Builders' defects fund paying out millions in compensation each year, Assembly inquiry hears

Master Builders Fidelity Fund trustee and lawyer John Harris shed light on the inner-workings of the scheme when he fronted the ACT Assembly's building quality inquiry on Wednesday.

The fund was established in 2002 to provide homeowners with an avenue to secure compensation for defects and incomplete work, in the event their builder collapses or dies.

But the fund's trustees are only obliged to consider claims made in accordance with a strict set of criteria. Owners and lawyers have said those limitation make it almost impossible to secure a payout.

In the most recent high-profile case, the fund's trutees rejected a $10 million claim from the Elara apartment owners, who were seeking compensation for a litany of alleged defects at their Bruce complex. The owners are appealing that decision to the full bench of the federal court, after losing their first case earlier this year.

Although the ACT government established the scheme, there is very little public information about the fund, including how many times it has paid out.

On Wednesday, Mr Harris told the committee that the scheme paid out "an average of a couple of million dollars a year", although he did not have exact numbers on hand. An average of about 20 people received compensation each year.

Mr Harris said in the largest payout, $1.4 million in compensation had been granted to owners in a 14-unit complex in Turner, where leaking from the external walls caused their apartments to flood.

The fund had about $12 to $14 million in its reserves, he said.

Committee member Suzanne Orr recounted to Mr Harris some of the concerns previous witnesses had raised about the scheme, including the narrow time frame in which successful claims could be made. Compensation is also capped at $85,000 per owner under the scheme.

In response, Mr Harris said the system was "working reasonably well", as he noted that owners whose claims had been unsuccessful were clearly more likely to have grievances with the scheme.

He said the fund's trustees would abide by any changes the government might make to the scheme, but warned there could be dire consequences if the claims period, which is currently six years for structural defects, was heavily backdated.

"Doing it retrospectively would probably break the fund," Mr Harris said. "If we were to go back in the past six years and say we were going to permit $200,000 claims rather than $85,000 I think the funds in the fund would run down and run out."

The inquiry's sixth day of public hearings also heard evidence from senior officials at the Australian Institute of Building Surveyors, who again voiced concerns about the insurance crisis confronting practitioners across the country.

The ACT's model of private building certification has come under scrutiny throughout the inquiry's amid concerns that it gives rise to potential conflicts of interest.

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At Wednesday's hearing, the institute's chief executive, Brett Mace, said certifiers were legally bound to act in the best interests of the community when inspecting properties, including homeowners.

Australian Institute of Architects ACT chapter president Philip Leeson also appeared before the inquiry, arguing that the "failures" apparent in Canberra's apartment sector were the result of "quality not being embedded in the values system of the design and construction process".

"It is time to change current building practice, where time and cost is put above quality and safety, jeopardising both people's safety and the economic security of their investments," Mr Leeson said.

Mr Leeson identified seven areas for potential reform, including regulation of all building practitioners and the appointment of clerks of works to oversee the design and construction process.

Further public hearings at the inquiry are scheduled in August and September.