The Plumbing Auditor Cometh

17 Apr The Plumbing Auditor Cometh

IMPORTANT CLAIMS HANDLING UPDATE
Any blog post in the Metropolis Solutions Blog Archive that includes any direct or indirect reference to insurance claims handling of any nature whatsoever, including any reference to existing and/or potential claims, was posted prior to 01.07.21, is for general information only and may also no longer be applicable due to recent changes in Federal Financial Services laws concerning claims handling. Please note that Metropolis does not hold an Australian Financial Services (AFS) Licence for claims handling and therefore qualified expert assistance on any insurance related matter, including Victorian Plumbers Warranty, should now be sought from a suitable lawyer or other expert holding an AFS claims handling licence. Metropolis Solutions can still consult on insurance claims handling matters, but only in the instance where we are directly engaged to do so by your authorised legal representative.

All plumbers have felt the dread – either an announced or even unannounced audit of their work. 

Most of the time things go well of course – but what if things take a turn for the worse?

All States and Territories have legislation governing plumbers.  In some states the obligations can be more significant, perhaps more notably in Victoria where licencing is strictly required for all plumbing work and plumbers must also be covered by a comprehensive, statute based insurance scheme.   Authorities in all jurisdictions however hold power to discipline plumbers and also lay fines.

Most plumbers try and perform good quality, compliant work.  Dodgy plumbers tend to ignore the possibilities of any audit anyway, but even good plumbers can get caught out at times through simple things like lack of understanding or using the wrong personnel on a job.  So just how bad could this get if something really went wrong??

The short answer is that as a licenced plumber, it could destroy your career and your business.

Carelessness, cost cutting, use of non-compliant products or dodgy installation methods, but especially anything which puts the public in danger, can (and will) get the authorities very excited. Builders and others like Engineers and Architects are only just starting to find this out – for example on the flammable cladding issue which has just exploded into a huge problem for the whole building industry.

Let’s look at Victoria.  Plumbers are licenced and regulated under part 12A of the Building Act 1993.  In the event that the work of a licenced plumber comes to the attention of the Victorian Building Authority (VBA) and is found to be defective, there are plenty of potential consequences to worry about.

POWERS OF THE REGULATOR

First of all, the VBA has immediate power under S.221FA of the Building Act 1993 to take action on the basis that plumbing work must be compliant.

The Act says “A licensed plumber or a registered plumber must not carry out any plumbing work or specialised plumbing work that does not comply with this Part or the regulations made under this Part”.

Breach of S.221FA is a summary offence and on conviction the Court must impose a fine on the plumber of 500 “Penalty Units”.   That doesn’t sound much until you discover that a Penalty Unit is currently worth $158.57[i].  That means any fine for non-compliant work under S.221FA of the Act would presently cost you $79,285.  It’s also worth noting that there is no scale of fines for this offence in the Act – just a single, very large penalty.

A fine of almost $80,000 would wipe out many plumbing businesses. But lots more could go wrong at the same time, making the whole situation even worse.

Again talking about Victoria, the VBA has power to issue a Rectification Notice against the plumber, ordering him to make good the defective work at his own cost and within 28 days. Just paying to fix the defects might be enough to break many plumbers financially – yet alone any fine, but if the Rectification Notice isn’t complied with in the time allowed, there’s a further fine of 60 penalty units from the VBA – and another $9,514.20 of the plumber’s money bites the dust.

And just like in the case of the dreaded TV special offer and bonus steak knives, there’s always more:

• If the Compliance Certificate hadn’t been issued within the required 5 days, there’s another automatic fine of 60 penalty units – another $9,514.20
• If the property owner asked the plumber to issue the missing certificate and he didn’t do that within 5 days either, that’s another 60 penalty units – $9,514.20
• All details on the Compliance Certificate must be correct and not misleading – further fine of 60 penalty units – $9,514.20
• If the plumbing involved below ground sanitary drainage and no ‘as laid’ plan was lodged with the authority at the time, that’s also 120 penalty units – $19,028.40

If the plumber obstructs or tries to mislead the VBA investigator or auditor, on top of what’s already gone wrong, things naturally go from bad to worse:

• It’s an offence to obstruct the VBA officer. But surprisingly the fine is only 5 penalty units.
• It’s also an offence to provide false or misleading information. This is a much bigger fine with another 120 penalty units worth $19,028.40.

