Show me your stars!

The New South Wales government has implemented a new rating system aimed at preventing a minority of substandard developers from tarnishing the overall reputation of Sydney's development industry.

The Independent Construction Industry Rating Tool (iCIRT) uses a five-star system to rate builders on their apartment build, which must meet the minimum benchmark average of three out of five stars or above to be deemed “trustworthy".

This rating revolution was sparked by the infamous Mascot and Opal towers fiascos, which left a bad taste in everyone's mouth and led to David Chandler's appointment as the industry's Building Commissioner.

The rating initiative is a component of the New South Wales government's Construct NSW transformation strategy, which aims to restore public confidence in residential construction.

It is also a crucial part of the government's plan to introduce Decennial Liability Insurance. This is a form of insurance taken out by the developer to provide a guarantee against major defects for up to 10 years, a provision not currently available in Australia.

What is the iCIRT?

The iCIRT system was first introduced by the NSW Building Commissioner, David Chandler, in 2020. They are designed to aid consumers and stakeholders in the construction industry in identifying building practitioners and project teams that have a verifiable track record, corroborated by objective evidence.?

What this rating system is doing is slamming the door on those who think they can waltz into the development industry with a $2 company, a mobile phone and a pickup truck

iCIRT is like the Michelin Guide of construction professionals. It dishes out star ratings, from a big fat zero to a dazzling five. Zero stars? That's for the newbies who haven't been rated yet. Five stars? That's for the pros who've earned their stripes and are more likely to deliver the goods.

And the secret sauce behind these ratings? Well, the ratings are determined based on six assessment criteria:

Character: Does the business have a poker face or is it an open book? Are the key people trustworthy? What about the big boss company, related parties, director-linked connections, shareholders, and the real owners of the business?

Capability: How long has the business been around? What's its track record? What qualifications does it have? Any insurance claims or project mishaps in its past?

Conduct: Any skeletons in the closet? Court judgments, industrial disputes, tribunal decisions, payment issues, or regulator interventions?

Capacity: Can the business juggle its projects and commitments? Is it financially sound and sustainable?

Capital: What's the financial backbone of the business? Where does it get its funding from? Can it borrow more if needed?

Counterparties: How well can the business handle disruptions in the supply chain?

In addition to the overall star rating, gold, silver, or bronze indicators are assigned. These indicators reflect the degree of information provided by the construction professional and their consent to use this information.?

Bronze means they're a bit shy, gold means they're an open book.

And the cherry on top? Only the pros with an iCIRT rating of three gold stars or more get their names on the public iCIRT register. For that's the number where "trustworthiness" begins.

Its implications?

The exact implications of iCIRT are yet to be fully understood, but let's speculate anyway:

iCIRT is currently as optional as pineapple on pizza. But one day, it might be as mandatory as cheese. If it stays voluntary, developers and construction pros not on the iCIRT register might find themselves in a game of 20 questions - "Why aren't you on the list?" This could lead to a 'market-driven stampede' for industry folks to get rated.

iCIRT could become the matchmaker of the construction world, deciding who works with whom. Their FAQ page hints that hanging out with the wrong crowd (read: lower-rated businesses) could tarnish your star rating. This might result in the underdogs being kicked off the playground. This could be a good and a bad thing depending on how you look at it.

iCIRT could be more than just a consumer tool; it could be a treasure trove of information for construction industry stakeholders (like financiers, insurers, other construction pros, and legal advisers).?

iCIRT might double as a crystal ball for companies on the brink of trouble. Equifax has reported that, by analysing iCIRT data, it was able to identify various warning signs related to ProBuild, which entered administration earlier this year, as early as October 2019.

Chandler asserts that the iCIRT rating tool is already having a significant impact on the industry, as buyers withdraw their deposits from unrated developers, insurers agree to insure apartment buildings again, some financiers refuse to lend to unrated developers, and employees decline to work for them.

Its future?

At present, the application of iCIRT is confined to developers, builders, and certifiers of Class 2 buildings. However, there is a strong possibility that the scope of iCIRT will be broadened in the future to encompass other residential developments.?

However currently, there's no judicial review mechanism to contest a rating - it's like a reality TV show without the public vote. But the iCIRT website does allow you to question a rating. If the system becomes mandatory, a judicial review mechanism might just be the next contestant on the stage.

Chandler predicts that by the end of 2023, up to 80% of all apartment sales in NSW will be made by highly-rated developers. He asserts that consumers will have a very clear choice to avoid dealing with unrated entities, and strongly advises consumers to take this matter seriously.?

He asserts that consumers now have the power to make informed decisions and if they choose not to utilise this power, he is unable to assist them.

He draws a parallel with purchasing a new car, stating that just as one checks the quality of a car through a rating and investigates it to avoid purchasing a 'lemon', the same principle now applies to apartments.?

And to the prospect of a lemon-free apartment future? Well, that's the race David Chandler is currently riding.

Ride on Commissioner. Ride on.