest for a Level Playing Field, The non-conforming building products dilemma, November 2013

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5.4.2

Penalties

There is a range of penalties currently available through the legislation affecting the building product supply chain. However without the necessary surveillance and enforcement processes in place, non-conforming building products can readily enter the supply chain in Australia. HIA’s 2015 member survey found that 94 per cent of members believe that civil penalties e.g. fines, should be applied for suppliers of non-conforming building products. Water Efficiency Labelling and Standards (WELS) Scheme The Commonwealth Water Efficiency Labelling and Standards Act 2005 (Cth) includes a broad range of penalties, both criminal and civil, that apply to the distribution of products covered by the scheme. These include:            

providing false or misleading information or documents with an application for registration of a WELS product; supplying an unregistered WELS product; supplying a WELS product that is not WELS-labelled; supplying a WELS product required to be registered and required to comply with minimum water efficiency requirements which does not comply with those minimum water efficiency requirements; supplying a WELS product required to be registered and required to comply with minimum general performance requirements which does not comply with those minimum general performance requirements; supplying a WELS product using the WELS standard or information included in a WELS standard for, or in relation to the supply, in a manner that is inconsistent with the standard; WELS-labelling products that are not WELS products; supplying a registered WELS product with a WELS label that is inconsistent with the information contained in the applicable WELS standard for the product; failure to conduct an audit of compliance as required by the Regulator; failure to undertake remedial action as required by the Regulator; failure to give WELS information to WELS inspectors; and failure to appear before a WELS inspector and failure to answer questions or provide materials.

The majority of penalties, both criminal and civil are currently set a 60 penalty units, which equates to $10,200. There are a small number of offences which can incur a six months imprisonment term. Electrical Equipment Safety Scheme Under the EESS, responsible suppliers and their authorised officers who fail to discharge their obligations can face significant penalties including fines, possible de-registration and de-listing and potential mandatory recall of the equipment. Australian Consumer Law The ACCC has substantial powers under the ACL and can initiate prosecution proceedings in respect of:  

Misleading and deceptive conduct; Sale of non-merchantable product (quality and fitness for purpose);

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 

Non-compliance with a product recall – that is based on an unsafe product; and Non-compliance with a safety standard issued by the Minister.

Successful prosecutions under the Act carry penalties up to $1.1 million for a body corporate and $220,000 for an individual. 5.4.3

Reporting

An Australian Manufacturer conducts routine competitor product analysis. This testing has identified steel products with non-conforming low metallic coating which may impact building product durability. Additionally, products have been found with paint thickness not conforming with standards. Of particular concern were prepainted steel products found to contain lead above the 0.1% limit specified in the Poisons Standard - Paints and Tinters. Respondent to HIA member survey, July 2015 Manufacturers and suppliers advised that they do report non-conforming products from time to time but the bodies they report to are varied. HIA’s member survey indicated that 12 per cent of companies had reported products to the ACCC, 24 per cent to state government authorities and 40 per cent have reported problems to the relevant trade association for that product. In highlighting the confusion that exists around reporting of non-conforming products, the Ai Group report7 pointed to example of reporting schemes overseas that might provide a useful starting point to consider in Australia. The UK Structural and Civil Engineering and Health and Safety sectors supported by the UK Government through an authority ”Structural Safety”, operates a confidential reporting scheme on structural safety scheme that allows stakeholders to report anonymously on unsafe building products and practices in structures. This has been very successful in lifting the awareness of problem products in the industry through reporting back to stakeholders on incidents and has positively influenced change to improve safety in the UK construction industry. The key to the success of such a scheme is anonymity coupled with rigorous review. Industry is not in a position to undertake this type of process due to confidentiality clauses in construction contracts, and sensitivity of relationships in the building products supply chain, which make it very difficult to circulate current and reliable information relating to incidents involving non-conforming product. A reporting scheme for use in Australia would enable industry to make regulators aware of developing problems before they become major safety or structural risks. However, this type of scheme cannot be operated by industry and needs to be operated under the auspices of governments with industry support and input. 5.4.4

Summary

The lack of effective upstream surveillance and enforcement appears to be the most significant gap in the building product supply chain. There is little value having strong regulatory frameworks on paper, without the appropriate authorities having clear responsibility for these regulations, and these authorities having support and resourcing to oversee and enforce such regulations.

7

ibid

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It would appear that the complexity of overlapping responsibilities between the Commonwealth and states and territories provides some basis for the failure. However the sheer number of agencies involved at both levels points to the ease in which agencies can point to other agencies and seek to divest responsibility – rightly or wrongly. If no other actions were taken apart from increasing the level of upstream surveillance and enforcement in each part of the current regulatory frameworks, change would occur.

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6. COSTS OF NON-CONFORMING BUILDING PRODUCTS “Products are easily mistaken for something similar, so if a non-compliant product fails then other similar products are tainted by the failure and will suffer resistance in the market. Risk is the cost that is invested in compliance is not encountered by non-complying products so they are able to be cheaper which is usually why they are selected.” Respondent to HIA member survey, July 2015 This Committee is seeking input on the cost impacts of non-conforming building products: a) the economic impact of non-conforming building products on the Australian building and construction industry; b) the impact of non-conforming building products on: (i) industry supply chains, including importers, manufacturers and fabricators, (ii) workplace safety and any associated risks, (iii) costs passed on to customers, including any insurance and compliance costs, Identifying specific costs arising from non-conforming building products is a difficult and complex exercise. Each instance of a non-conforming building product is generally unique and the extent of its use and potential or actual damage that may arise will vary.

6.1

ECONOMIC VALUE OF THE BUILDING INDUSTRY

To assist in giving context to these terms of reference the value of the building industry to the Australian economy provides a starting point. The value of non-residential construction in Australia totalled $131.4 billion in the year to March 2015, representing roughly 8.2 per cent of Gross Domestic Product (GDP). Within the non-residential construction segment, the largest component of work is engineering ($87.2 billion), followed by new building ($46.6 billion). Engineering construction has declined sharply over the past two years as a result of diminishing volumes of mining project work. This contrasts with new building, where low interest rates helped spur activity to its highest ever level during the March 2015 quarter. For the residential building industry, in the year to March 2015, the ABS estimates that residential building investment in Australia totalled $83.26 billion, equivalent to 5.2 per cent of GDP. New dwelling construction accounts for 63.7 per cent ($53.17bn) of activity, with renovations activity making up the remaining 36.3 per cent ($30.01bn). During the year to March, just under 205,000 new dwelling starts were recorded. This represents the highest twelve month total on record and means that residential building is currently among the strongest components of the domestic economy. The residential building industry is one of Australia’s most dynamic, innovative and efficient service industries and is a key driver of the Australian economy. The residential building industry has a wide reach into manufacturing, supply, and retail sectors. The aggregate residential industry contribution to the Australian economy is over $150 billion per annum, with over one million employees in building and construction, tens of thousands of small businesses, and over 200,000 sub-contractors reliant on the industry for their livelihood.

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6.2

ECONOMIC IMPACTS

“We would hope that governments would ensure that all imported materials meet Australian standards prior to being allowed to be imported. Why should subcontractors be made to incur costs to remove and replace defective imported materials. In some cases contractors have been sent to the wall due to the lack of proper quality control of inferior cheap imports.” Respondent to HIA member survey, July 2015 In estimating the economic costs resulting from the usage of non-conforming building products, it is important to categorise the main economic cost items. These include:    

Costs of identifying and rectifying matters; Physical damage caused by non-conforming product; Reputational damage to manufacturers and suppliers of conforming building products Injuries and death caused by non-conforming building product

From an economic perspective, costs arise from the presence of non-conforming building products in the supply chain for a number of reasons. First, the product may be outright defective and put at risk the structure, safety and integrity of a residential building it is contained in. Second, the products may breach intellectual property laws and lead to damaging outcomes for the manufacturers and suppliers of conforming building product, undermining the long-term viability of the building materials sector of the economy. In the case of homes where non-conforming building products have already been used in their construction, their existence in the home will only be discovered in certain situations. This includes cases where damage to the home results from the products or where the poor durability of the product is revealed through its inability to resist reasonable wear and tear. In even more serious situations, non-conforming building products will only be identified as a result of damage caused to the health of the home’s occupants, or where non-conforming products result in structural or fire safety failure, accidents, injuries or even death (faulty cabling causing home fires, for example). The discovery of non-conforming building products in the home can also occur when a regulatory body (such as the ACCC) detects the presence of a defective product in the supply chain and initiates a product recall. This represents the most benign outcome as it can allow for corrective action to take place before any serious consequences result from the failure, actual or predicted, of a product in the home. However, considerable costs will still be involved due to the need for the product to be identified and removed from affected homes and replaced by suitable product which conforms to standards. Once it has been established that non-conforming building product has been used, time and resources will be consumed in identifying the precise homes affected and the locations in those homes where the defective product is present. This may require extensive investigation through the records of suppliers, importers, retailers, builders and others as well as the use of specialist skilled service providers. Once identified, remedial works will be required to remove or rectify the effects of the product. The work involved could range from minor amendments to major structural repairs, and in extreme situations, the demolition and reconstruction of the affected homes. A relatively benign outcome would see these costs being met by those responsible for producing or distributing the defective product. However, there will be inevitable spill over to non-culpable parties. Homeowners may be deprived of using some or all of their homes, with inconveniences and delays also

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occurring, and the perception that the home is someway deficient could damage its market value. Other possible adverse effects include superficial or structural damage to homes arising from, for example, leaking windows or materials not sufficiently robust to offer adequate protection from the elements. As well as this, there is also the risk that those responsible for producing and supplying products cannot be traced or no longer exist in a legal sense. If this occurs, homeowners may be forced to pay for remedial works themselves. When situations like this occur, the reputation of all parties involved in residential construction suffers and the risk of market failure outcomes increases. Misperceptions about the causes and consequences of problems caused by non-conforming building products can inflict economic damage on entirely blameless parties. The leakage of poor products into the residential building product supply chain means that the purchasers of building products are unwittingly at risk of using defective product in work they undertake. This means that conforming building products will be lumped in with inferior product in certain situations, with the result that sales and demand for good quality product suffers. Ultimately, this could result in job losses and closures within the (legitimate) conforming building product market. More broadly, the final output of the residential building sector is undermined by the infiltration of non-conforming building products. This has similarly unfavourable reputational effects for all of those engaged in the sector, with reputable and compliant operators suffering from the mistaken perception that they partook in sub-standard building work. 6.2.1

