The government is expected to introduce two Bills to effect industry-wide reform – the Building Amendment Bill and the Building and Construction Sector (Strengthening Occupational Licensing Regimes) Amendment Bill.
They will propose several key changes:
- Mandatory warranties will be required for new builds up to 3 storeys and to renovations worth $100,000 or above that involve restricted building work (RBW) and require building consent.
- Proportionate liability will be introduced, and professional indemnity insurance is set to be a requirement for those involved in building design work, including architects, designers and engineers, to ensure that these professionals are able to financially back their work.
Changes to the LBP regime are also an important part of the wider reforms.
Licensed building practitioners – what’s changing?
The LBP certification scheme, launched in 2007 under the Building Act, was designed to encourage builders to build homes right the first time. It requires that building practitioners are licensed to carry out or supervise RBW on homes and small to medium-sized apartments – a type of work that is critical to the integrity of a building or involves weathertightness or fire safety design.
The scheme is structured into seven licensing classes that represent the different types of work a contractor is competent in and certified to carry out such as brick and block laying or roofing. LBPs must not carry out or supervise RBW that is outside their licensing class.
The scheme publishes an LBP register enabling consumers to make informed choices about who they contract with. The government’s planned changes to the regime signals a determined move to strengthen compliance and raise standards across the construction industry. Under the new regime:
- maximum fines will double, increasing from $10,000 to $20,000
- the maximum suspension period will increase from 12 months to 24 months
- a new licensing category for water-proofing work will ensure that only properly qualified practitioners can carry out this high-risk work
- details of disciplinary outcomes will be published to provide transparency to homeowners.
Why the changes?
As Building and Construction Minister Chris Penk said the changes will ‘crack down on cowboy builders’ – those builders who claim to have the experience to carry out a job to a high standard, but lack the ethics, expertise and accountability to deliver.
Existing fines are intended to have a deterrent effect. However, due to inflation, the current $10,000 fine represents only around 1.7% of the cost of building a stand-alone home, down from 3.4% in 2010.
The increased fines and suspension periods aim to deter breaches of the LBP regime as the current penalties do not reflect the harm and cost that can result from negligent practice and poor standards. Further, the reforms aim to support builders who deliver high-quality work as homeowners will be better informed to avoid cowboy builders with poor records.
While the LBP changes may have this effect, their impact will be enhanced when coupled with wider changes to the construction industry.
Regime changes and proportionate liability
The changes to the regime are part of the government’s wider move to shift risk from consenting authorities back onto builders. These changes include replacing joint and several liability with proportionate liability, meaning councils, building practitioners and other involved parties are responsible only for their share of any loss or defect they have caused.
Builders will also be able to self-certify some work, freeing up certification delays by councils while ensuring the builder alone is liable for any of the work they sign off.
Ratepayers and their local councils will no longer need to provide a backstop to homeowners whose builder has gone into liquidation or disappeared following defective building work. The Law Commission has warned, however, that this shift in risk leaves homeowners in the middle. If the reforms do not prove to be as effective as intended and the private sector fails to pick up the slack, homeowners will be left vulnerable and paying more to remedy defective building work.
Changes to the LBP regime will sharpen transparency and individual accountability for builders, but they must be introduced with other protections such as successful mandatory warranty and professional indemnity insurance schemes to create meaningful security for homeowners.
As MBIE has said, proportionate liability ‘improves sector responsibility and fairness for defendants but would require support mechanisms to protect homeowners from gaps in redress’.
Although fines have doubled, they are in no way proportionate to the costs of repairing defective work that homeowners are left with to resolve and neither are they payable to the homeowners affected. Increased penalties alone will not deter negligent work, and homeowners may remain exposed to significant losses when builders become insolvent or disappear, with limited recourse to councils under proportionate liability.
While section 84 of the Building Act requires that RBW is carried out by or under the supervision of an LBP, this may not go far enough to crack down on negligent building work. Although supervision requires control and direction, in practice, it may amount to little more than signing off on the work. It may be more impactful to place the responsibility on the building contractor by requiring that all those who carry out RBW hold the relevant licence.
That aside, the proposed LBP reforms are one piece of the puzzle, but only when the government introduces the changes with other effective safeguards will homeowners be meaningfully protected from defective building work.