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Webinar: Systemic Risks in the Australian Architecture Sector

Giorgio Marfella: So very well. Let's start to think we have enough participants. And good afternoon, everybody. My name is Giorgio Marfella. I am the chair of the Architects Registration Board of Victoria and I will be the host here today. And I'll just quickly launch the seminar. Systemic Risks in the Australian Architecture Sector. Now, before I commence, I would like to acknowledge the custodians in particular of the lens in which we are situated today, and there's so many lines, I believe, for all the attendees, but on your behalf, I would like to acknowledge that this presentation is being delivered in the lands of the Wurundjeri people, and I wish to acknowledge them as the traditional owners of the place where the ARBV is located. And I'll take the opportunity to pay my respects to the elders past, present and emerging and Aboriginal elders of other communities who maybe here today. So the purpose of today's presentation is to provide you guidance and information on a research project that was commissioned jointly by the retreat with the New South Wales Architects Registration Board and these two boards together last year decided to commit and commission at their stop research with a scope of identifying current and future systemic risks that are or may be affecting the future.

Giorgio: The regulation of the profession of architecture in Australia and the decision of undertaking this research was taken in light of recent developments, including some high profile cases that involved architects who allegedly been negligent in some parts of the professional duties, several reviews of the Australian construction sector and some reforms that are ongoing, which I'm sure many of you will be aware of and a wealth of academic sources that indicate to the emergence of disruptive forces that may impact the provision of architectural services in the future.

Giorgio: Now, the perception of the two boards of New South Wales and Victoria was that notwithstanding the wealth of literature already existing, there was a perception that from the regulatory point of view, there are also gaps, particularly in trying to understand what roles regulators could do, can have to mitigate these risks in the future. And so with that in mind, we've provided the this research and we have engaged Dariel de Sousa, who's presented here today.

Giorgio: Now, the findings of the report certainly allow us to have some more clarity that we were looking for, but also have highlighted some matters will require further work, and especially most of all, it will require engagement and collaboration with our stakeholders who are, first of all, the architects who we regulate, but also industry bodies, universities and other education providers.

Giorgio: And last but not least, surely other government departments and other regulators in the construction industry. So the hope is that this seminar will help us reaching out to those stakeholders more closely through you who are in attendance today. And to facilitate this, we felt it was important to invite here Dariel de Sousa. Dariel was engaged as an independent consultant to carry out this research in collaboration and with the support of a steering group from ARBV.

Giorgio: And NSW ARB. Now, Dariel is a multi-disciplinary professional with degrees in law, engineering and business, and he focuses on regulation, risk, compliance, governance and performance. Dariel has over 20 years of experience providing strategic, legal and operational advice to public sector clients at all levels of government. She has provided advice across a broad array of sectors and regulatory regimes, including in the RBA.

Giorgio: In the past. And she recently also at Book Law, Policy and Climate Change, the Regulation of Systemic Risks, which addresses the challenges of regulating systemic risk caused by climate change. Dariel is the current director of DART Legal and Consulting and she was previously director of compliance and Enforcement at the Australian Energy Regulator and Counsel in the Legal Affairs Division at the World Trade Organization in Geneva, Switzerland.

Giorgio: So my role here today is just simply to give you promoted them over to today. The presentation will be fast paced. And so for those of you who will have questions, please use the function of the Q&A button below. I'll be back with you tomorrow with some of those questions and without further ado, I can now hand over to Dariel.

Dariel de Sousa: Thanks so much, Giorgio, and welcome everyone. Good afternoon. As Giorgio has intimated in his introductory remarks, the report that has been prepared jointly by the ARBV and New South Wales ARBV is lengthy and so necessarily this presentation is pitched at a high level. I'll just be covering some of the main points and key themes emerging from the report that both Giorgio and I are happy to take questions through the Q&A function at the end of this session.

Dariel: As this is a structured CPD session, there are a few questions that we will pose to you throughout the course of the session. You will be presented with multiple choice answers. If you could respond to the Pulse survey with your response and then we'll have a bit of a discussion about the responses once they've all been posted. So I wanted to start with a bit of background about the report Giorgio has already touched on some of the background.

Dariel: But just to summarize, the report focuses on key current emerging and future systemic risks affecting the Australian architectural profession. Now, systemic risks are risks that extend across the sector. They can cause widespread harm and they can also raise questions about the efficacy of the regulatory framework and the regulator in terms of managing those risks. And we saw this kind of type of risk play out in the Financial Services Royal Commission, where the Commission found that not only was there widespread noncompliance by regulated entities with the regulatory framework, the regulatory framework was inadequate to deal with that noncompliance.

Dariel: And the regulator was not exercising sufficient oversight. Now, systemic risks may be difficult to address because they may be latent that in other words, the harm may not have materialized or not yet be obvious, and therefore they're difficult to identify in advance, particularly in the absence of good information and intelligence that enable trends to be detected. And in some cases they can be too widespread for the regulator to tackle at once.

Dariel: So the main purpose of the report is to assist the ARBV and the New South Wales ARBV to better target their proactive regulatory activity so that aspects of systemic risk that are within their regulatory remit can be prevented, pre-empted and mitigated. Now, I'll explain in a bit more detail what I mean by proactive regulatory activity when I talk about the ABS role, but first a little bit about the process and basis for the report.

Dariel: Again, Giorgio has touched on this, but just to recap, the report started with the desktop review to identify high level issues and the desktop review involved consideration of reports by government bodies and non-government bodies, both here in Australia and overseas, particularly relevant to the Australian construction and architecture sectors, including reports prepared by the AIA and the ACA. And they referenced in in the ARBVs report.