Brand Reputation

In several instances, competing suppliers have attempted to leverage off the strong brand identities of the conforming building product industry. One such example saw market entry of a metal roofing material seemingly branded the same as an industry recognise roofing product. The alternate product created the perception that it was part of conforming suppliers product line. Over time, the competing product was revealed to be defective and non-conforming due to untimely variations in the performance of the product. The perception that the recognised supplier had produced the product creates a significant risk to that manufacturer’s reputation. Similar reputational risk has been encountered by other major Australian building product manufacturers as a result of outright counterfeiting or through the sale of products under similar sounding brand names. In turn, this impact has the ability to adversely affect the output, employment and profitability of the reputable manufacturer. Such instances act as a deterrent to reputable producers investing in brand creation and in product innovation because of the risk of intellectual property destruction at the hands of nonconforming product. 6.2.2

Health & Safety

“It is a consistent source of anxiety for me as suppliers, contractors, staff and owners seem to have little idea of the performance requirements and certification needs for products used in the building process. This includes fixtures and fittings as well as building products. The cost to me can't be quantified but effects timetables, efficiency, causes delays, costs emotional energy as well due to conflict. “ Respondent to HIA member survey, July 2015

The most serious potential consequence of non-conforming building products arises from the increased risk of accidents in the home and damage to the health of those handling the non-conforming product, including retailers, suppliers, building workers and, of course, the inhabitants of the home and their visitors.

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During 2013, it is estimated that 38 lives were lost due to fires inside buildings. While many domestic fires result from very specific causes (such as a smouldering cigarette), data from Australasian Fire and Emergency Services Authorities Council estimate that 23 per cent of residential fires between 1996 and 2004 resulted from electrical faults. The risk of home fires resulting from non-conforming building products was underlined by the Infinity Cables experience during 2014. In its product recall notice, the ACCC warned that defects in the cables “could result in possible electrical shock or fire.” Apart from fires, defective products present the risk of innumerable classes of injury, including laceration from broken or poorly-designed glazing product and the risk of falls arising from defective product giving way or collapsing, such as formwork. The use of unregulated, poorly tested building products can also present threats to the long-term health of those coming into contact with it. This can result from the use of hazardous chemicals in the manufacture of product, or the inclusion of dangerous materials, which possess carcinogenic properties, the capacity to damage the respiratory system, or inflict other serious health damage. This has been highlighted in the historical use of loose fill asbestos in the homes in the ACT and regional NSW during the 1970s and 80s.

6.3

RECTIFICATION COSTS

“The cost is relative to the size of a project. The builder is left to carry the cost of removing inadequate materials, repairing the sub-structure and preparation and installation of the correct material. The supplier stops at re-supply only. I would not permit a supplier to re-install product. This needs to be done by the builders, sub-contractors, but how is the builder compensated for the incorrect supply of materials? The cost of re-installation should be covered by the supplier’s insurer.” Respondent to HIA member survey, July 2015 The most recent opportunity to identify the real costs associated with non-conforming building products can be found in the Infinity Cable recall. This case study represents the ‘perfect storm’ of failure in the building product supply chain, with particular references to the product approval, product importation, supply and distribution, consumer protection and product safety frameworks set out in this submission. 6.3.1

Infinity Cable: the perfect storm

During the period 2010 to 2013, around 4,000 kilometres of electrical cables branded Infinity and Olsent were sold for use in electrical work in buildings, including residential buildings. The cable was later confirmed to be non-conforming with Australian standards for electrical products. The importer, Infinity Cable Co Pty Ltd, was deemed to be the manufacturer for the purposes of ACL and instigated a first recall of the cable in August 2013. After further tests and negotiations, led by NSW Fair Trading, Infinity Cable Co Pty Ltd went into liquidation and a mandatory recall in NSW followed in October 2013. Consumer protection agencies across Australia subsequently acted to halt the supply and installation of the product. The cable was sold in all jurisdictions other than the Northern Territory. While authorities deemed that there is no immediate danger from the cables, testing has found that the cables will degrade prematurely and if disturbed, the insulation could break and expose live conductors, resulting in possible electric shock or fires. This renders the cable non-compliant with the electrical safety standard, AS/NZS 5000.

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In August 2014, the ACCC announced a national voluntary recall of the cable, which included provision for the retail suppliers of the product, being companies that had purchased the product from Infinity Cable Co. Pty Ltd in good faith, to assist with the costs of inspecting and the costs of removal and making safe the cable in residential buildings. In June 2015, the ACCC launched a national awareness campaign to promote the recall due to the low response rate. The campaign is targeted at consumers, and carries the message ‘act now before it’s too late – get your cable checked’. The campaign encompasses radio, online and YouTube coverage. By July 2015, 27 suppliers had announced recalls of cables sold through their outlets although more suppliers are expected to be added. It is estimated that up to 40,000 households and businesses may have been affected across the country. The previous recall in 2013 did not address the safety of all of the installed cables. The 2014 recall was designed to address the safety of all of the affected installed cables across Australia, and to prevent these cables from causing electric shocks or fires in the future. It is forecast that failures due to the cables could appear as early as 2016 in NSW, where the products were first sold. The national recall requires the removal and replacement of the cable that is in proximity to heat sources, and that are accessible to building owners, tradespeople or the public, including roof cavities and under floor spaces. Cable left installed due to being inaccessible or embedded into a masonry wall must have an electrical safety switch (residual current device) installed, and an appropriate warning sticker affixed to the metering box. Industry organisations including HIA have worked with the ACCC to advise members about the recall and their rights and obligations with respect to suppliers and consumers. The Costs HIA has conducted research with a group of members to ascertain the scope of the challenge with respect to meeting the recall requirements and the likely cost implications. The current recall is clearly balancing the primacy of public safety with the need to avoid unnecessary costs where cable can safely be left in place. However, advice to HIA is that depending on the degree of the building and electrical work done when the non-conforming cable was installed, it is likely that it will be difficult to avoid major rewiring work. There was substantial reluctance amongst the electricians consulted to join new to existing cable, in particular in this case, where by definition the job is only being undertaken due to the potential for failure by one of the two lengths in question. There is also apprehension amongst HIA members with respect to providing an Electrical Safety Certificate, where they may be effectivity taking on a degree of responsibility for the previous work, which again, would be done so with the knowledge that it was completed using a non-conforming product. As such, each electrician consulted advised that if contracted to undertake this type of remedial work, they would most likely recommend using the existing cable as a draw wire to replace the entire length with complying cable.

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While recognising that each job would be a unique case that is quoted on its merits, estimates provided to HIA to rewire an existing standard 3 bedroom house of around twenty squares would be between $8,000 and $14,000. This would not include other costs such as mains upgrade or patching access holes and painting if required after rectification. This analysis demonstrates the significant financial costs that will likely accrue to the community as a result of the Infinity cable case. These costs will likely be borne by electrical contractors, builders or suppliers, depending on the circumstances of the work. However, there may also be costs to consumers, as in some cases they may be required to meet the cost of preliminary inspections, particularly where the cable later proves to be compliant or where they cannot prove who supplied the cable if recalled cable is present. There is a further emotional cost to consumers, who will rightly have concerns about the safety of their family where non-conforming cable has been installed in their home. What is clear is that rectifying building work that has used a non-conforming building product, whether knowingly or not, is time consuming, costly and unproductive. It is essential that the remedies used to address the Infinity Cable remain in place, however this recall highlights the importance of minimising the risk of nonconforming building products entering the supply chain by being identified and removed before the point of sale. Avoiding another Infinity Cables The Electrical Equipment and Safety Scheme (EESS) was not operating at the time Infinity Cable entered the Australian supply chain. State regulations and separate administration was in place which performed similar functions. It is impossible to know if the EESS would have identified the false testing information supplied with Infinity Cable. However the hallmarks of the EESS scheme, which require both the product and the supplier to be registered and require the supplier to vouch for the integrity of their products, may have provided sufficient checks and balances preventing the cable entering the domestic supply chain.

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7. INTERNATIONAL EXPERIENCES Non-conforming building products are a global issue for the housing industry. The experiences in other countries vary in relation to the primary focus of the problem and the failures in other countries regulatory frameworks. Some countries are experiencing increases in counterfeit goods and grappling with the intellectual property rights issues that accompany that. Other countries share Australia’s experiences of an inability to adequately check products before they enter the market and ensure they meet local product standards. However there are also regulations and certification schemes operating internationally that may provide guidance on the opportunities for reforms in Australia.

7.1

INTERNATIONAL HOUSING ASSOCIATION

HIA is a member of the International Housing Association (IHA). IHA members currently include housing associations from the United States, Canada, France, Mexico, Norway, South Africa, Nigeria, Japan, the United Kingdom and the European Union. In 2013, the IHA established a Working Group on Counterfeit and Non-Conforming Building Materials, Product and Equipment due to shared concerns by all member countries about the impact on non-conforming building products on the residential building industry. 7.1.1

Counterfeit and Non-Conforming Products Working Group

HIA is the chair of the IHA Working Group on Counterfeit and Non-Conforming Products. At the February 2014 meeting, the member associations endorsed a Memorandum of Understanding (MoU) which commits members to sharing information about non-conforming products and working jointly across countries to address the issue. The MoU also included an agreement on the definition of counterfeit and non-conforming products to assist in ensuring the different countries are using consistent terminology. (Attachments 6 & 7) In January 2015, the Working Group presented a series of information sheets that sets out each member country’s approach to the regulation of building products and the voluntary industry activities being undertaken to address non-conforming building products in each country. These information sheets include an explanation of the regulatory frameworks in each member country, sharing of technical and member information published on product compliance and link to the relevant government authorities, where they exist, that are responsible for monitoring and recalling non-conforming building products (Attachment 8). The Working Group is currently working on ways to better share information on incidences of non-conforming product when identified in member countries. The Working Group is awaiting the commencement of the review of the European Union Construction Product Regulation to determine how this has affects the building product supply chain in Europe. The Working Group is also awaiting confirmation by member countries on taking a role in the inquiry announced by the OECD into counterfeit building products.

