‘Systemic interference’ and ‘discriminatory behaviour’ against architects, banking royal commission submission reveals

Click to enlarge
A joint submission to the Banking Royal Commission has found "the banks’ discriminatory behaviour towards architects and architect-administered contracts increase risk to architects, consumers, builders and the banks themselves."

A joint submission to the Banking Royal Commission has found “the banks’ discriminatory behaviour towards architects and architect-administered contracts increase risk to architects, consumers, builders and the banks themselves.” Image: Unsplash

A joint submission to the Banking Royal Commission roundly condemns Australian banks’ lending practices for architect-designed homes, which caused loss of income for architects and severe adverse outcomes for consumers and builders. 

The submission was made by the Australian Institute of Architects, Architeam and the Association of Consulting Architects and found the banks’ lending practices and policies “reveal a poor understanding of architect-administered contracts and systematic interference with an essential facet of the architecture profession’s service provision,” the submission states.

“Their policies discourage the professional engagement of architects and exclude them from engaging in a task for which they are specifically trained.” 

The three peak bodies conducted a survey among its members and responses were received from 157 practices representing 175 projects, which collectively are worth approximately $152 million.

While the Banking Royal Commission has revealed several major banks have charged fees for no service, the joint submission has found the banks’ policies and behaviour have “prevent[ed] architects from receiving professional fees for a service for which they are qualified and trained, often as much as 30 percent of their overall project fees.” 

The survey reveals the policies predominantly affects small practices and small residential projects which use the Australian Building Industry Contracts, which are jointly published by the Australian Institute of Architects and the Master Builders Association, and the single biggest issue was monthly progress payments, which are preferred by builders and clients.

“Specifically, banks are refusing to lend to consumers where: contracts specify an architect as the contract administrator; Contracts contain provisions for monthly progress payments; progress is assessed by the architect rather than a bank appointed quantity surveyor; contracts contain provisions for variations,” the submission states.

The survey found architects are spending on average 16 hours and as much as 40 hours negotiating with the banks on their clients’ behalf, 93 percent of which is not reimbursed. Of the survey respondents, 53 percent reported loss of income. 

“In addition, projects are often substantially delayed by bank interference at project commencement,” the submission states, “The average delay is two months, and a small percentage of projects are delayed by a very large period, twelve months or more (two percent).

“In a small number of cases, projects are affected catastrophically. Nine percent of architects lose the project entirely, 11 percent of consumers lose the builder and 1 percent of builders go bankrupt.”

According to one testimonial, “the builder went into liquidation prior to completion with unpaid bills, forcing our client to pay approximately $200,000 over the original contract price.” 

The findings also revealed the banks require an approved quantity surveyor to assess each progress payment “a condition that compromises the role of the architect and contravenes the conditions of the building contracts.”

A survey respondent reported this caused a total of $8,900 in addition costs to the client. 

“The banks show a fundamental lack of understanding of how architecturally designed homes are procured. Unless these issues are resolved, the banks will make construction more expensive and riskier for clients, and fundamentally disrupt the business model for bespoke builders. Anything that dissuades clients from accessing design expertise during the construction phase also has a detrimental impact on the quality and value of the finished built product,” said one survey respondents.

Another said, “I am furious that a bank has so much influence as to almost stop a project coming to fruition because of the choice of contract. Especially when the original contact is legal, binding and correct for purpose – the renovation of a house.”

The submission concludes, “Banks are attempting to protect their own interests at the direct, avoidable and additional cost to the consumer.

“In our view the banks’ discriminatory behaviour towards architects and architect-administered contracts increase risk to architects, consumers, builders and the banks themselves.”

The Australian Institute of Architects, in a statement to its members, said “The Institute has engaged with the Federal Government’s small business minister, Senator the Hon Michaelia Cash, and Rod Sims, chair of the Australian Competition and Consumer Commission. State and territory small business and Consumer Affairs Ministers will also be notified of our submission via letters from the National President and Chapter Presidents.

“We are also in contact with Anna Bligh, chair of the Australian Banking Association, to express our concerns regarding architect-administered loan discrimination.”


More news

Most read