Dariel: Reference was also made to academic literature of relevance both here and abroad and case law, including tribunal decisions and judicial decisions that are relevance to architects in the discharge of their professional standard obligations. The high-level issues identified through the desktop review within the subject of in-depth workshops with the Joint Working Group, comprising representatives from the ARBV and New South Wales ARBV, including board members, the CEOs from both organizations and staff members to determine the relevance of those high level issues for the Victorian and New South Wales architecture sectors.

Dariel: So the high level issues were cross-checked against complaints, data and anecdotal information available to members of the Joint Working Group. And the report effectively consolidates the findings from both the desktop review and the workshop discussions.

Dariel: Now a little bit about the regulatory context. Most of you hopefully are already familiar with this, but just to set the background backdrop, as I mentioned, the lens for the report is really the ABS regulatory remit. So it's important to keep that in mind. So as all of you should be aware, the ARBV is the regulator for the architecture sector and they derive this function under the regulatory framework which comprises the Architects Act 1991 and the architects regs made under that Act, which includes the Victorian Architect's Code of Professional Conduct.

Dariel: And as such the ARBV must ensure compliance with the regulatory framework. Now this is not compliance, the compliance sake, the purpose of the regulatory framework and to the ARBV function is to ensure that desirable regulatory outcomes can be delivered. Delivered and those desirable regulatory outcomes are to ensure that architects discharge their obligations to their clients in a professional way, and also to take action to address unprofessional conduct if and when it occurs.

Dariel: And this in turn helps to protect consumers and users of architectural services more, more generally. Now, there are three categories of regulatory activities that are ARBV exercises in order to achieve these regulatory objectives. First, the registration and approval functions of the ARBV, the registers architects and approves companies and firms and effectively provides a gateway, allows those that have been registered and approved to participate in the regulated sector.

Dariel: It also undertakes proactive regulatory activities, which this report is part of, to basically encourage voluntary compliance by providing support and education, raising awareness. But also to detect, prevent and pre-empt noncompliance before harm materializes. And the last category of regulatory activity is reactive. Regulatory activities, which is to take action if and when noncompliance occurs. And in combination, these three categories of regulatory activity help the ARBV discharge its own function and thereby achieve regulatory objectives that sit at the core of the regulatory framework.

Dariel: So the first question I'd like you to consider and respond to the pulse of survey is what is the primary role of the ARBV in managing systemic risks affecting the architecture sector in Victoria? So the responses will come up and I'll just give you 10 to 15 seconds to respond. If all of you could post your responses right?

Dariel: So we've got around 85% of people who've responded, and there's an interesting diversity of responses. In fact, there are elements of all of these responses except perhaps the last one that are correct. So certainly the ARBV is not precluded from advising government about the existence of a systemic risks, but its core role, as I mentioned at the outset, is to ensure compliance with the regulatory framework.

Dariel: The reason why the third response is partially true, but not entirely correct is the nature of systemic risks, is that they are they apply across the sector and the ARBV has a remit that is dictated by the Architects Act, which basically allows the ARBV to focus on professional conduct of architecture. So there are aspects of systemic risks that go beyond its regulatory remit and really there is a role for other stakeholders to play in addressing of those aspects of systemic risk, including industry bodies, including education and training providers, including government and architects themselves.

Dariel: And then finally, compensation of clients. Under the current regulatory framework, there is no mechanism to compensate clients to for defects or unprepared personal conduct, but there are mechanisms available to deal with an unprofessional conduct under the regulatory framework. So I thank you for participating in in that poll. So we're going to move along. I'm sorry. The first thing that I want to talk about is the practical context of the report.

Dariel: So there is a chapter in the report early on in the report that basically discusses the market for architectural services. And it really sets the backdrop or sets the scene for the rest of the report. The analysis in the report of the market indicates that there are three key features that characterize the market. The first is intensifying competition, which is the product of a number of factors falling demand, downward pressure on fees.

Dariel: Vertical integration. These large multidisciplinary, vertically integrated construction companies that include engineering and design services, as well as increasing numbers of building designers that are not regulated the same way as architects. They don't have the same qualification, but they their services can overlap with the services provided by architects and the phenomenon of partial services where architects may be engaged for part of the design services then.

Dariel: But then a third party, say the contractor or the construction company, the owner or some other designer may take over the rest of the services. So these factors can lead to an intensification of competition. The second feature is the adversarial culture, particularly when DNC contracts are utilised. The report talks about the asymmetry in bargaining power between the parties, particularly between the contractor and subcontractor, when these contracts are used.

Dariel: The prevalence of unfair risk allocation where architects and other subsidies may be required to take on more risk than is fair and reasonable and unfair contractual terms as well as unrealistic time and cost are requirements that can generate this adversarial culture and provoke defensive and risk averse behaviour, which is counterproductive. Ultimately, the third key feature are disruptive forces, particularly climate change.

Dariel: Buildings emit a lot of emissions that they are also vulnerable to the effects of climate change. And we're increasingly seeing more and more regulation to try and deal with these effects. And architects need to respond to those regulatory requirements through their design solutions. There's also technological change, including automation, digitalization affecting the sector, as well as the emergence of specialized practitioners.

Dariel: The cladding, fire engineering and other types of design services that change the landscape in the market for architectural services. Now, these developments are not new, clearly. However, it's their confluence and they likely intensification over time that is may well present new challenges for architects moving forward. Now, the report here is a summary of the chapters in the report, and each of the chapters really focuses on the different possible contexts where systemic risks have emerge or may emerge moving forward.

Dariel: So we've already discussed the market procurement models is a key theme. Then it comes up throughout the report client architect, relationships, building defects, exposure to risk, climate change and sustainability, automation, digitalization and innovation and education training and continuing professional development. The report in for each of these chapters discusses the systemic risks arising in each context, summarizes the findings based on the desktop review and the consultation with the working group, and then concludes with the implications and recommendations for the various stakeholders in the sector, including ARBs, industry bodies, education and training providers, government and architects themselves, and also identifies areas for future research.