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7.2

EUROPEAN UNION CONSTRUCTION PRODUCT REGULATION

The European Parliament and the Council of the European Union (EU) adopted the Construction Products Regulation (CPR) in 2011. From 1 July 2013, construction products covered by a harmonised standard must have a declaration of performance and CE marking to be sold within the EU. The CPR covers four main elements:    

A system of harmonised technical specifications (for assessment & testing); An agreed system of conformity assessment for each product family (declaration & level of testing); A framework for notified bodies (certification bodies and schemes); and CE marking of products.

Previous regulations established a harmonised framework for the methods:   

of testing products; for manufacturer’s and others to declare a product’s performance values; and for member States to check that products conformed to European standards.

The CPR builds on these with the intent to achieve harmonised standards for construction products in order to grant European technical approvals. The Regulation does not affect the right of individual Member States to specify requirements that they deem necessary to protect the health, environment and workers when using construction products. The CPR also requires product manufacturers to draw up a ‘declaration of performance’ for a construction product when that product is not covered, or not fully covered, by a harmonised standard. The CPR requires the CE marking be placed on all construction products, with the manufacturer taking sole responsibility for the conformity of the product with its declared performance. In March 2014, the European Commission agreed to undertake a study to analyse the implementation of the CPR with regards to their legal provisions and administrative practices. The study is investigating:  

how and to which extent the CPR has been implemented at national and EU level; and to which extent the CPR showed useful to produce the intended results and effects in terms of free movement of products, clarification, credibility and simplification?

In November 2014, a survey was released as part of the consultation process, with further consultation conducted in early 2015. The first findings are scheduled to be published on 10 August 2015 and the report is intended to be produced by the Commission by April 2016. The CPR provides a useful example of how regulations can work with industry certification schemes to deliver an improvement management framework for building products. The CPR effectively brings together each countries conformity assessment bodies and the schemes they operate and creates a single harmonised set of technical standards for each product sector. Using these standards, certification bodies must undertake specified testing and product specified document which provide evidence of conformance. Manufacturers must obtain these documents and apply a mark to the product at the point of sale.

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In Australia a suite of national technical standards already exists covering a significant number of structural building elements. Industry certification schemes exist for some product sectors, but not all structural elements and use these technical standards as the basis of their schemes. It may be possible to use the CRP as the model framework to develop an equivalent scheme in Australia.

7.3

OECD TASK FORCE ON CHARTING ILLICIT TRADE

In 2013, the OECD established the Task Force on Charting Illicit Trade. The Taskforce aims to co-ordinate international expertise in the quantification and mapping of illicit markets to enable a fuller understanding of the connections between different forms of trafficking, and underpin analysis of the public policies that successfully increase economic and societal resilience to this threat. The Taskforce is organised in the context of the OECD High Level Risk Forum. It provides a platform for international public and private stakeholders to analyse how to incentivise compliance with laws and regulation to promote legitimate trading networks. By drawing attention to the scope of illicit activities and the interconnections between them, the Forum and the Taskforce can also help countries focus and coordinate efforts to drive criminal entrepreneurs and illicit networks out of business. Transnational criminal networks profit from trafficking and illegal trades in drugs, arms, persons, toxic waste, natural resources, counterfeit consumer goods, and wildlife. Billions of dollars from these activities flow through the global economy each year distorting local economies, diminishing legitimate business revenues, deteriorating social conditions and fuelling conflicts. To address this quickly evolving global risk, it was agreed that public and private sector decision makers first need a firmer grasp on the magnitude and nature of its impacts on economic activities, and a clearer understanding of the conditions that enable it. While gross estimates of monetary values are available for some sectors, a comprehensive and holistic effort is needed to better inform effective policy strategies and operational partnerships between the public and private sectors. In April 2014, the Taskforce met and agreed to continue research activities. The Taskforce agreed that governments should development anticipatory capacity to identify and counter emerging black market threats, such as on-line gaming and betting parlours, the use of crypto-currencies and counterfeit building materials. Taskforce experts were invited to submit contributions to the ‘state-of-play’ paper on such emerging threats, which could be developed through a workshop if dedicated resources are made available. This work is ongoing. Australia is a member of the OECD and it is unclear what role, if any, the Australian government is taking in these investigations into illicit trade and the connection with counterfeit building products.

7.4

PRODUCT RECALLS

Through the work of the IHA, information is being shared about how other countries approach the management of consumer goods and product safety recalls, as they relate to building products. In the United States, the government agency that monitors consumer products is the U.S. Consumer Products Safety Commission (CPSC). The CPSC works at the national level to monitor products that are used by consumers, such as toys, cribs, power tools, and household products. The CPSC also provides the public with a list of products that have been found to be faulty or noncompliant. There is some debate in the U.S. whether the CPSC’s authority extends to building materials, as was seen during the concerns over imported drywall from China. Ultimately, the CPSC worked with other federal

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agencies on a joint task force to identify the scope and extent of the problems with drywall imported from China. It is important to note that this product was never subject to a formal recall by the CPSC. The Federal Interagency Task Force on Problem Drywall was made up of the following federal government agencies: the U.S. Department of Housing and Urban Development, the U.S. Centers for Disease Control and Prevention, and the U.S. Environmental Protection Agency. See Interagency Drywall Investigation. In Canada, the Canadian Standards Association (CSA) Group maintains a listing of product recalls on its website, along with links to other organizations that may be recalling products such as:    

CPSC (Consumer Product Safety Commission) ESA (Electrical Safety Authority) FDA (U.S. Food and Drug Administration Health Canada

CSA Group postings are few with there being one posting in 2014 (a DC Motor with counterfeit CSA markings) and December 2012 (electric fireplace) and May 2012 (Tabletop Grill). The CSA Group is required to advise the Canadian Home Builders Association when notifying the authorities of counterfeit products. The French government, through the Directorate General for Competition Policy, Consumer Affairs and Fraud Control (Directorate), is responsible for market surveillance and alerts the public about dangerous or potentially dangerous products. The Directorate receives information through various entities such as businesses and publishes this through its website. Moreover, the Directorate takes any appropriate emergency measure to prevent and protect the health and safety of consumers: seizures, consignments, withdrawals and recalls, orders of marketing suspensions, prohibition decrees. Directorate provide advice on product recalls via their website. Norwegian market authorities carry out inspections and their reports have been publically available since April 2012. These reports have identified some building products being recalled:   

gas stove recalled due to misleading information in the manual for the user; major suppliers of EPS-insulation inspected with some minor findings of mismatch between declared properties and properties tested during the inspection; and panel product for walls in bathroom recalled due to significant difference between declared properties and properties found during inspection.

For consumer goods, the European Commission operates an international register RAPEX which provide a weekly rapid alert system to exchange information between Member States and the Commission on measures taken by Member States to prevent or restrict the marketing or use of products posing a serious risk to consumers health and safety. A weekly newsletter is published on the Commission’s webpage listing the products of concern. For all members of the European Union there is also a register ICSMS, that provides information about various kinds of non-conforming products, not solely building products. This is for authorities use and not a public register. Work is in progress in order to develop a specific part of this register to construction materials. In South Africa, where severe problems are encountered with non-conforming products on a national basis, the National Regulator of Compulsory Specifications (NRCS) compiles compulsory specifications in terms of the National Regulator for Compulsory Specifications Act 2008. Technical regulations that are compulsory are

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intended to protect consumer interests, health and safety, the environment or the interests of the public at large, are administered by the NRCS. The products currently regulated on a national basis for both domestic and imported goods, are cement, treated timber and safety glazing. Other products that are possibly in the pipeline to be regulated include timber truss connectors and copper pipes. The NRCS has the authority to remove non-conforming products from the market place and those that contravene the law are arrested. A thorough evaluation is completed by the NRCS before a technical regulation process is followed for a relevant counterfeit product on aspects such as benefits to health and safety, costs to manufacturers, detrimental effects, environmental impacts, negative impacts to South Africa, global harmonisation of standards, and time frames for the implementation and resources for the regulation thereof.

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8. CLOSING THE GAPS IN THE SUPPLY CHAIN This submission sets out the complexity of the building product supply chain and confirms that there is no single cause for non-conforming building products entering the Australian market. The causes exist throughout the supply chain, starting at the point of manufacture and ending at the completion of construction. Therefore there is no single solution that will address the diverse and overlapping reasons for non-conformance. For the housing industry, there is an expectation that the building product supply chain provides confidence and certainty to home builders and trade contractors, and hence to consumers, that the items available for purchase and used in the homes they build are ‘fit for purpose’ and will stand the test of time. There are several regulatory frameworks that operate in Australia to manage the building product supply chain. Historically these frameworks suited the way building products were manufactured and supplied to the market, however the changing nature of supply and procurement is now placing pressure on these traditional systems and regulations. The building approval process, supported by the NCC and reference documents, establishes a strong basis for delivering quality building products into the market. However the gaps in the administration of this process, in tandem with the reality that a fully regulated supply chain is neither practicable for all building products, points to the need to better inform users of the system we have in place including regulators and agencies that play a role in surveillance and enforcement. HIA has developed a number of options for the Senate Committee and for governments to consider in their efforts to deliver improvements to the building product supply chain. Ultimately by making complementary improvements in each part of the building product supply chain, there is greater likelihood that an effective improvement can be achieved and that builders and consumers can have confidence that the products available at the point of sale are ‘fit for purpose’ and that should a problem arise, that there are sufficient remedies in place that allocate the responsibility to the most appropriate entity responsible for the failure.

8.1

BETTER MANAGEMENT OF PRODUCT APPROVAL

A manufacturer (or supplier) has no obligation to undertaken conformity assessment testing of their products or materials until they are selected for use in a specific application, in this case, for building work of a particular type. They then have several choices in how they offer the market relevant information to verify that their product meets the requirements of the NCC or other contractual obligations. The referencing of the NCC through state building legislation creates a legal relationship with many Australian Standards which include provisions for the level of performance of the building product and in some cases, how the product should be tested. But not all standards include conformity assessment provisions. The first step to ensuring that building products entering the Australian market are ‘‘fit for purpose’’ lies in the establishment of a stronger framework for product certification. Voluntary certification schemes need to be well supported by the industry to give greatest traction and generate recognition by those buying products of the value of the scheme, when compared to a product not tested through a scheme.

