Cladding crisis hits building surveyors: Lendlease sues, insurance premiums soar

Contractor Lendlease, which had to replace the external cladding on Melbourne's Royal Women's Hospital, in March filed papers in the Victorian Supreme Court, alleging breach of contract by building surveying consultancy Philip Chun and director Shane Leonard, for failing to notice that the design documentation included the use of combustible material and for failing to make it aware that the cladding did not comply with the building code.

Lendlease is thought to be claiming about $8 million to cover the recladding cost. A directions hearing is scheduled for October. Philip Chun and Mr Leonard are the first two respondents in the case that also alleges failures by architects DesignInc and Woodhead, fire engineer Exova Warringtonfire and facade contractor Minesco.

Mr Leonard said that while revisions to the building code announced last February ruled out the use of polyethylene-core aluminium panels, there were no such restrictions at the time the hospital contract was awarded in 2005.

"We believe it was installed in accordance with the code at the time," he told the Financial Review. "Under today's scheme you would say an [aluminium composite] panel with a PE core wouldn't comply but at the time it was deemed compliant."

Lendlease declined to comment.

The extent of buildings across Australia with potentially dangerous cladding is unclear. Mr Blackett said more such cases were likely – even when certifiers and surveyors were not liable – and that the impact on insurance premiums put their ability to keep practising at risk.

"There will be cases where firms such as Lendlease and no doubt other contractors, as time goes by, will be put in a position where they are forced to replace cladding," he said.

"If we see more claims come in 2018 and 2019, then the insurance is going to go significantly higher next year. That's unsustainable."

BMG is not alone. In Victoria, a slew of firms whose insurance policies came up for renewal at the end of June also faced big hikes, said Wayne Liddy, a licensed surveyor and national vice-president of industry body the Australian Institute of Building Surveyors.

"We're hearing of 200-400 per cent increases in premium," Mr Liddy said.

Insurance broker Darren Pavic agreed that the current round of premium renewals was expensive.

"The increases are large," said Mr Pavic, of national brokerage BRIC. "On average they would be going from less than 1 per cent of a firm's income to closer to 1.5 per cent to 2 per cent of a firm's income."

Another risk for building certifiers and surveyors is the growing push by insurers to insert exclusions around cladding-related claims into their policies. This is a further risk for practitioners, as the state licensing bodies require PI policies to be exclusion-free and could declare them in breach of license conditions if they accept a policy with a cladding-related exclusion.

The AIBS says the unco-ordinated nature of state-based responses to combustible cladding is making it hard for the industry to respond and wants the federal government to take charge.

If the problem isn't resolved, building certifiers facing unsustainable costs will leave the industry and that will bring construction to a halt, Mr Blackett said.

"The private sector is where all the expertise and experience sits," he said. "If they choose to or are forced to leave, those projects ... will have to stop. Local governments do not have the resources, nor in most instances the expertise to manage these projects."

Mr Liddy agreed.

"The industry will stop," he said. "It will come to a grinding halt."