Dariel: So let's now move along to some of the core themes and findings in the report. The first, a really important issue that crops up repeatedly in the report relates to DNC procurement. The context of the findings in these areas, the DNC procurement is the dominant procurement approach, particularly for large scale projects, both residential and non-residential. The participants are typically developers, contractors and a range of subcontractors, including architects.

Dariel: Notwithstanding the existence of standard form contracts, the contracts used to document the arrangements for these types of when this model is used are typically bespoke. Now, the ARBV does not have power to limit or hinder or dictate in any way the choices made by architects and their firms about whether or not to enter into a DNC contract. Having said that, there are, as the report finds it, regulatory implications associated with this procurement model.

Dariel: So I'm going to share some of those main findings with you. The first key finding is that the DNC procurement model can lead to adverse outcomes for architects, including increased exposure to legal risk. As I mentioned, there may be an unfair allocation of risk Under these bespoke contracts. Architects may be required to take on more response ability, including for other subcontractors, than is fair and reasonable.

Dariel: But they have limited control over project delivery. DNC contracts, as I've already mentioned, are typically bespoke and can include unfair contractual terms, and these incur in turn can have knock on effects for the availability of RPI insurance. Either the costs can go up and make it prohibitively expensive or insurance can be completely unavailable because of the risk to which architects may be exposed.

Dariel: Under some of these contracts, DNC contracts can lead to compromises on quality to achieve time and cost targets that are specified in in under this type of procurement model. And of course, this has consequences for the achievement of architects professional standard obligations. The model can also lead to a perception among some clients that architects don't have the technical skills and experience to provide project management services.

Dariel: A marginalization of the historic role of architects. Even though project management is a core skill under the national standard of competency for architects. And the fallout from these findings is that architects must take active steps to assert themselves in a DNC contact context and ensure that their rights, interests and regulatory obligations are effectively represented and protected throughout the negotiation and important implementation of a DNC contract.

Dariel: And I know this probably sounds like a bit of a glib statement, and it's easier said than done. And I know industry bodies have been trying to support architects in this space, but it's really important to take stock of the risks and try and push the interests and ensure protection of architects as far as possible in this context.

Dariel: And this applies particularly to smaller firms that may not have the ability to review these bespoke contracts in sufficient detail or have the skills to manage the symmetry in our bargaining power. Now, we're going to finish this section with another question which I'd ask you to respond to. So the next question is which type of architect's compliance obligations under the regulatory framework may be affected by the procurement model, right, where almost up to 85%.

Dariel: So I might just start speaking here. So some of you said insurance, and that's certainly correct. As I've already mentioned, architects are required under the regulatory framework to have appropriate insurance in place, and insurance may become more expensive or completely unavailable depending upon what's documented in the contract. So insurance can certainly be affected. Client architect relationships can also be affected.

Dariel: There are extensive obligations about what architects need to do to manage their relationships with architect and with their clients in the under the regulatory framework, including to discharge obligations diligently and promptly and to provide accurate and unambiguous information to their clients. And yet, under the DNC contract, their ability to discharge these obligations could be compromised. So that's certainly true Professional standards.

Dariel: Certainly architects need to exercise reasonable care and professionally. But once again, because of time and cost pressures in a DNC contract context, the ability to achieve the professional standards as specified in the code of professional conduct may be somewhat compromised. So all of the three are correct, but in fact, the correct response is all of the above. It's not just one or the other.

Dariel: All of the above. And I'm heartened to see that no one said none of the above, because obviously there are a lot of professional obligations that could be put at risk in the DNC contracts. Now, I apologize. This screen seemed to have stayed during the last segment. So if someone can just let me know if Giorgio, if you can let me know if there's anything obscuring the slides for the next section.

Dariel: Let's move now to another important theme in the report, Client architect relationships. So again, some context for the findings. The success. The report notes that the success of a construction project is likely to depend heavily on the effectiveness of relationships between parties, including the client and architect. Obviously, if relationships were at work, well, it's more likely that asuccessful outcomes from everyone's perspective will occur.

Dariel: And similarly, if the relationships are not working well, it's less likely that success will occur. Now, clients are diverse and projects are diverse as well, so it's difficult to generalize about or characterize The general client architect relationship in the report notes that the report also notes that the client architect relationship can be affected by a broad variety of factors, including those sort of governed by the architect, but also those influenced or determined by the client, including factors that are outside the architect's control, particularly in the context of day and say, procurement model, where we're already spoken a little bit about those.

Dariel: Now, notwithstanding these problems that architects may face in trying to discharge their obligations to their clients, they these issues are regulated under the regulatory framework. There's an obligation to have a written client architect agreement. There are mandatory requirements for the contents of that agreement. Architects are required to discharge their obligations to their clients diligently and promptly, to keep their clients informed, to notify them about changes, and to be transparent about the basis for their costs and fees and any other associated costs for the project.

Dariel: And these regulatory requirements are not there to make architects lives difficult, but they're really they're designed to ensure that the relationship between the client and architect is managed well and therefore help deliver these successful outcomes that we know can be influenced by poor relationships. Now, notwithstanding the sort of the communication obligations under the code of professional conduct that architects are subjected to, the report notes that poor communication is a problem.

Dariel: That's not uncommon, unfortunately, and poor communication can clearly compromise client architect relationships. Again, there is an obligation to have a client architect agreement in place, but both the air base, New South Wales and Victorian have found that non-compliant client architect agreements do exist and in some cases the agreements don't exist at all. And even when they do exist, sometimes they're poorly understood.