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Whilst there is scope for additional mandatory product certification schemes, this may not be practical for all product sectors and would require regulatory reform and resourcing to achieve significant improvement. An alternative approach may be to consider the framework that underpins the European Union Construction Product Regulation and the relationship with notified bodies, being certification schemes. This scheme shows how regulations can harness the network of product certification regimes already operating, and create sufficient reason for those sectors not operating a scheme to introduce one. Whilst not all states and territories have implemented the EESS scheme to date, it also provides an important model framework for product testing, certification and market entry controls. 8.1.1

Model Product Certification Scheme

The EESS establishes a risk based hierarchy for electrical equipment designed, or marketed as suitable for household, personal or similar use. The three levels for product safety link with a testing regime that must be undertaken by an accredited testing body and specifies the type of documentation that must be provided to the market. The scheme requires that the products are tested and also places an obligation on the supplier to declare that the product meets relevant standards. The scheme then places an obligation that the supplier includes a mark on the individual product confirming it meets these standards at the point of sale. The EESS offers a template for nationally consistent, electrical equipment safety legislation throughout Australia and New Zealand and is aimed to increase consumer safety, and safety for electrical contractors. The scheme aims to create a national database where all suppliers and certain types of equipment must be registered prior to being offered for sale. This allows equipment to be easily traced to its supplier and acts as a gateway to the legal supply of electrical equipment in Australia and New Zealand. The classification of the products is risk-based into three levels (Level 3, Level 2 and Level 1) with different requirements for each level. The intention is that the scheme is a self-funding, user-pays system where registration fees fund improved compliance, surveillance and post-market enforcement activities. The scheme also places a direct obligation on the supplier by requiring registration of a ‘Responsible Supplier’, who is either the manufacturer or importer of the in-scope electrical equipment and who must be a legal entity in Australia or New Zealand, and who has the responsibility for ensuring the safety of the electrical equipment it sells in participating jurisdictions. The scheme has not introduced new technical safety requirements for electrical equipment, it only seeks to provide a targeted mechanism to manage the placement of electrical products into the market and establish clearer detail of the required evidence of conformity required for all in-scope electrical equipment. The scheme also places an obligation of the supplier of the product to declare it is ‘fit for purpose’ and to disclose this to the market at the point of sale. Using the basic principles of the EESS and comparing these with the WELS Scheme, WaterMark and Codemark, along with the voluntary product certification schemes currently operating in Australia it is possible to identify

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a set of hallmarks that could be followed to create a reliable and transparent method of product certification that can be relied upon by the purchaser at the point of sale. The hallmarks of a model product certification scheme should include:           

identifying the product category to be managed (e.g. in-scope products); establishing a technical standard for the design and manufacture of the product (or adopt existing standards where appropriate); establishing the method of product testing to be undertaken for in-scope products based on a risk assessment of the products (i.e. type testing (single sample), proof testing (ongoing samples) or production testing (all product)); establishing the type of testing bodies that can undertake testing of the products (e.g. independent third party certification for products which affect structural safety, first party certification for nonstructural, non-safety products); establishing the type of certification required for the tests undertaken (e.g. test certificates by testing authorities or product technical information provided by the manufacturer); requiring the product supplier to be registered (and make a declaration that the products they produce conform); requiring products to be tested and the relevant documents to be supplied to the scheme owner; requiring products to be labelled by the supplier before offered for sale; listing products in an online format that allows products to be easily checked as legitimate; creating a process for surveillance, confidential reporting and auditing of the products covered by the scheme; and establishing appropriate penalties for enforcement of the scheme.

The operation of any schemes must be national and therefore the ownership of schemes should be through national bodies, such as ERAC. If government was to use these hallmarks as the basis for any regulated schemes and to promote their use by voluntary industry schemes, a level of consistency could be developed which could improve the overall understanding and operation of product certification in Australia. Any schemes should apply to both domestic manufactured and imported building products equally. 8.1.2

Product Register & Labelling

There is significant potential to increase the use of mandatory and voluntary certification schemes in Australia. However certification schemes alone, most of which are voluntary, do not provide sufficient protection for consumers, including residential builders and contractors, without the support of other mechanisms to improve the product supply chain upstream. A complementary approach could see the establishment of a national product register which harnesses the mandatory and voluntary schemes and seeks to create interest from other product sectors to establish certification schemes. In 2012, HIA held a national summit Building products: a compliance free zone? to raise awareness of the emerging issues related to non-conforming products. At the conclusion of the summit HIA committed to investigate the option of establishing an industry led building product register that could provide industry with a higher level of certainty about building products being ‘fit for purpose’. The scheme shared the hallmarks of the EESS model in that it targets both the product and the product supplier.

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The basis of the concept was to establish a public register of building products used in residential construction, with the support of Australian manufacturers and suppliers, that provides builders with a level of confidence that the products included on the register meet relevant building standards, provide relevant documentation to support their claims, and operate in a manner that ensures ongoing support for users of their products. The register would include registration of the:  manufacturer or supplier (where the product is wholly imported)  individual products as nominated by the manufacturer or supplier. Product registration would be open to all products sold in Australia, whether locally produced or imported. The incentive for manufacturers and importers to join the register and to apply the mark should be driven by the building certification industry and particularly their insurers. The scheme would need to be supported by an information campaign for both consumers and industry. Products would be required to carry a label or mark. Products with third party verification of conformance through existing industry operated schemes, such as windows and structural steel, would effectively be supported by this type of register. However, as not all products may require third party certification, the register would need to establish a hierarchy of structural importance and determine the products in scope.

8.2

BETTER MANAGEMENT OF IMPORTED PRODUCTS

Current provisions within ACL mean that importers of defective building materials that are either of an unacceptable quality or fail product safety requirements will be held liable. Additional regulation, of course, will not stem the tide of such products, and increasing regulations to a point that all products are tested and certified in the same manner would not be practical or cost effective. Whilst the ABCB, ACCC, Australian Customs and various state and territory agencies all play a role in regulating the manufacture, supply and import of certain products, there is no one agency responsible for collecting data on imported building products or checking their compliance when they arrive in Australia. The current focus of consumer protection and customs agencies is on consumer goods and certain other goods that have been traditionally identified as impacting on national security and/or public health and safety such as drugs and pharmaceuticals, firearms, alcohol and tobacco. Their focus additionally is on supporting consumers and is not targeted on supporting manufacturer’s complaints against imported products. In practice, that because of separate regulation under state building laws, there is no one participant in the building process from the importer/manufacturer through to the supplier through to the builder/subcontractor through to building surveyor/certifier who is solely liability for the installation and use of a non-conforming building product. To this extent it remains difficult in measuring the true extent of the problem of distinguishing between products that are simply of poorer quality because they are cheaper and those products that are truly defective and present a genuine safety risk requiring regulatory intervention and mandatory standards. Expanding the powers and resources of Australian Customs to additionally require that they ascertain that certain imported goods meet building product conformance criteria is an option, although it will still require a nationally coordinated agency with sufficient resources to first identify those building products that require

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registration or permits to justify regulatory border control intervention – whether that be on public health and safety or market failure grounds. Accordingly, the establishment of a federal body, whether by expanding resources and expertise within an existing agency or establishing a new body, would appear to be a necessary precondition to identifying what building materials require permits, certification or accreditation. In terms of setting criteria for identifying what building materials require a certificate or permit prior to entry, it is likely that the initial question will be whether it is in the ‘public interest’ to regulate. Presumably those building materials that are either structurally significant (for example, structural and reinforcing steel) or pose health and safety risks (for example roof insulation) will meet this criteria. Some building materials, such as glass, may also have multiple uses, which will not always be relevant for building product compliance or conformance purposes. However, if the predominant use of that product is one that meets the public interest test, then it could be identified for inclusion on a ‘prohibited’ or restricted products list. Customs would then be required to be satisfied that the imported product meets domestic requirements and standards via the production of the relevant certificate or permit. For instance, if a product conformance certificate (or equivalent) was a pre-condition for import entry of an overseas building product into Australia, then Customs would check for this under the current system. As there are already industry based schemes for testing various building products for compliance or conformance with relevant Australian standards (including some where testing is done by overseas agencies) then such schemes could provide the basis for issuing a certificate before the product is able to be imported. If a building material has a predominant use, then the certificate would in turn need to confirm compliance with relevant standards for that predominant use. Importers who obtain false or fraudulent certificates would be subject to prosecution under relevant consumer and customs laws and potentially the Crimes Act. Currently successful prosecutions under the Act carry penalties up to $1.1 million for a body corporate and $220,000 for an individual. If a product approval regime was to be introduced then this would create an obligation for imported products to be checked in some manner. An alternative approach may be to focus on the manufacturer and importers being required to hold a specific license and mandatory insurance coverage. In addition there may be scope to expand the current labelling requirements which cover trade descriptions and require this to include compliance with relevant Australian technical standards.

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8.3

BALANCING OBLIGATIONS: POINT OF SALE

Regardless of where a product is manufactured, the expectation from industry and consumers is that if the product is available for sale in Australia, that it meets Australian laws, is ‘fit for purpose’ and has been properly tested and documented to verify its conformance. Even as Australia’s building product supply chain is becomes more global, this expectation is a reasonable one. The previous two options are based on introducing an appropriate labelling scheme and creating an obligation that such labels are required to be provided at the point of sale. Introducing a point of sale labelling requirement places responsibility on the parties responsible for market entry – the manufacturer and the supplier – to take due care and to ensure that they do not provide false and misleading information to the market place. Such an obligation should then be sufficient to allow actions to be taken if information is brought forward about a non-conformance, before a product is purchased or used. Future regulatory changes should ensure that building products available at the point of sale are fit for purpose.

