Watch the Combustible Cladding Industry Forum video

The tragedy of London’s Grenfell Tower fire again brought concerns about polyethylene core cladding into the spotlight. With the risk to both life and property, there is a pressing urgency to find a solution across the industry. But many factors make it complex, as the robust discussion at a recent forum hosted by Macquarie Bank highlighted. 

Dean Firth, Head of Business Banking with Macquarie Bank, says the bank is in a unique position to bring experts from the legal, strata, insurance and built environment together in one room to discuss this issue. Its client base effectively forms a proactive community that can share knowledge and ideas – with the potential to find new ways to protect lives, manage risk, and preserve the value of assets.

Four key themes emerged from the industry panel discussion and the Q&A that followed.

1. While the majority of buildings are safe, there is widespread concern.

Insurance Council Australia’s Karl Sullivan says the layers of regulation in Australia’s construction codes ensure most buildings in Australia are safe and will not suffer catastrophic fires or damage.

“But there are a tiny percentage of buildings where problems will occur – not just with cladding but other materials as well,” he noted. He says the insurance industry is working with fire engineers, planning legislators and designers to respond. “Some buildings may be deemed uninsurable, or exclude cladding fires, but there is not one example of that in Australia at the moment.”

Testing such as thermogravimetric analysis can check for evidence of materials, but even compliant materials will potentially burn in a building fire.

“We need to work out very quickly where the high risk buildings are – the number of ‘red dots on the map’,” said Sullivan.

2. The challenge: who has duty of care?

Richard Crawford of legal firm Minter Ellison noted that the building supply chain is complex, with developers, engineers, suppliers and sub-contractors all playing a role. Meanwhile, legislation is currently more focused on prevention of future use than liability.

“Certification is enforced through planning legislation, but there is no law that says you must comply with the National Code of Construction,” he said. “Six year limitations on breach of contract means there is limited recourse for subsequent owners if a defective product is installed.”

Ultimately, the building owner is responsible for remediation. “Insurers will not pay for replacement cladding,” noted ICA’s Sullivan. “We’ll work with building owners to manage the residual risk, but we can’t fix the problem.”

3. The legacy problem in existing buildings

Chris Duggan, President of Strata Community Association (SCA) NSW, estimates there are 80,000 existing strata plans in NSW with a potential liability for remediation subject to identification and assessment – and a statutory obligation to insure these buildings.

“1,000 buildings have been sent letters by the NSW taskforce, but we see this as quite narrow. From individual strata managers’ assessment, I’d expect that to grow to a minimum of 10,000 – although through assessment and testing we’d hope that would come down to a very few that need work.”

The costs of remediation can be significant. Following the 2014 fire at Melbourne’s Lacrosse building it now faces a $15million bill for recladding – and as Duggan noted, the builder is currently litigating its liability.

Strata managers are understandably concerned about the impact this has on their owners corporations – with one audience member sharing an example of a building where the owners corporation faced a $10million bill to replace the cladding or a $600,000 insurance premium.

“There’s also a massive perception issue – if a building is identified as a potential hazard there could be uncertainty about the property value,” Duggan commented.

4. What can we do to mitigate the risks?

Stuart Boyce of BCA Logic, a fire safety engineering consultancy, noted there is currently no cladding product that will comply with the new AS5113 test, but alternate approval pathways include a fire engineering assessment of a specific product, or the CodeMark product certification scheme.

He believes the buildings most at risk are eight to 10 storeys with full cladding, as these buildings are below the 25m effective height plane thus legally are not required to have sprinkler systems.

“The Building Code of Australia provides for a minimum standard, and this does not provide any guarantee the building materials won’t burn” he noted, describing how the new honeycomb aluminium core products on the market will still burn due to the glue used, even though they are deemed non-combustible under the current Building Code of Australia..

He also noted replacing the cladding may not be the only remediation solution in some circumstances: fire risk management such as steam sprinkler systems could potentially protect people during evacuation. 

As audits continue to reveal buildings with potential risk and councils serve fire orders, building owners will have little choice but to look at the various options to protect both people and property. As the forum discussed, this may also take a coordinated approach from government and industry bodies, as well as professionals in the legal, insurance, strata and built environment sector. 

Thank you to our panellists:

  • Karl Sullivan, General Manager – Insurance Council Australia
  • Chris Duggan, President – Strata Community Association (SCA)
  • Stuart Boyce, Director – BCA Logic
  • Richard Crawford, Partner Minter Ellison

If you would like more information on this topic, please speak with your Macquarie Relationship Manager.

Additional information

Unless stated otherwise, this material has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL & Australian Credit Licence 237502 ("Macquarie") for general discussion purposes only, without taking into account your personal objectives, financial situation or needs. Before acting on this general information, you must consider its appropriateness having regard to your own objectives, financial situation and needs. The information provided is not intended to replace or serve as a substitute for any accounting, tax or other professional advice, consultation or service.

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