LET’S LOOK AT AN EXAMPLE

Here’s a simple enough and potentially common situation.  The drainage plumber does a below ground installation job for a renovation project and is paid $10,000 in cash by his builder mate who is also being paid cash by an unsuspecting owner.  To save money the plumber omits to bed the pipe work correctly and also fails to comply with the geotechnical engineers design including the mandatory installation of movement tolerant joints. As it’s all a weekend ‘cashie’ the plumber also doesn’t issue a Compliance Certificate and also doesn’t lodge an “As Laid” plan with the authorities. Any mistakes buried right?  Nobody will ever find out right?  WRONG.

2 years down the track the concrete slab and walls of the building start to heave due to a broken pipe, fractured due to excessive soil movement.  It would never have happened if the movement tolerant joints had actually been installed of course.

The owner gets in an expert and CCTV exposes the main defects.  A bit of hand excavation then also finds no bedding material around the pipes.  The owner then realizes he hasn’t been given a Compliance Certificate and reports the matter to the VBA who are compelled to investigate.  The ‘cashie’ excuse won’t work anywhere here; the plumber has done regulated plumbing work and is now legally stuck with the consequences.

Trying to cover his tracks, the plumber then denies any involvement to the VBA investigator and also refuses to attend site with him (the refusal means another 10 penalty units = $1,585.70).  Thinking a signed statement will get rid of the problem, the plumber then provides a (false) statement to the VBA investigator alleging that he didn’t even do the work.  The property owner however knows full well who did the work, pressures the VBA and also issues a demand on the plumber for the certificate – which is also ignored on the pretence ‘it wasn’t me mate’.  Under pressure of prosecution by the VBA for carrying out regulated drainage plumbing as an unlicenced plumber however, the builder eventually cracks and reveals the truth.  It’s all over.

The VBA issues a Rectification Notice.  The plumber does not comply.  He’s also discovered it’s going to cost over $40,000 to rectify the defects – so that’s another 40,000 reasons to keep up the denial.

Taken to Court by the VBA in a routine prosecution, the plumber is (not surprisingly) found guilty.

Here is the position with fines alone – and it has to again be noted there is no apparent discretion under the Act for any reduction or sliding scale on the fines (so pleading to the Magistrate may not be of any value):

• Defective work $79,285.00
• Certificate not issued at the time $9,514.20
• Certificate not issued on request by owner $9,514.20
• No as laid sanitary drainage plan lodged $19,028.40
• Obstruct a VBA officer $792.85
• Failure to attend site on request by VBA $1,585.70
• False and misleading statement to the VBA $19,028.40
• Non-compliance with a rectification notice $9,514.20
• Total fines = $148,262.95

None of these fines are covered by insurance of course; they must be borne by the plumber personally.

The VBA then initiates disciplinary action under 221ZZZJ of the Building Act 1993 which results in the plumber having his licence cancelled for a year.  If the fines weren’t bad enough, this is quite likely to be the end of the plumbers career and his business.

The owner also needs to do something, so simultaneously initiates a civil claim against the plumber under the Licenced Plumbers General Insurance Order 2002 and recoups the full cost of repair.  The claim costs the plumbers insurance company $75,000 including expert and legal fees and the plumber also has to pay a claim excess of $5,000.

Looking at what the situation would be for any plumber not in Victoria however, he would not have any insurance against the civil claim at all and so would be facing the full $75,000 civil claim bill personally in addition to all of the fines.  That’s because the consumer protection scheme in Victoria does not exist in any other states or territories, nor would the plumbers normal business liability insurance policy cover such a claim.  This could well result in him losing his house as well as everything else that’s already gone wrong.

But of course it could still get even worse.  On paying out the claim, the plumbers’ insurer cancels his insurance policy.  They can (and will) do this because he’s now unlicenced.  Apart from this, he now has a poor claims history and is seen as a big risk.  To make absolutely sure they won’t be on risk ever again, the insurer also makes a note on their file never to reinsure him if he ever does manage to get his plumbing licence back.  That’s a big door which just slammed in the plumbers face.

If he does get his licence back and applies to another insurer for cover, the plumber will then be legally compelled to disclose that his previous insurer cancelled his policy and refused to reinsure him ever again.  That means it’s also going to be extremely difficult for the plumber to ever get insurance – from anywhere.