8.4

IMPROVING CONSUMER PROTECTION

The arguments for imposing different product safety liabilities on sellers and on manufacturers/importers appear less relevant in 2015 than they did in the past. In practice, goods with a ‘safety defect’ within the meaning of the ACL will not be of ‘acceptable quality’, and there appears to be no good reason for the ACL excluding sellers’ liability in respect to products sold for resupply but including such liability for manufacturers. Liability for unsafe products should arise at the point of supply and access to remedies should be available to any person, not just a consumer. The easiest way for this to be done would be to extend ss.138-141 of the ACL to suppliers of goods as well, with suppliers having a right of indemnity against manufacturers under s.274 as now. The existing defences to a Defective Goods action in s.142 would need to be extended, in the case of suppliers, to cover cases where the supplier reasonably believed that the goods did not have a safety defect and where:   

the safety defect consists of non-compliance with an Australian or International Standard or Code of Practice, that the goods were properly labelled as complying with that Standard or Code and the supplier having made all reasonable inquiries had no reason to believe they did not so comply; the safety defect consists of lack of safety when used for a particular purpose, the goods were not unsafe for all the purposes for which goods of that kind are commonly supplied, and the supplier did not know and had no reason to suppose that the goods would be used for that particular purpose; the safety defect consists of lack of safety if the goods were not used in accordance with the manufacturer’s instructions, that these instructions were supplied by the supplier to the purchaser together with the goods and the supplier did not know and had no reason to suppose that the goods would be used in a way which was not in accordance with the manufacturer’s instructions.

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Implications for Building Products Safety Currently, a “person” protected by the ACL would not in most cases include a builder, as the builder is not a manufacturer of products but really an assembler/fitter of components, and acquires these products from a supplier for the purposes of resupply or repair. Consumers building or repairing a house are thus not protected by the ACL in relation to things like bathroom fittings, wall claddings, electrical fittings, etc, installed under a building contract, except to the extent that a manufacturer offers third parties an express warranty on these products. This is a significant hole in the overall scheme of consumer protection embraced by the ACL. The builder will always be liable to the client in contract (due to state building laws), and manufacturers/importers are captured by ss.138-141 ACL, but without some liability attaching to the supplier at point of sale in relation to other persons who may be injured by the product, or who suffer consequential loss by its use, then there is little incentive for the supplier to ensure compliance and every incentive to contractually exclude liability to non-consumers in their terms of trading, to the extent possible. The current building product supply chain in Australia is made up of an industry dominated by a large wholesalers and retailers stocking products from thousands of manufacturers, which is the complete opposite of the situation in 1974 when the TPA was introduced. Both in terms of resources and market power, suppliers are not disadvantaged vis a vis manufacturers and could accept additional responsibilities in relation to building products where consumers are the ultimate users. In principle, the responsibility for unsafe products should in fact be more akin to tort principles rather than contract, with the supplier and the manufacturer sharing liability to anyone injured as a result of that unsafe product entering the stream of commerce. This is particularly relevant in the case in building products, where the cost of an individual component may be small but the integrity or safety of the entire structure may be compromised by that unsafe component when incorporated into that structure (e.g. the fasteners supplied as ‘high tensile steel bolts’ in the collapsed Fairbairn RAAF Base hanger in Canberra in 2003 which were in fact mild steel). Furthermore, the loss and damage may only become evident some considerable time after a building has been completed, and the manufacturer may no longer exist. The provisions of s.141(1)(c) which provide a right to compensation where ‘land, buildings or fixtures are destroyed or damaged because of the safety defect’ also needs extension to situations where remediation work is required because of the safety defect. For example, an unsafe building product containing asbestos or formaldehyde will need to be removed from a house into which it has been incorporated even though that product has not destroyed or physically damaged the house. Another relevant consideration is that if the same liability under the ACL were to attach to both manufacturers/importers and to suppliers in relation to unsafe products, compliance and enforcement would be greatly simplified. Manufacturers/importers would remain free to negotiate with suppliers as to risk allocation under their distribution contracts.

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APPENDICES: ATTACHMENT 1: ATTACHMENT 2: ATTACHMENT 3: ATTACHMENT 4: ATTACHMENT 5: ATTACHMENT 6: ATTACHMENT 7: ATTACHMENT 8:

Glossary of Terms Submission to Building Ministers’ Forum – Construction Product Alliance State & Territory Building Legislation enabling provisions for the National Construction Code Extracts from Australian Consumer Law 2010 State & Territory Building Legislation –The BCA & Building Approvals International Housing Association – Memorandum of Understanding International Housing Association – Defined Terms for Non-conforming Building Products International Housing Association – Member Country Information Sheet: Australia

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ATTACHMENT 1: GLOSSARY OF TERMS ABCB ACCC ACL ACRS APCC AWA BCA CABs CPR EESS ERAC EWPAA EU FTAs HIA IHA JAS-ANZ NATA NCC PCA WELS WTO

Australian Building Codes Board Australian Consumer and Competition Commission Australian Consumer Law Australasian Certification of Reinforcing Steel Australasian Procurement & Construction Council Australian Window Association Building Code of Australia Conformity Assessment Bodies Construction Products Regulation Electrical Equipment Safety Scheme Electrical Regulatory Authorities Council Engineered Wood Product Association of Australasia European Union Free Trade Agreements Housing Industry Association International Housing Association Joint Accreditation System of Australia and New Zealand National Association of Testing Authorities Australia National Construction Code Plumbing Code of Australia Water Efficiency Labelling and Standards World Trade Organisation

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ATTACHMENT 2: SUBMISSION TO BUILDING MINISTERS’ FORUM - CONSTRUCTION PRODUCT ALLIANCE

The Construction Product Alliance is a collective of public and private organisations that is working to promote awareness of non-conforming building products and identify opportunities for improved supply chain solutions.

BUILDING MINISTERS’ FORUM 31 JULY 2015 NON – CONFORMING PRODUCT ACTION PLAN OVERVIEW The Construction Product Alliance (CPA) was formed to identify options for addressing issues relating to the impact of non-conforming building products and in so doing improve the safety, quality and long term sustainability of buildings and other structures. In its work to date, the CPA has focused its attention on raising awareness of the pressure points in the building and construction product supply chain where regulatory, administrative or operational systems may need review and improvement. The intention is to close the loop on the potential for non-conforming products to result in risk to public safety and minimise the risk of substantial economic impacts for industry participants arising from the discovery of non-conforming products in the built environment. The CPA believes that a holistic approach involving industry and government is necessary. Industry is unable to solve all of the issues by itself and government is unable to achieve effective regulatory systems in the absence of a partnership with industry. In short, the CPA has been examining opportunities to close the regulatory and operational loop in the building and construction product supply chain to address the manufacture, supply and use of non-conforming products whether they be manufactured internationally or wholly within Australia. This paper identifies eight activities that are designed to operate as an Action Plan to assist industry and government to commence a practical process to address the non-conforming product issue. The activities are: 1. Establish a taskforce comprised of key industry stakeholders and state and federal government agencies with a charter to develop a strategic plan which incorporates short, medium and long term responses to the issue of non-conforming products (NCP). 2. Request the Australian Building Codes Board (ABCB) to: 

Undertake a review of the current evidence of suitability criteria in the National Construction Code (NCC); and



Develop and publish guidance material in the form of a handbook regarding the use of risk-based assessments to determine the appropriate evidence of suitability under the NCC.

3. Establish a national portal to increase public and industry awareness of available information on NCP. 4. Increase stakeholder awareness of third party certification schemes as a tool for achieving product compliance.

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5. Develop and operate a pilot to determine the feasibility of establishing a single building products register for compliant product based on industry and government certification schemes. 6. Evaluate the feasibility of building product legislation being enforced at point of sale. 7. State building authorities to review surveillance and audit activities and implement stronger penalty regimes to improve effectiveness in achieving compliance with the National Construction Code (NCC) and other building regulations. 8. Assess the feasibility of establishing a confidential reporting system to facilitate the reporting of industry concerns around NCP. ACTION ITEMS 1. Establish a taskforce comprised of key industry stakeholders and state and federal government agencies with a charter to develop a strategic plan which incorporates short, medium and long term responses to the issue of non-conforming products (NCP). The establishment of a task force will demonstrate to consumers, industry and other stakeholders that substantial proactive action is being taken by governments in conjunction with key industry groups to address issues in a coordinated and strategic manner. Given the ability of industry and government to each take specific action to address various aspects of the issues being faced, the taskforce should comprise key stakeholders charged with responsibility for steering the work of the taskforce. The task force should be required to identify all of the areas and activities that combine to impact on the key issues and to establish sub-groups of key industry and government representatives with experience in the identified areas. The sub-groups should be given responsibility for developing coordinated outcomes to their delegated tasks. This approach will both ensure that the issues are examined by entities with the relevant experience and knowledge as well as expedite assessment of the issues. 2. Request the Australian Building Codes Board (ABCB) to:  Undertake a review of the current evidence of suitability criteria in the National Construction Code (NCC); and  Develop and publish guidance material in the form of a handbook regarding the use of riskbased assessments to determine the appropriate evidence of suitability under the NCC. The evidence of suitability provisions in the NCC (Volume 1 A2.2/Volume 2 Part 1.2) are very broad and need to be rewritten to:  

differentiate between the varying levels of assurance (i.e. third party certification is more credible than selfdeclaration) and the types of building materials and systems that should align with these levels of assurance; and differentiate between material conformance and design conformance.

The NCC evidence criteria have been highlighted as one of the weaknesses in the conformance framework. The Ai Group report stated that “inadequate … first party certification” contributes to gaps and weaknesses in the framework. In the longer term the CPA recommends that the NCC evidence of suitability criteria be reviewed with a view to aligning high risk building materials and systems with a particular level of evidence. In the shorter term, CPA recommends that a guide or handbook be published that provides information on preferred selection of evidence to suit the risk of the building material or system.

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3. Establish a national portal to increase public and industry awareness of available information on NCP. Ai Group’s report ‘The quest for a level playing field: The non-conforming building product dilemma’ stated that there was: “Confusion amongst stakeholders about the responsibilities of regulators and insufficient knowledge of the conformance framework;” and “These gaps and weaknesses also result in confusion about how and where to report non-conforming product” The Australasian Procurement and Construction Council (APCC), in consultation with industry, has developed an excellent and useful document, “Procurement of Construction Products - A guide to achieving compliance”. However, individual entities from both industry and government sectors, will continue to develop and distribute information and material on issues relating to non-conforming products. The plethora of information sources tends to add to industry and public confusion. Accordingly, the CPA submits that there should be a primary point where stakeholders can obtain information on NCP issues including:      

Regulatory and supply chain responsibility. Government actions and initiatives. Industry and government contact points. Case studies and leading practice on NCP themes e.g. certification and surveillance schemes. Educative material including the APCC Guide. Actions that are taking place to address issues.