Dariel: So when a dispute arises, if you don't properly understand what's in your contract, the process of trying to work out what the contract means and how it should be applied can also impact on the client architect relationship. Again, there needs to be the code requires transparency in terms of the basis for charging fees. But the report notes that the approach to project costing and fees can have an adverse impact on client architect relationships, particularly when architects’ fees are tied to construction costs that can escalate over time and can lead the client to perceive perception that there has been a cost blowout.

Dariel: And these can particularly occur when there has been a lack of communication about the likely or almost certain escalate of construction costs. Client access to recourse may be limited under current regulatory arrangements. There's no power to refund clients when defects occurred to order remediation. There's no provision for compensation. And this may deter clients from raising concerns about unprofessional conduct.

Dariel: Having said that, both ARBs do receive complaint support from clients. Notwithstanding the absence of these mechanisms to potentially enhance access to recourse for clients. The fallout from these findings is that architects really need to invest in better relationships with their clients, particularly through more effective and meaningful communication. So that takes us to the next question. Which statement about architects compliance obligations regarding their relationships with their clients is correct?

Dariel: Right? So it's heartening to see that the correct response is what most people have said is correct. The client and architect. The client architect agreement must outline the manner in which professionals fees and cost of services will be calculated. Doesn't dictate the manner of calculation, but it does say that the client architect agreement must outline the manner in which those fees will be determined, and that gives some transparency to the client as to how the fees will be calculated.

Dariel: Now, some people have said that architects have complete discretion regarding the contents of client architect agreements. This is actually incorrect. The regulatory framework does dictate some of the mandatory aspects of the client architect agreement, and those aspects need to be included in the agreement so architects don't have complete discretion. Some of those aspects are dictated by the regulatory framework.

Dariel: Someone or a couple of people said that a written client architect agreement is not always required for provision of architectural services, that that is not correct. There might be a perception that depending upon the scale, etc., it's not required. But in fact the regulatory framework does require a written client architect agreement to be in place for the provision of architectural services and luckily no one said architects can take as much time as they like when providing architectural services.

Dariel: That's a no brainer. Obviously, you know, clients expect architects to provide their services in a timely manner and architects under the professional code of conduct are required to discharge the obligation promptly and diligently. So I thank you once again for responding to that poll and we will move on to the next aspect of the presentation, an important one which deals with building ethics and compliance with the National Construction Code.

Dariel: Now, the report, by way of context, finds that there's evidence to indicate a rise in building defects, particularly in multi-story residential buildings. The ARBs didn't go out and collect this evidence itself. There are a number of reports referenced in the AIAs report that basically demonstrates there has been a growing number of building defects in these type of buildings.

Dariel: Now, architects under the regulatory framework are required to act with care when providing the architectural services, and they also required to comply with all applicable laws, including the National Construction Code. Many of you will be familiar with the building confidence report, the Shergold WI report that was issued a few years ago, and in that report they observed that schemes across Australia that regulate architects do not expressly require architects to prepare documentation that demonstrates that a proposed design complies with the NCC.

Dariel: This is technically correct, but will delve into the detail of that statement in a moment. There are still obligations under the Code of Professional Conduct to comply with the applicable law, including the NCC. The report goes on to say This is the building confidence report that poor quality design documentation might lead building builders to improvise and make decisions that are not compliant with the NCC.

Dariel: So that's sort of the implication of that statement. It is that bad design documentation can lead to building defects because the builders don't really know what they should be doing. Now the report goes through quite a bit of evidence from various reports and studies that have been undertaken and finds that there's no clear evidence to demonstrate a correlation between design services rendered by architects and the growing incidence of building defects.

Dariel: Although there's probably a need for more research on this issue, but there's no studies at present that prove this correlation, this connection between the two. Nonetheless, architects are likely to face increasing scrutiny over time regarding their contribution, if any, to these defects and Grenfell Tower disaster across building etc. evidence of the need to just be on notice that this is a live issue.

Dariel: The main findings in this part of the report are that the scope of architects professional standard obligations in their duty of care when providing architectural services is broad. It covers the design itself, the documentation of the design representations made about the design. The administration of the contract, which between the client and architect cost estimates. I could go on, but just to emphasize that the scope of the architect's duty of care and professional stated obligations is quite broad.

Dariel: The available evidence indicates that architects like what the Building Confidence report says. The evidence available to the ARB indicates that architects generally do document compliance with the NCC and the great majority of them do so with reasonable skill and care. Although there have been cases that have come to the air base that demonstrate that sloppy documentation can occur.

Dariel: Now, having said that, although most architects seem to be aware of the NCC obligations and document their how they design complies with reasonable care, the NCC is a detailed and complex document and heavily text based, and the report notes that aspects of the NCC may be poorly understood by some architects, some common factors that could cause building defects include time and cost pressure and as well as unreasonable client demands.

Dariel: And these are features that are prevalent in the context of day and say, contracts which suggest that day and see context is a really important potential starting point. But trying to unpack why and how these building defects are occurring. The report also talks about the fact that while there's no generalized noncompliance by architects with the regulatory framework, a poor compliance culture may exist among limited pockets of the sector.

Dariel: Some architects may be disengaged from the regulatory framework, some are dismissive, and some architects may believe that regulatory compliance is optional. And that is clearly not the case. It is part of the law and architects are bound to comply with it. So that takes us to the next question on this topic, which statement or statements correctly summarizes architects professional standards obligations regarding compliance with the National Construction card, So their responses should have come up for you.

Dariel: Now it's a bit more hesitation on this question. I know it's a bit of a tricky one and might be some debate about the correct answer, but I will share with you my views on what the correct answer is in a moment. So wait till we get up to about 85% right. It seems to have stalled at about 83%, so let's some commence the first response.

