Compliance & Risk Transfer – “The Hot Potato”
Recently, one of our suppliers visited our office to conduct in-house training on Fire Compliance and what it means for the Body Corporate, as well as a general overview of compliance inspections offered by their company to assist our clients in meeting their obligations with legislation.
Newly introduced compliance measures are generally not received with open arms by Bodies Corporate – be it, work health and safety, fire, cladding or asbestos management. Changes, and the costs to meet them, can be met with strong opposition. Owners voice concerns over it being unnecessary or over-zealous as well as what action and costs may be required upon receipt of a compliance report.
Compliance inspections should be viewed as an opportunity to rectify an identified risk before it becomes a much larger, and more expensive, problem for the Body Corporate to attend to down the track. A list of identified risks and proposed recommended solutions allow the Body Corporate to undertake steps to transfer the risk to a third party, and minimize any opening for legal proceedings against the Body Corporate.
To help us understand risk management, the analogy of a hot potato was used to explain why a body corporate should engage a suitably qualified (and insured) contractor to carry out works or tasks that are required to meet new compliance legislation – in this scenario, the risk (confirming that you have carried out the task, or advising that these tasks are not required for your property) is in the form of a hot potato – nobody wants to be holding that!
Using Fire Compliance as an example, along with the hot potato, we start with the Body Corporate Manager who has been advised of new legislation the Body Corporate needs to comply with (hot spud enters stage left); the manager advises the Committee/Owners of this new requirement, giving them the opportunity to vote on appointing a contractor to quote on what work/items are required to comply (potato gets thrown from the manager to the committee/owners – don’t hold onto it for too long!).
Ideally, the Body Corporate Manager is given approval to appoint a contractor to attend (a potato cleverly disguised as a work order is sent to the contractor). Contractor attends to site, inspects and provides a report to the Body Corporate (can you guess what arrives with the report? – yes, that hot potato is back). The manager is holding the goods again, and promptly sends report and potato back to the Committee to decide how they’d like to proceed (perhaps they’ve been provided a quote to install additional fire appliances or evacuation plans). The Committee approves the quote, via the appropriate channel, and sends approval back the Manager with their toasty potato. A work order issued once again to the contractor and the risk (cleverly disguised as a potato) has now shifted to/is being shared with the contractor, who has charged the Body Corporate a fee for service to undertake the tasks required to comply with legislation.
The above is what should happen – the person left holding the risk is the one who got paid to. By looking at risk in this way, do you as an owner or committee member, really want to be the one holding the hot potato and the responsibility it carries?