The CPA believes that the most effective way to achieve this is through the establishment of a national online portal. 4. Increase stakeholder awareness of third party certification schemes as a tool for achieving product compliance. The CPA has observed an increasing interest in third party certification schemes (TPCS) in industry sectors exposed to non-conforming product. With the exception of third party schemes such as Watermark and the Electrical Equipment Safety Scheme that are regulated, these schemes are voluntary and use market mechanisms for compliance. There are a number of TPCS operated by industry associations, as highlighted in the APCC Guide, that are extremely effective and potentially provide a model for other sub-sectors to follow. Given TPCS provides a much higher level of assurance for “deemed to satisfy” provisions in the NCC consideration should be given to promoting these schemes and given a level of endorsement that gives confidence to industry stakeholders. 5. Develop and operate a pilot to determine the feasibility of establishing a single building products register for compliant product based on industry and government certification schemes. Under state building laws building certifiers are responsible for the issue of building and occupancy permits that attest to the materials being suitable for use in accordance with the NCC. To do this building certifiers rely heavily on documentation from product suppliers as certifiers are not on site to see or test every component of construction. However, building certifiers are faced with a range of certificates, technical documents, reports and other information, such as labels, that they must sift through and determine whether they are appropriate to use as evidence of suitability. The CPA believes that there is an opportunity to create a national building products register (a brand) which brings together the existing competent regulatory and voluntary industry schemes already operating in Australia, and creates additional interest for other industry sectors to develop schemes to become part of such a register.

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The register could be modelled on the Electrical Equipment Safety System and based on prior work by the Housing Industry Association. A single register which recognises schemes that provide verification against the requirements of the NCC would provide a streamlined avenue for designers, builders, contractors and building certifiers to access reliable product compliance information. The establishment of a register also creates an incentive for those products not currently participating in schemes to join as education and awareness would increase the demand for products on the register. A pilot could be conducted on a specific product sector that is not currently operating a scheme, along with working with existing schemes to determine the most practical way to collectively recognise them through a single register. 6. Evaluate the feasibility of building product legislation being enforced at point of sale. One of the weaknesses of the current conformance framework is that the primary enforcement point is focused on post installation and applies to the ‘end user’ of the product i.e. it occurs after the product is installed and holds the installer accountable. There is increasing evidence that regulatory schemes are more effective in reducing the incidence of NCP and increasing consumer and industry confidence when they have effect at the point of sale, such as Greenhouse and Energy Minimum Standards (GEMS) and Water Efficiency Labelling Standards (WELS) Scheme. This mechanism places an onus on the distributor of the product to be responsible for ensuring it is compliant before it is used. Ai Group, in its report, said that: “An issue across the product sectors has been the emphasis on conformance at point-of-installation. Ai Group believes that the incidence of NCP can be reduced if control points exist at point-of-sale with greater product conformance responsibility on builders, contractors and product suppliers.” To be effective in preventing non-conforming products from being incorporated into buildings and other structures, the CPA submits that checkpoints need to operate across the supply chain to support the building certification regime. This would include:   

Effective processes at the point of import (for products manufactured internationally) Enforcement at point of sale (for local and internationally manufactured products) Compliance at point of building certification

The point of sale proposal has the benefit of placing responsibility on manufacturers to provide appropriate evidence to distributors, wholesalers and retailers to satisfy them that the products that they are selling actually comply with relevant standards and fit for purpose responsibilities. Point of sale is important because of the inherent inability of the public and the general industry to obtain assurance as to products from other processes. Point of sale thus provides an additional, achievable level of assurance that assists in closing the loop on a conformance regime especially when coupled with other components of a holistic approach. 7. State building authorities to review surveillance and audit activities and implement stronger penalty regimes to improve effectiveness in achieving compliance with the National Construction Code (NCC) and other building regulations. Greater action and visibility by regulators can send a strong signal to the market that there are consequences for allowing the inclusion of NCP into the Australian building product supply chain.

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The Ai Group report stated: … the lack of independent verification and visible regulatory authority is making the conformance framework ineffective and unfair. The end result is undermined confidence in the regulatory system. The CPA recommends that state building authorities increased their activity and resourcing for surveillance and audit activities of high risk building products during construction and post installation. This activity should be considered to support existing state building regulations that reference the National Construction Code, along with other existing state regulations that apply to high risk products such as electrical items. 8. Assess the feasibility of establishing a confidential reporting system to facilitate the reporting industry concerns around NCP. The Ai Group report found that many industry stakeholders were unaware of how they could safely report NCP and which authority had responsibility for such reporting. The Queensland Building & Construction Commission has recently established a process to allow reporting of NCP and where required to provide industry with notice regarding a product or material. Industry is not in a position to undertake this type of process due to confidentiality clauses in construction contracts, and sensitivity of relationships in the building products supply chain, which make it very difficult to circulate current and reliable information relating to incidents involving non-conforming product. There are also examples of reporting schemes overseas which might provide a useful starting point to consider application in Australia. The UK Structural and Civil Engineering and Health and Safety sectors supported by the UK Government through ”Structural Safety”, an authority that operates a confidential reporting on structural safety scheme that allows stakeholders to report anonymously on unsafe building products and practices in structures. This has been very successful in lifting the awareness of NCP in the industry through reporting back to stakeholders on incidents and has positively influenced change to improve safety in the UK construction industry. The key to the success of such a scheme is anonymity coupled with rigorous review. The CPA supports a reporting scheme for use in Australia as it would enable industry to make regulators aware of developing problems before they become major safety or structural risks. However, the CPA considers that rather than this type of scheme being operated by industry it would be more successful if such a scheme were operated under the auspices of governments but with industry support and input.

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ATTACHMENT 3: STATE & TERRITORY BUILDING LEGISLATION ENABLING PROVISIONS FOR THE NATIONAL CONSTRUCTION CODE State Queensland NSW

ACT

Victoria Tasmania South Australia Western Australia Northern Territory

Legislation Building Act 1975 Building Regulation 2006 Environmental Planning & Assessment Act 1979 Environmental Planning & Assessment Regulation 2000 Building Act 2004 Building (General) Regulation 2008 Building Act 1993 Building Regulations 2006 Building Act 2000 Building Regulations 2014 Development Act 1993 Development Regulation 2008 Building Act 2011 Building Regulations 2012 Building Act Building Regulations

Prepared by the Housing Industry Association, July 2015

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BCA Enabling Provisions Section 14 and 30 Section 80A (Prescribed conditions) Clause 98

Section 39, 42 & 49 Clause 43A Section 7 & 9 (enabling regulation) Clause 109 & 301 Section 55 and 276 Clause 11 Section 33 & 36 Clause 4 Section 37 Regulation 31A Section 49 & 52 (enabling regulation), 59 (approval provision) Clause 4

ATTACHMENT 4: EXTRACTS FROM AUSTRALIAN CONSUMER LAW 2010 “3 Meaning of consumer Acquiring goods as a consumer (1)

A person is taken to have acquired particular goods as a consumer if, and only if: (a) the amount paid or payable for the goods, as worked out under subsections (4) to (9), did not exceed: (i) $40,000; or (ii) if a greater amount is prescribed for the purposes of this paragraph—that greater amount; or (b) the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption; or (c) the goods consisted of a vehicle or trailer acquired for use principally in the transport of goods on public roads.

(2)

However, subsection (1) does not apply if the person acquired the goods, or held himself or herself out as acquiring the goods: (a) for the purpose of re-supply; or (b) for the purpose of using them up or transforming them, in trade or commerce: (i) in the course of a process of production or manufacture; or (ii) in the course of repairing or treating other goods or fixtures on land.

9 Meaning of safety defect in relation to goods (1)

For the purposes of this Schedule, goods have a safety defect if their safety is not such as persons generally are entitled to expect.

(2)

In determining the extent of the safety of goods, regard is to be given to all relevant circumstances, including: (a) the manner in which, and the purposes for which, they have been marketed; and (b) their packaging; and (c) the use of any mark in relation to them; and (d) any instructions for, or warnings with respect to, doing, or refraining from doing, anything with or in relation to them; and (e) what might reasonably be expected to be done with or in relation to them; and (f) the time when they were supplied by their manufacturer.

(3)

An inference that goods have a safety defect is not to be made only because of the fact that, after they were supplied by their manufacturer, safer goods of the same kind were supplied.

(4)

An inference that goods have a safety defect is not to be made only because: (a) there was compliance with a Commonwealth mandatory standard for them; and (b) that standard was not the safest possible standard having regard to the latest state of scientific or technical knowledge when they were supplied by their manufacturer.”

“54 Guarantee as to acceptable quality (1)

If: (a) a person supplies, in trade or commerce, goods to a consumer; and (b) the supply does not occur by way of sale by auction; there is a guarantee that the goods are of acceptable quality.

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(2)

Goods are of acceptable quality if they are as: (a) fit for all the purposes for which goods of that kind are commonly supplied; and (b) acceptable in appearance and finish; and (c) free from defects; and (d) safe; and (e) durable; as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3).

(3)

The matters for the purposes of subsection (2) are: (a) the nature of the goods; and (b) the price of the goods (if relevant); and (c) any statements made about the goods on any packaging or label on the goods; and (d) any representation made about the goods by the supplier or manufacturer of the goods; and (e) any other relevant circumstances relating to the supply of the goods.

(4)

If: (a) (b)

goods supplied to a consumer are not of acceptable quality; and the only reason or reasons why they are not of acceptable quality were specifically drawn to the consumer’s attention before the consumer agreed to the supply; the goods are taken to be of acceptable quality.” 138 Liability for loss or damage suffered by an injured individual (1)

A manufacturer of goods is liable to compensate an individual if: (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) the individual suffers injuries because of the safety defect.

(2)

The individual may recover, by action against the manufacturer, the amount of the loss or damage suffered by the individual.