Dariel: Architects must understand the requirements in the NCC. Well, absolutely, definitely. As I mentioned, under the regulatory framework, architects need to comply with all the applicable law, including the national code. They must definitely understand the requirements. And secondly, the question, the response. The second response, they must ensure that their designs comply with the NCC. Obviously, there's a big problem if the design does not comply with the NCC from a regulatory perspective, but also from the perspective of potential defects that could be catastrophic.

Dariel: So absolutely, the first response is correct. The second response is correct. The third response architects must document how their design complies with the NCC. Now, you recall that the Shergold Weir report did say that the most regulatory frameworks don't specifically require architects to document how their designs comply with the NCC. That statement is technically correct, and therefore if you see on its own, then that is not specifically required.

Dariel: However, I would say that that's best practice, so you should probably do that, although it's not literally required under the regulatory framework. So a fair number of you, almost half of you said responses and be correct and that would be my preferred response. Some of you said B and C, which sort of implies that A is also ticked because you can ensure your designs are compliant with the NCC unless you understand them.

Dariel: So I would say that most people did pretty well on this response and all of those responses are appropriate and applicable. So let's just move on to the next context, which is disruptive forces. So context for the findings in this, there are two chapters one dealing with climate change, sustainability and the transition to net zero. And there's another chapter that deals with technological developments, including automation, digitalization and innovation.

Dariel: The report notes that disruptive forces present opportunities for architects. The status quo is being disrupted, and those architects embrace the change Involved with these disruptive forces are likely to really make gains. However, these disruptive forces can also create challenges. They alter the risk profile of construction projects and expose architects to different legal, operational and competitive risks compared to the status quo.

Dariel: And this shift in the you know, the nature of the market could affect architects ability to comply with a professional stated obligation. And that's why these issues have been covered in the report. So some of the main findings in relation to climate change and associated developments, particularly the increasing uptake of a sustainable design to respond to the transition to net zero, architects could be exposed to liability if they fail to explain the meaning and implications of sustainable design to their clients.

Dariel: If the intended outcomes of sustainable design are not properly documented. So no one really knows what sustainable design means in practice. If risky, untested designs and materials are relied upon that could result in defects. If architects that are providing sustainable design services lack adequate expertise and experience and again and defects could arise in relation to technological developments. The report points to various literature that finds that the construction sector is not known for innovation and the rapid uptake of technology, particularly in the context of DNC procurement, where there are temporary coalitions of parties involved in these projects, all of whom are trying to deliver the project as quickly and cost effectively as possible, and then they

Dariel: disband and move on to the next project. So that's not really an environment that fosters innovation and the uptake of technology that can make things work better. Building standards can also lag these technological developments in some developments, such as building information, Mallet modeling BIM require better relationships between parties, parties been seen the sector in order for the potential to be properly realized.

Dariel: And I'll leave you to rate the details of some of those disruptive forces in the report at your leisure. So just to conclude the sort of presentation part of this session, some parting messages just to wrap things up. Architects clearly face challenging market conditions, systemic risks, as the report notes, are evident in the market for architectural services. Having said that, there is no evidence yet of generalized noncompliance by architects with the regulatory framework.

Dariel: There's an important role for regulation in delivering positive outcomes for architects, clients and the regulator. And the report identifies implications and regulation recommendations for various entities that can contribute to the management of the various systemic risks covered in the report including architects themselves, but also industry bodies, education and training providers, government more generally, as well as the air base and will be best placed to embrace, embrace and realize the opportunities the current market conditions present.

Dariel: If they commit to regulatory compliance and use professional standards in the code of professional conduct as a means to guide them through disruptive change and challenging market conditions. So that's the end of the formal presentation. But we are now going to open up the chat room to some questions and I can see that there are some questions that have been posted, so I might just move this over to this screen.

Dariel: Giorgio, did you want to show?

Giorgio: I will. I will take you through it. Thank you very much to all of you who has looked for Saul, you to you, Dariel, for this very instructive presentation. But also thanks for those of you who have asked some questions. Now, there are some one theme in particular that has emerged, which is the theme of the National Construction Code.

Giorgio: And there are several queries that I'm not going to order in the way that would put. But it seems to me that there is quite an interesting understanding in particular to what extent the role of the architects and in understanding and providing compliant design solution ends and where the role instead of the building surveyors, for example, begins. And you're a lawyer and.

Giorgio: Really you to.

Dariel: Defend you.

Giorgio: Know I, I mean there's several things I could say, but I'll pass it on to you. You know, how can we address that?

Dariel: Yeah, I mean, obviously there's an interface between design and construction services, and it does beg the question, as the question is have suggested, where do you draw the line between the architect's obligations to ensure compliance and where did the builders obligations begin? I would say the design, because that basically sets out the parameters of the building. And to the extent that there are any of the design that are governed by the National Construction Code, they need to be compliant with the national Construction Code and then it's the builder's responsibility to build in accordance with the design that may imply that the primary responsibility for NCC compliance lies with the architect.

Dariel: But I would say that there's a design element and there's an execution element. And so it's really a shared responsibility. But between the designer and the builder. And with that, that's probably the extent to which, without understanding the practicalities of how the interface between architects and builders work, I might pass over to you, Giorgio.

Giorgio: And I think you touch and I think the answer is it depends. And I would say that it will depend also on the quality of the documentation and the specific matter at hand. My understanding is not giving some precedence in some disputes that have been, you know, arise. They have arisen in Victoria and in Australia is that architects also need to provide evidence that they have consulted the building.

Giorgio: So, so there may be aspects of the code that are inherently complicated being a performance based codes. There also are alternative solutions that obviously can be more risky, but it's important that the documents that and any processes of a modification or departures from the code are very well documented and supported by the right evidence. But it's very difficult to draw to perhaps provide a recipe approach or advice from the ARB.