Suddenly, an apparently easy but non-compliant $10,000 ‘cashie’ has turned into a personal and financial disaster with repercussions that could last for decades.

WHAT ABOUT A VERY SIMPLE FINDING OF NON-COMPLIANT WORK?

Even in a far simpler example, the fines can still be very significant.

Let’s say the plumber has failed to install compliant rainheads on a 3 apartment multi residential development but did everything else completely right.   The plumber didn’t realize his error because he had been using the same ones from the same supplier for the past 10 years, had not properly understood what the regulations required and had also not been audited on the issue before.

There are 12 rain heads on the 3 apartments in total.  On audit they all fail AS/NZS3500.3.2015 as the rainheads do not have compliant overflow provision.  In Victoria this is again a simple (but expensive) offence under S.221FA of the Building Act 1993 and the fine on conviction is 500 penalty units – currently $79,285.  Issued with a Rectification Notice by the VBA auditors, the plumber also has to then replace all 12 rainheads at his own cost with compliant alternatives; just the OH&S works necessary to do this could run into many thousands of dollars, plus the cost of replacement, compliant rainheads.

The 12 rainheads originally cost $1,200 from the local sheet metal shop but that’s now been converted into a personal financial loss of close on $90,000 plus a day of work lost at court being beaten up by the regulator.  The regulator of course might then decide to look back at other jobs completed by the same plumber….and on it goes.  No matter which way you look, it’s a Pandora’s Box.

SHOULD PLUMBERS BE WORRIED ABOUT AUDITS?

In the case of anybody who has ever done non-compliant work (knowingly or otherwise) or else avoided the various other obligations which exist in them as a licenced trade, the answer is a very definite and unambiguous YES.

A critical issue is that all plumbers must keep fully up to date with the standards and codes.  Excuses like ‘the Standards cost too much to buy’ or ‘I haven’t had those since trade school and lost my copies years ago’ will naturally go down like the proverbial lead balloon if an audit comes up as bad news.  Any audit could be catastrophic, even for what may appear to be ‘minor’ breaches given there is also no apparent discretion in the penalties (in Victoria at least, if not elsewhere) and the regulators could also decide to spread their investigation into other works certified by the same plumber.

Those cheap non-compliant rainheads put on a multi-unit residential development for example, or that yellow PEX gas pipe which was left exposed to UV, or those movement tolerant drainage couplings which weren’t installed on another job, or those drainage pipes that were quickly buried in local clay soil rather than in proper bedding material, could all very quickly and easily turn into their own nightmares – particularly if as expected, the authorities get increasingly more serious about these issues of clear cut non-compliance in the coming months and years.

Post the Lacrosse and Grenfell Tower fires, nothing seems more certain than an ever increasing and sharp focus by authorities on plumbing compliance, particularly given the enormous attention now being paid to non-conforming building products and practices, a range of investigations currently in progress (including one into roof plumbing standards in Victoria) and the now official acknowledgement – for example recently by the Victorian Minister for Planning, Richard Wynne – of an entrenched culture of non-compliance throughout the whole building industry.  Those practices evolved to get jobs done faster and to minimize costs, however have in many cases left ticking time bombs for others to address at a later date.

Issues like this will become increasingly critical because of the considerations also now being given to Whole of Life Costs (WOLC) for building projects whereby current estimates indicate that the maintenance of buildings costs somewhere between 4 and 5 times the original build cost over a 20 year time frame[ii].  In the case of plumbing products and installation methods, the implications of non-compliance can be huge.  The implications include:

• Product replacement (most likely with one that is higher quality than the original)
• Increased maintenance costs (to repair or maintain the products, or for spare parts)
• Operational inefficiency (facility/building closures, lost productivity etc)
• Health and safety risks (development of mould, ceiling collapses, lead leaching etc)

The Governments at both national and state level have realized the regulators had taken their eye off the ball in the whole building industry.  The fallout from this is likely to be huge.  Increased audits and more difficult dealings with the regulators are inevitable.

To protect their industry, the security of a valuable licenced profession, their own livelihoods and the public at large, all plumbers must adapt urgently and ensure they only perform and certify compliant work using compliant products and compliant methods.

[i] http://www.justice.vic.gov.au/home/justice+system/fines+and+penalties/penalties+and+values/

[ii] Plumbing Connection magazine, page 56, “From Cradle to Grave”, Autumn 2018