(3)

If the individual dies because of the injuries, a law of a State or a Territory about liability in respect of the death of individuals applies as if: (a) the action were an action under the law of the State or Territory for damages in respect of the injuries; and (b) the safety defect were the manufacturer’s wrongful act, neglect or default.

139 Liability for loss or damage suffered by a person other than an injured individual (1)

A manufacturer of goods is liable to compensate a person if: (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) an individual (other than the person) suffers injuries because of the safety defect; and (d) the person suffers loss or damage because of: (i) the injuries; or (ii) if the individual dies because of the injuries—the individual’s death; and (e) the loss or damage does not come about because of a business or professional relationship between the person and the individual.

(2)

The person may recover, by action against the manufacturer, the amount of the loss or damage suffered by the person.

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140 Liability for loss or damage suffered by a person if other goods are destroyed or damaged (1)

A manufacturer of goods is liable to compensate a person if: (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) other goods of a kind ordinarily acquired for personal, domestic or household use or consumption are destroyed or damaged because of the safety defect; and (d) the person used or consumed, or intended to use or consume, the destroyed or damaged goods for personal, domestic or household use or consumption; and (e) the person suffers loss or damage as a result of the destruction or damage.

(2)

The person may recover, by action against the manufacturer, the amount of the loss or damage suffered by the person.

141 Liability for loss or damage suffered by a person if land, buildings or fixtures are destroyed or damaged (1)

A manufacturer of goods is liable to compensate a person if: (a) the manufacturer supplies the goods in trade or commerce; and (b) the goods have a safety defect; and (c) land, buildings or fixtures are destroyed or damaged because of the safety defect; and (d) the land, buildings or fixtures are ordinarily acquired for private use; and (e) the person used, or intended to use, the land, buildings or fixtures for private use; and (f) the person suffers loss or damage as a result of the destruction or damage.

(2)

The person may recover, by action against the manufacturer, the amount of the loss or damage suffered by the person.

142 Defences to defective goods actions In a defective goods action, it is a defence if it is established that: (a) the safety defect in the goods that is alleged to have caused the loss or damage did not exist: (i) in the case of electricity—at the time at which the electricity was generated, being a time before it was transmitted or distributed; or (ii) in any other case—at the time when the goods were supplied by their actual manufacturer; or (b) the goods had that safety defect only because there was compliance with a mandatory standard for them; or (c) the state of scientific or technical knowledge at the time when the goods were supplied by their manufacturer was not such as to enable that safety defect to be discovered; or (d) if the goods that had that safety defect were comprised in other goods—that safety defect is attributable only to: (i) the design of the other goods; or (ii) the markings on or accompanying the other goods; or (iii) the instructions or warnings given by the manufacturer of the other goods. 147 Unidentified manufacturer (1)

A person who: (a) wishes to institute a defective goods action; but (b) does not know who is the manufacturer of the goods to which the action would relate;

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may, by written notice given to a supplier, or each supplier, of the goods who is known to the person, request the supplier or suppliers to give the person particulars identifying the manufacturer of the goods, or the supplier of the goods to the supplier requested. (2)

If, 30 days after the person made the request or requests, the person still does not know who is the manufacturer of the goods, then each supplier: (a) to whom the request was made; and (b) who did not comply with the request; is taken, for the purposes of the defective goods liability action (but not for the purposes of section 142(c)), to be the manufacturer of the goods.”

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ATTACHMENT 5: STATE & TERRITORY BUILDING LEGISLATION - THE BCA AND BUILDING APPROVALS State Queensland Building Act 1975 Building Regulation 2006

NSW Environmental Planning & Assessment Act 1979 Environmental Planning & Assessment Regulation 2000

ACT Building Act 2004 Building (General) Regulation 2008

What reference does the building approval make to the BCA?

Are there any references to the BCA for inspections?

What reference does the occupancy permit make to the BCA?

s.30 – Building work must be carried out under the following laws and dcouments, the BCA s.56 (2) The building certifier must consider the objectives of the BCA, and decide whether the design or specifications complies generally with the BCA or the BCA as varied. The building certifier must not make the decision in a way that conflicts with the objectives or functional statements of the BCA. s.109C defines a construction certificate as a certificate to the effect that work completed in accordance with specified plans and specifications will comply with the regulations. s.109F limits the issue of a construction certificate unless the regulations have been complied with. c.145(c) prohibits a certifying authority from issuing a construction certificate unless the proposed building will comply with the relevant requirements of the BCA. s.29(b) & (f) requires plans with the approval application which must show that the building will comply with the Act and be structurally sufficient, safe and stable. s.30 requires a certifier to not issue a building approval if the application would result in a contravention of the Act because of the design or siting of the building; or the material used in the building.

s.99 – applies to class 1a and 10 buildings; Building certifier to undertake inspection of final stage of building work and be satisfied that the work complies with the building development approval.

Certification of classification s.101 defines when building work for class 1a and 10 building is substantially completed. s.115 – a building must not be occupied if the building does not comply with the following for occupation or use – any relevant BCA provisions for its class of building. The relevant provisions are the BCA for that class at the time of approval. s.109H requires that an occupation certificate must not be issued unless the building is suitable for occupation or use in accordance with its classification under the BCA’.

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No

s.43 the builder must give notice to the certifier at each stage that the work has been carried out in accordance with the approved plans

s.69 (1) requires the construction occupations registrar to issue a certificate where the building work has been completed in accordance with the prescribed requirements stating that the building as erected, is fit for occupation and use as a building of the class stated in the approved plans for that building. s.69(2) permits the registrar to issue a certificate is the work is not strictly in accordance with the prescribed requirements but is substantially in accordance.

Victoria Building Act 1993 Building Regulations 2006

c.301(3) requires that an application for a building permit contain sufficient information to show that the building work will comply with the Act and regulations c.305(b) allows the building surveyor to request documentary evidence to show compliance with the BCA

c.601 allows the building surveyor to require testing of any building material to show that they meet the regulations which includes the BCA.

Tasmania Building Act 2000 Building Regulation 2014

s.69 requires a building permit to be accompanied by a certificate of likely compliance; s.66(fa) – certificate of likely compliance must take into account the requirements of the BCA s.67 the building surveyor can grant an application for a certificate of likely compliance if satisfied that the building work is likely to comply with the Act. Section 36 (1) If the regulations provide that a form of building work complies with the Building Rules, any such building work must be granted a building rules consent (subject to such conditions or exceptions as may be prescribed by the regulations or the Development Plan). (2) Subject to subsection (3), a development that is at variance with the Building Rules must not be granted a building rules consent unless— (a) the variance is with the performance requirements of the Building Code and the Building Rules Assessment Commission concurs in the granting of the consent; or (b) the variance is with a part of the Building Rules other than the Building Code and the relevant authority determines that it is appropriate to grant the consent despite the variance on the basis that it is satisfied— (i) that— (A) the provisions of the Building Rules are inappropriate to the particular building or building work, or the proposed building work fails to conform

s.92(1)(c) requires a building surveyor to issue a certificate of final inspection after the final mandatory notification stage if satisfied that the building work is in compliance with the Act, in so far as it is reasonably practicable to inspect.

South Australia Development Act 1993 Development Regulations 2008

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Section 59— (1) If building work is being carried out within the area of a council, then— (a) a licensed building work contractor who is carrying out the work or who is in charge of carrying out the work; or (b) if there is no such licensed building work contractor, the building owner, must, in accordance with a scheme prescribed by the regulations, notify the council within the prescribed period of the commencement or completion of a prescribed stage of work (a mandatory notification stage). (2) The notification must, if the regulations so require, be accompanied or supported by a statement (a statement of compliance) from a person who holds prescribed qualifications that the building work has been carried out in accordance with the requirements of this Act.

s.38 requires the building surveyor must issue a certificate of final inspection where an occupancy permit is not required. A certification of final inspection is not evidence that the building work complies with the Act or regulation. s.46 provides that an occupancy permit is evidence that the building is suitable for occupation but not that it complies with the Act or regulations. s.98(1)(b) allows the building surveyor to grant an occupancy permit if satisfied that the building or part of the building is suitable for occupation and adequate provisions for smoke alarms, sanitation and water supply is made.

s.67 certificates of occupancy Council must issue the certificate if it is satisfied that the building is suitable for occupation and complies with such requirements as may be prescribed. For Class 1a buildings a person is prohibited from occupying a building unless the building work has been carried out in accordance with the relevant approval.

Western Australia Building Act 2011 Building Regulation 2012

s.19 – certificate of design compliance must contain a statement that if the building is completed in accordance with the plans and specifications will comply with each applicable standard.

Northern Territory Building Act Building Regulation

s.59 requires a building certifier to not issue a building permit unless the building work and the permit will comply with the Act and Regulations; s.50 refers to adopted codes being prescribed and clause 4 of the Building Regulation adopts the BCA as a code.

Prepared by the Housing Industry Association, July 2015

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s.63 requires that a building certifier after inspecting building work and on being satisfied that the work has, in all material respects, been carried out in accordance with the Regulations, issue an inspection certificate.

s.56 Certificate of construction compliance Issued by building surveyor states that the building has been completed in accordance with the plans and specifications that are specified in the building permit and the building is suitable to be used in the way proposed. s.57(3) Certification of building compliance must state that the building substantially complies with each applicable building standard. s.57(7) may provide for things that a building surveyor is required to do before signing a certificate. s.69A requires that a building certifier must not grant an occupancy permit unless satisfied that the buildnig work is consistent with the documents required to accompany the application. s.70 requires a building certifier must not grant an occupancy permit unless the building is suitable for occupation and complies in all material respects with the Regulations.