Giorgio: We will be not to underestimate your liability as a designer and your responsibility and duty of care with anything that regards with the construction code or for that matter, also met the Australian standards.

Dariel: I'm not just to add to that, Giorgio, about the fact that the report notes the need for appropriate education and training on the NCC and references the changes to the national standard of competency to emphasize place more emphasis on NCC compliance, and that hopefully that will translate into more training and education advice, including in the architectural practice examination.

Giorgio: Exactly. And in fact, there is a comment here also that points to the role that universities can play in educating architecture students, in understanding the code. I and I agree with the fact that universities can step up in that field. Obviously, there are different universities, different courses, there are different places as well in which the code should be dealt with.

Giorgio: And also we should be mindful that notwithstanding, the university can do more, universities don't necessarily have to dance to provide the principles that inform any code. I would say because we university’s role is to prepare students in at the earliest stages of their career, the codes will change. Many Australians, students of architecture will go on and practice overseas.

Giorgio: And this is no excuse to say that there is no need to look at the codes, but there are actually universal principles of PHI safety or good design that could certainly be explained and implemented in education successfully. So we take that on board, and I should say in Victoria we've been quite vocal in promoting this and we've actually put in a new national standard of competency for architects.

Giorgio: We're from Victoria, We put as a specific request the principles of PHI Safety were actually acknowledged in the in the criteria at the credit universities, for example. Now there are other questions that arise and now there was one particular one that was on I'm trying to scroll to it. There was one problem for you there where you use the word schemes.

Giorgio: What did you mean by that? Can you go back?

Dariel: Oh, that was the language of the building confidence report. Sorry, the building confidence report used the language of schemes, regulatory frameworks. Let me just find the statement I think someone's referring to. You know, they're inside the building. Companies report observes that schemes across Australia that regulate architecture. So it's just another way of referencing the regulatory framework. So, you know, the various instruments that comprise the regulatory architecture do not expressly require architects to document compliance with the these.

Giorgio: So the term is meant here generally not a setting scheme is a planning scheme that you might be thinking about. There was another interesting question is what determines a non-compliant client architect agreement? I could answer that in part, but would you to.

Dariel: Ensure I can start so two core obligations in in the code regarding these agreements. The first is to have one, and the second is to ensure that the mandatory requirements in the code are contained in client architect agreements and there's no negotiation on that. They set the minimum requirements for what needs to be included in in the client architect agreement.

Dariel: And there is some discretion in terms of how those mandatory obligations can be complied with, but they need to be contained in there. And just tonight, that they are a short form, standard form client architect agreements that are available from industry bodies. The New South Wales ARB has a short form contract, so there are plenty of opportunities for architects to avail themselves of those standard form contracts and ensure that the absolute minimum that is dictated by the professional code of conduct are met through these standard form contracts.

Dariel: So you don't need to start from scratch. There are model agreements that exist out there.

Giorgio: Yeah. And so in short, refer to the regulations for a for a detail. And it's important to understand there are different levels of noncompliance. A Not having in place is certainly not acceptable, but B also there are specific provision as to how it has to be drafted, but it's there, as pointed out, that there are actually performance provided by the membership organizations who can assist in that process, refer to the regulations to understand the background.

Giorgio: Now Another theme that has emerged and our basic questions keep coming. So I'll try my best to intersect everybody. But the other thing is most is the issue of contracts in I understand here in the context of particularly on innovative contracts. And so there is a question here saying, well, I'll try to, you know, about the use of unfair contract clauses.

Giorgio: Now, Dariel, can you maybe help me here just to give a bit of the background of our research and our findings in the area, So maybe we want to you I think you've already highlighted a bit in your presentation, but there's greater.

Dariel: To be to. Let me just turn to the relevant because we did go through in the report some of the specific clauses or aspects that could expose architects to additional risk. So this actually comes from the AIA Novation contract survey. So I might just recite some of the findings in that report, which we drew, the ARBs drew from in their report.

Dariel: So in the air organization contract survey, it was found that architects had increasing responsibility for all aspects of construction, yet had diminishing power to influence good design and constructive outcomes. Architects were required to take on more risk and responsibility to sub consultants, even where those sub consultants were appointed by the contractor and rates of product substitution by the contractor were higher under the date.

Dariel: This negotiated arrangement, which could compromise safety for end users. So the contractual terms relate to these situations that architects find themselves in, where they're asked to take on more responsibility than is fair and reasonable. And that in turn exposes them to additional risk. I can't speak to the specifics of what these contracts say, but we really drew from various documents, including the air and Ovation contract survey, to make findings as well as information put out by the ACA and other bodies that have consistently found that there are clauses in DNC contracts included no data.

Dariel: DNC contracts that typically impose undue responsibility and expose architects to unfair risk well beyond what should be within their remit and what is reasonable in terms of their duty of care.

Giorgio: And there's a specific question here that mentions the upcoming unfair contract clause legislation, which I'm not aware of, But you, you.

Dariel: I would be lying if I say I did. So I'll certainly take that on notice and have a look at it. But yeah, there is another dimension to all of this and that is as the question highlights, that there's an anti-competitive component to all of this. And it sort of highlights the fact that these systemic risks go beyond the remit of the ARBV.

Dariel: So that anti-competitive aspect is not regulated by the air base, but it is an issue. And so industry bodies and architects need to avail themselves of all the legal and other mechanisms to try and push against these unfair contractual clauses that are really the product of an asymmetry in bargaining power between the various players. But it's a good point.

Dariel: Take the question on notice and do agree that there is a sort of a competition issue that is at play here, but it goes beyond the air base remit.

Giorgio: Yeah, that's important to stress that we see it as a risk, systemic risk in the industry and unfortunately or fortunately, depending on the point of view, that the regulators cannot really dictate what kind of forms of contracts. However, how research is as shown evidence of academic research, as well as input from a steering group comprised of practitioners in large practice.