ATTACHMENT 6: INTERNATIONAL HOUSING ASSOCIATION MEMORANDUM OF UNDERSTANDING

MEMORANDUM OF UNDERSTANDING BETWEEN MEMBERS OF THE INTERNATIONAL HOUSING ASSOCIATION ON COUNTERFEIT AND NON-CONFORMING BUILDING MATERIALS, PRODUCTS AND EQUIPMENT This Memorandum of Understanding (hereinafter “MOU”) is entered into between the representative members of the International Housing Association (hereinafter “IHA”). The IHA was fou nded in 1984 to provide a global forum for the discussion of issues related to housing and home building. WHEREAS beginning in January 2013, IHA members have engaged in discussions regarding the rise of counterfeit and non-conforming building materials, products and equipment [hereinafter “counterfeit and nonconforming building products”], and are concerned with the threat of these building materials entering the supply chain for residential construction and home building; WHEREAS IHA members have discussed issues surrounding reports that counterfeit and nonconforming building products appear to have increased their reach into the residential construction and home building industry over the last decade for a variety of reasons and may negatively affect builders, workers, and consumers of these products; WHEREAS IHA members have discussed developing a coordinated response to addressing counterfeit and non-conforming building products used in residential construction and home building counterfeit and nonconforming; WHEREAS IHA members seek to raise awareness of this issue and examine measures that may be adopted to help provide information for its members to reduce builder liability for such occurrences, protect workers, and ensure customers receive safe products; NOW THEREFORE IHA members agree to make consistent efforts to address this problem by, inter alia, reaching a consensus on definitions that properly describe the problem and concerns of the IHA, and share information with other members when they learn of counterfei t and non-conforming building products. Article I Purpose and Objectives The main purpose of this MOU is to further the goals of the International Housing Association by bringing together organizations from around the world that represent the home building industry, and to provide a global forum for discussions on issues relating to counterfeit and non-conforming building products in the residential construction and home building.

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In addition, the purpose of this MOU is to provide a framework of cooperation and understanding, and to facilitate collaboration between the IHA members to further their shared goals and objectives in regard to raising awareness of the problems with counterfeit and non -conforming building products. This MOU establishes a framework to defining these terms using a consensus-based process so that all IHA members are using these terms in a consistent manner. Moreover, this MOU will serve as an agreement for IHA members to share information with other IHA members when they learn of potentially counterfeit and non-conforming building products. Article II Description of the Issue Counterfeit and non-conforming building products appear to have increased their reach into the residential building industry over the last decade for a variety of reasons. Greater access to a much larger pool of materials supplies in many IHA member countries is now shifting the balance for residential builders and their awareness of what products are “fit for their intended purpose” and what rules and standards suc h products should meet may not be keeping pace with this greater availability. A significant part of this shift is the emergence of counterfeit products and falsified claims about a wide range of building materials, products and equipment. Increases in international trade and better access to goods from other countries have created greater risk that criminal enterprises will use traditional distribution mechanisms to place counterfeit products into the marketplace. International organizations estimate counterfeiting costs hundreds of billions of dollars each year and impacts state economies on a number of levels – unfair competition, loss of revenue, loss of jobs, and increased risk to public health and safety. In addition, businesses are facing increased risks of finding counterfeit (fake) products in the supply chain. In tandem with the increase in counterfeit products, member countries have also expressed concern that the systems in place to manage non-conforming products may not be adequate both in the country of origin and in a global supply chain. A non-conforming product may not necessarily be a counterfeit product and there is evidence of increased entry of these products into the supply chain in many countries. Therefore, IHA members are concerned that counterfeit and non-conforming building products are creating problems with liability risks to builders, workers and the public if products fail or do not conform to their intended uses. Article III Understandings, Agreements, and Support As part of this MOU, the IHA members agree to share information with other IHA members on emerging issues related to home building, products, materials, or equipment that they learn of taking placein their countries. The IHA Secretariat will use its best efforts to f acilitate communications on these emerging issues with the IHA members.

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Article IV Term of the Memorandum of Understanding The term of this MOU will be for three (3) years from the effective date referenced in Article VII (below) when it is signed by two-thirds of the IHA members. Upon agreement by two-thirds of the IHA members, this MOU may be extended for additional terms in increments of three (3) years.

Article V References Documents subject to the MOU include the IHA document titled “Defined Terms for Discussion” that defines counterfeit and non-conforming. In addition, other documents that provide background information include: 



 

Minchin, Edward, et al., Counterfeit Construction Products From Low-Cost Sourcing Countries (Management and Innovation for a Sustainable Built Environment, 20 – 23 June 2011, Amsterdam, The Netherlands). OECD Task Force on Charting Illicit Trade (OECD/TF-CIT): Conclusions of the first meeting of the OECD Task Force on Charting Illicit Trade(2-3 April 2013 - Paris, France): http://www.oecd.org/gov/risk/oecdtaskforceonchartingillicittradetf-cit.htm U.N. Office on Drugs and Crime, Report excerpt on Counterfeit Products, Section 8:  http://www.unodc.org/documents/data-and-analysis/tocta/8.Counterfeitproducts.pdf United Nations Interregional Crime and Justice Research Institute, Confiscation of the Proceeds  of IP Crime: A Modern Tool for Deterring Counterfeiting and Piracy (April 2013).

Article VI Effective Date This MOU will become effective upon affirmative vote by two -thirds of the IHA members.

IHA Secretariat

1201 15th Street, NW, Washington, DC 20005 Office (202) 266-8182, Fax (202) 266-8521

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ATTACHMENT 7: INTERNATIONAL HOUSING ASSOCIATION DEFINED TERMS FOR NON-CONFORMING BUILDING PRODUCTS

COUNTERFEIT AND NON-CONFORMING BUILDING MATERIALS, PRODUCTS AND EQUIPMENT DEFINED TERMS Background The first consideration for IHA members was to develop consistent terms when referring to either counterfeit or non-conforming building materials, products and equipment, hereinafter “products”, and develop a consensus on which terms will be used, and under what circumstances, otherwise, using these terms interchangeably could create confusion for members, workers, and consumers. These terms were provided for discussion purposes among members of the International Housing Association. U pon motion duly made and seconded, IHA members present voted to concur in support of the definitions as drafted at the International Housing Association Annual meeting on February 5, 2014. 1.

Non-conforming building products are products that do not meet regulatory or industry standards for the product’s intended purpose making that product not ‘fit for its intended purpose.’ These products may create problems for health and safety by putting workers in construction and the o ccupants of residential buildings at risk. Nonconforming products are increasingly having a negative effect on competition for legitimate product manufacturers and suppliers. They also have an effect on the end users of the products, being residential builders and home owners. These products include: 

products that do not meet the design, model or performance standards set out in the

particular country where the products are to be used;

2.



products that are defectively made; and



products that are intentionally counterfeit or falsified.

Falsified building products mean products which make a public claim about their intended performance against specified building codes and standards in a particular country, that when used or tested, do not meet that performance claim. The failure to meet the performance claim may be intentional or unintentional.

3.

Counterfeit building products 1 mean products which are an unauthorized copy of something genuine, which is done with the intention to deceive. Counterfeit building products are those products that are copied from genuine building products and sold to builders, material suppliers, or even consumers, as if the product were genuine, and are products that are produced with the intention to deceive buyers and end users. Counterfeit goods violate an owners’ rights in the intellectual property, either trademark or patent violations.

1

Examples may include switches that were imported into the U.S. that were counterfeit (also referred to as “knock-offs”) but

sold as genuine products; counterfeit bolts or fasteners used in cranes that caused two crane accidents in New York in 1987 and 1998 (Counterfeit Construction Products From Low-Cost Sourcing Countries at p. 2).

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ATTACHMENT 8: INTERNATIONAL HOUSING ASSOCIATION – MEMBER COUNTRY INFORMATION SHEET

BUILDING PRODUCT CONFORMANCE ACTIVITIES May 2014 AUSTRALIAN HOUSING INDUSTRY ASSOCIATION

1. Regulator Interventions – Product Recalls In Australia, there are national and state regulators who manage consumer protection and safety and do from time to time take action to recall a product found to be faulty or non-compliant. The Australian Competition and Consumer Commission (ACCC) works at the national level and publishes all product recalls on their webpage. The ACCC also provides the public with the ability to make a complaint about a non-compliant product. http://www.recalls.gov.au/content/index.phtml/itemId/952873 The eight states and territories of Australia have consumer protection agencies which also undertake the same role as the ACCC. From time to time they also issue product recall notices which are published on their webpages. Example: NSW Department of Fair Trading http://www.fairtrading.nsw.gov.au/ftw/Consumers/Product and service safety/Product recalls.page? 2. Current Compliance Activities There are several building industry groups undertaking research and promotion of the problems relating to nonconforming building products. One recent example is a report recently released by the Australian Industry Group which identified the extent of non-compliant building products in specific industry sectors and sought to qualify the impact this has on builders and manufacturers. http://www.aigroup.com.au/portal/site/aig/standards/nonconformingproductresearch/ HIA is working closely with a range of industry groups to continue promoting this issue and seeking support from government to address this matter more directly. 3. Industry Education HIA has published a range of information for members to assist them in understanding their obligations to purchase or supply compliant building products. This information provides details for manufacturers and suppliers of building products on how they can obtain appropriate verification that their product meets the Australian building code requirements. For builders and contractors, a range of information is available to assist members in understanding what to look for and what to accept in relation to product verification. This information is made freely available on HIA’s webpage through a series of information sheets that are updated from time to time.

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http://hia.com.au/en/Publications/InformationSheets.aspx?Information+Sheet+Category=Products+and+materials 4. Industry Developed Conformance Schemes In Australia, several industry groups are taking voluntary steps to promote better compliance of building materials. There are a range of industry run third party certification schemes in place which cover materials such as windows, structural and reinforcing steel and engineering wood products. Examples include: Australasian Certification of Reinforcing Steel (ACRS) http://www.acrs.net.au/ Engineered Wood Products http://www.ed.ewp.asn.au/Public Access/Default.aspx There are also mandatory schemes for electrical products and plumbing products which are regulated by the state and territory governments through intergovernmental agreements. Plumbing products – Watermark http://abcb.gov.au/en/product-certification/watermark Electrical products – Electrical Equipment Safety System https://equipment.erac.gov.au/Public/

5. Regulatory Frameworks The Australian building regulatory framework provides controls through the building code and state building laws about the performance of building products. These requirements are applied at the building approval and construction stage for most building products, which creates a framework where building products can be manufactured locally or imported from offshore and not be required to prove their compliance until they are actually purchased and used. There are some products which are regulated at the point of sale and must meet the necessary standards to be legally sold. This includes electrical and plumbing products. However the majority of building products are not captured at this point. HIA has undertaken extensive research into the regulatory framework for building products and can make available more information on request.

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