Giorgio: And the input was that there is an understanding that the many DNC contracts are highly bespoke despite the fact, for example, Australian standards provides some frameworks to have agreements. But is there other parts of the industry that actually adopts, for example, contracts that have been mutually agreed between, for example, the Institute of Architects and Master Builders, the landscape of innovative contract is quite bespoke.

Giorgio: And so this leads me to another question that indicates what if you were in a large practice? Are you more or less exposed to risk? Well, in this case of another control, I would say probably a larger practice is broader shoulders to minimize the risk because they would have access, for example, for sound legal advice, whereas small practitioners may be more exposed, for example.

Giorgio: So again, we just try and sort of taking this to the attention to the audience here. Right? But also we are aware of that as the regulators, we don't see those contracts. And so, so actually it's very much also within the remit, the profession to find the right agreements in place.

Dariel: And so Giorgio can I just add, we do there is a reference in the report to the fact that the ABS don't see many complaints relating to DNC contracts because they are typically large players and so complaining to the IRB will not necessarily yield an outcome that the large parties are looking for. They're not going to get any compensation or remediation, etc. and so they may pursue alternative avenues of redress if a dispute arises.

Dariel: And so once again, that's why there's a reference to other reports and surveys that have been done, because there's not any hard not much hard data that can be relied upon, particularly in the DNC context, because the absence of or limited number of complaints in that in that area.

Giorgio: Now, the questions keep growing. So I don't know if I'm going to be able to respond to all of them. Now, there is another theme has emerged that just for transparency, I want to highlight here several questions I've asked. The prospect, for example, of legal changes to the way the state governments appoint board members.

Giorgio: Now, I am a board member of this and the chair of the board, so I don't think this is an appropriate forum for me to comment on specific legislative amendments that may come in the future. All I can say is the current board, as architects are present and there's enough diversity of skills and a matrix of skills that allow us to understand different areas of the profession, from education to small practice, going through governance and large practice.

Giorgio: So that risk is not a systemic risk. It's for the current board, but for other matters. I would invite you to deal with those issues in another forum. Please. Now, again, we go back here to questions about the NCC building survey. Yes, we do refer to the role of building surveyors, but we also there's a comment here that we might be taking the role of building survey with the role of the builder.

Giorgio: I think we've actually understood that there are components of compliance with the NCC that are strictly a design stage, but others that are in the hands of the builders for which they also are responsible as they are. Now, there's another question here about in discussing clients, how do you deal with third party clients, for example, funding bodies for a construction project?

Giorgio: These third parties will have their own requirements on the provision of services. Yet no formal agreement is ever made between the architect and the client. Do you understand this question? What are we heading to?

Dariel: I guess look, because I don't practice in the in the sector as a architect or a builder, I, I, you know, it's hard to conceptualize what's going on, but it sounds like there may be a multitude of parties, including funding bodies who are not directly signatories to the contract between the contractor and the architect. So I think the question is asking what are the architect's obligations?

Dariel: Visibly, these third parties that are putting money in to fund the project, is that does that sound It's capturing the.

Giorgio: I understand. So you're probably referring to two levels of clients. But my understanding is that an auction that normally has one or multiple clients, but they are the clients that those who pay their fees. And so the act fundamentally seeks and it prescribes that there has to be and agreements in place, notwithstanding that there could be some specific nuances or additional levels of agreements in place depending on the nature of your clients.

Giorgio: The act simply says it must be in writing that it must cover these matters.

Dariel: And what kind of and if there are third parties that are seeking to influence the design or want to have input into the design and they're not directly your client, then they need to negotiate with your client to ensure that their requirements are reflected in documenting the client architect agreement. So practically there might be various stakeholders and they may feel like they've got ownership or some right to dictate outcomes.

Dariel: But as Giorgio has said, you have a relationship with the client, whoever that may be in the particular procurement context, and your responsibilities are to that client.

Giorgio: There's another question here. Does the response to these risks currently involve divesting scope to specialist consultants, which effectively might seem like at the desk due to the skilling in some areas and? This could have also, I suppose, the effect of somehow eroding the role of architects to hear a quote, you know, the architecture becoming just exterior decoration.

Dariel: Yeah, yeah, absolutely. There's a quote in the report. I might quickly flip through that. There was a US survey that was done that made that exact point that this you know, there was the UK Royal Institute of Architects report that found that there is this trend towards specialization architects are trying to push back on the exposure to risk and that basically creates an opportunity for these specialists to step into the breach and provide services that architects are not able to provide because they might be exposed to an undue risk.

Dariel: So let me just read this report. This was a survey conducted by Burne-Jones in 2010, a panel of us experts involved in the architecture and construction process and 50% of the panel members felt that if the architecture continues on its current path, the panel collectively agreed that its role will become more specialized and carry less responsibility. So increasingly these specialists will proliferate and individual architects’ roles will sort of shrink as more and more specialists arise.

Dariel: And that's sort of a natural reaction to exposure to risk. You don't want to be exposed to reach, so you step back from services or projects or whatever they expose you to risk. But then others can step in and take up the slack in response.

Giorgio: And let me add that the architects who traditionally should I continue in the role they currently have in the future, they will they are likely to maintain a role of supervision and coordination of other consultants. And so that's the definition of an architect, explicitly the most generalist profession in the construction industry. So notwithstanding the fact that there will be a multiplicity of your consultants and there is definitely the trend is I'm sure the practitioners here will know better than I do.

Giorgio: The trend has been to grow over time to project teams where they have increasing number of consultants that at a level of complexity it may require a skill on its own and becoming more managers of the process where liability might not necessarily diminish for the simple fact that you have a consultant on board.

Dariel: So absolutely. I mean, regardless of whether you've got one other person that you have to negotiate with or ten other people, your obligations do not change. And so you've got to respond to these multiplicity of stakeholders and make sure that notwithstanding the complexity of the relationships, you are still capable of complying with your professional standard obligations. So you're not excused merely because the landscape is changing.

Dariel: There are more and more specialists arriving on the same.

Giorgio: There's another question here I come and I'm aware of. I'm just going half way through. General, I don't know how much time.

Dariel: Looks like we can.

Giorgio: Stay for a bit longer.

Dariel: Yeah, sure. It's ten. We might just so everyone knows when we get to finish. So for those that want to know when they we should, we go to 115 and take a couple more questions.

Giorgio: Yes, I'll do that. And by all means, I apologize for I won't be able to respond to all of them. But you are encouraged to follow up with the ABC and we will provide an answer either by even an aggregate response to some errors or some of you I'm reading here are very specific matters for which perhaps it warrants a direct contact.

Giorgio: Me They are. Maybe there's one here that interests me, though, is I it's this our effective our whistle-blower clauses in DNC consulting contracts in highlighting and mitigating potential risks to the clients and architects. Now, are you aware of those clauses?

Dariel: No, I, I cannot claim to know anything about them, so I might have to defer to you.

Giorgio: What I would say from a perspective of the regulator, and this is both in New South Wales and Victoria, we feel that the majority of disputes that we see arising are not necessarily comprehensive or all of the disputes that occur in the industry. This is not necessarily a bad thing. If the disputes are resolved in a in a positive way for those parties.

Giorgio: But as we pointed out in our report and in our experience, we are not overly exposed to disputes arising in a large, very large projects. This is not to say that there are no problems, but simply there are probably mechanisms currently in the industry that provide a filter that does not necessarily allow us to really see those contracts in place or really have a direct understanding of what systemic risk and detailed problems may arise from those contracts.

Giorgio: But we are aware of it. So the fact that there is a certain sentiment in the industry or dissatisfaction with the related contracts coming from different parties and we also understand there are some parts of the industry also in support of the ANZ contract DNC contracts. As we understand they're not necessarily a failure all the time. There are very successful projects that also have been proven to do work with those contracts.

Giorgio: So now there's another question here and then perhaps we get it to a close. This this question here says, I'm concerned that managing my client's budget with the cost escalations we are experiencing under contract, we are obliged to provide a design with a client's budget. But I wanted to ask if this being flagged as a rising issue. There are we are aware of these problems.

Dariel: Oh yeah, that was that was you know, there's some detail in the report about architects’ fees tied to construction costs, which are increasingly escalating because of supply chain issues and various other factors. And while that's not illegal to have architects’ fees tied to construction costs, when the construction costs escalate, the clients can perceive that there's been a cost blowout and that can really destabilize the relationship between the client and architect.

Dariel: And there are obligations to keep clients informed and make sure that they are aware of what the consequences of cost escalation are likely to be. But if you are unable to deliver architectural services within the client's budget, then you shouldn't be providing architectural services. That would be my response. You can't, you know, I hope for the best and then basically charge them more after committing that, you would stay within their budget.

Dariel: If you're unable to deliver a project within budget, then you need to move along and find a project that can be delivered within budget.

Giorgio: It's another interesting point here the role of project managers external to the architectural practice and has it been considered and part of the systemic risk?

Dariel: Yes, it.

Giorgio: Ties back a bit with the previous one about the market of services, I suppose.

Dariel: Yeah, Well, in the report there is some discussion about the historical role of architects where they were the orchestrator of these construction projects, they were the designer and they were helping to deliver projects. But over time, particularly with the of these large, vertically integrated, multi-disciplinary construction companies, the role of the architect has become more marginalized and that in itself does not give rise to a systemic risk unless the marginalized role has an adverse impact on the architect's capacity to operate professionally.

Dariel: I would say that in itself does not compromise compliance, but it's the whole DNC package where this phenomenon is arising that really that in gives rise to systemic risk.

Giorgio: And there's another couple of questions that are touching. Another problem, which I mentioned, which is the importance of Australian standards. When we speak about the NCC, as you know, the sea refers to Australian standards and there are some standards. Absolutely expected to be complied with and the NCC refers to those directly. Now there is a call to make those standards free.

Giorgio: Now personally I could only agree with that, but I would I although as an academic I had access not free because the university pays, but we do have access for educational use of those standards. But now she said that unfortunately ARBV is not in a position to make that call. What I would say, I imagine that Australian standards also are costly, I understand and they are that somebody has to pay for it in a sense.

Giorgio: So if the profession or some sectors of profession may be given free access, they might be beneficial, but somehow the taxpayers would have to or the industry at large would have to pay for those costs. But certainly access to knowledge I suppose, is critical, and that's also part of the reasons why we're doing here today. And whilst we are aware we have limits in what we can provide as the regulator of architectural services, we are also, nonetheless, we feel the remit to somehow have an engaged approach to any systemic problems.

Giorgio: Although I should say when we the nature of this report ultimately was to highlight risks and risks are not necessarily failures, so that they can also be opportunities for the profession and that's very much the scope of this report. So it was it wasn't necessarily the way we're not attempting to paint a bleak picture, but rather to present some measures of substance at a high level that I hope it was useful.

Giorgio: And for those who have asked those questions, we will collect those questions and see and discuss how we can find a way to provide a general response. So with this, I'll take it to a close. Thank you very much, Dariel. I'm sure that judging by the response, it was very instructive and successful for a seminar and we really look forward to continue to do so in the future at the ARBV.

Giorgio: So again, thank you everybody for attending and we look forward to, to see you in the future again. So have a good day.

Dariel: Thanks to everyone. Bye bye.

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