In this insights, our construction specialists review and explain the new and upcoming changes.
The backdrop to the recent reforms is the Shergold-Weir Report, which was commissioned to assess the effectiveness of compliance and enforcement systems of the Australian building industry. The Report makes 24 recommendations for change and proposes the adoption of nationally consistent standards. All Australian jurisdictions have indicated their support of the Report’s recommendations, but NSW is the first state to enact them.
Accordingly, following the recommendations of the Report and in light of the “troubling” high-profile cases of the defective Opal and Mascot Towers, the Design and Building Practitioners Act 2020(“DBP Act”) and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (“RAB Act”) passed through New South Wales Parliament in June this year.
Under the DBP Act, a new statutory duty to avoid economic loss came into effect on 11 June 2020, with the remainder of the DBP Act reforms to apply from 1 July 2021.
The RAB Act became operational from 1 September 2020.
We set out details of the changes below.
Design and Building Practitioners Act
The DBP Act implements the following reforms:
1. Duty of Care
In carrying out construction work, practitioners will be deemed to owe duties of care, as follows:
a duty to exercise reasonable care to avoid economic loss caused by defects; and
a duty of care to the owner and subsequent owners of the land which the construction work is carried out to exercise reasonable care to avoid economic loss caused by defects in or related to the relevant building.
This is a substantial change to the position at common law, which to this point has shied away from imposing a broad duty of care to avoid causing economic loss.
The obvious aim of this new duty of care is to give all building owners (current and subsequent) a right to recover against builders and designers, whether or not the owner had a contract with the relevant builder or designer. The newly implemented statutory duty cannot be contracted to another person, nor can it be contracted out of. In the event of a breach, the person to whom that duty is owed (the owner or subsequent owner) is entitled to damages.
This duty of care has a retrospective operation, meaning that property owners may claim for breach of duty where their loss first became apparent any time within 10 years prior to the commencement of the section.
2. Compliance Declarations
A compliance declaration is to be provided by designers and builders for works which comply with the BCA and any other relevant and applicable requirements. There are three forms of such declarations: one in respect of each of the design, the principal, and the building.
All compliance declarations are to be issued before an application for an occupation certificate is made.
Practitioners will be liable for penalties up to $220,000 and/or 2 years’ imprisonment if their compliance declaration(s) are materially false or misleading.
The DBP Act requires certain design and building practitioners to be registered with the NSW Department of Customer Service.
The greater registration requirements of the DBP Act aim to ensure that only suitably qualified and properly insured persons perform certain functions.
Crucially, pursuant to the Act, the registration requirements now extend to professional engineers. (Prior to the DBP Act coming into force, there was no legislative requirement for engineers to be registered with the Department.) Engineers should therefore familiarise themselves with these requirements to avoid the potential disentitlement to payment for their services.
The Act also requires that all parties involved in the design and building process are sufficiently qualified in accordance with new qualification standards set out in the Act.
Further, any “regulated designs” — designs considered critical to the health and safety of building occupants (e.g. fire safety systems, waterproofing, etc.) — must now only be prepared by a registered design practitioner.
Registered practitioners will need to be “adequately insured” against all potential “liability” arising from a compliance declaration or the works completed by the practitioner, under an insurance policy which complies with the regulations.
It is unclear how compliance with this requirement will be achieved given that the insurance market is unlikely to provide a product which will indemnify a designer against all “liability”.
The DBP Act’s reforms apply to “regulated designs”, meaning designs prepared for either a building element for building work, or a “performance solution” for the building work. This also includes any design prescribed by the regulations. For this purpose, a building element includes:
fire safety systems for buildings;
an internal or external load-bearing component which is essential to the stability of the building – this can also be a part of the building;
a building component which is a part of the building enclosure;
mechanical, plumbing and electrical services required for compliance with the Building Code of Australia (“BCA”).
Residential Apartment Buildings (Compliance and Enforcement Powers) Act
The RAB Act implements the following reforms:
1. Secretary of the Department of Customer Service
Under newly-extended authority, the Secretary of the Department of Customer Service (“the Secretary”) will be able to:
exercise their powers to investigate and rectify building work orders retrospectively for up to 10 years after the issue of an occupation certificate for residential building work– creating further practitioner liability; and
investigate whether buildings have serious defects and if so, provide a building work rectification order to minimise, eliminate or remediate the serious defect. Failure to comply with an order to rectify carries a maximum penalty of $330,000 with a penalty of $33,000 for each day of a continuing offence. A serious defect includes failure to comply with performance requirements as provided by the BCA.
Practitioners will also be required to give notice to the Secretary regarding the intended completion of the building work and any change in the completion date within 7 days of the developer becoming aware. Approval is also required by the Secretary for any alteration in expected completion dates.
The Secretary may issue stop work orders, where they are of the opinion that building work is carried out in a manner that could result in significant harm or loss, or lead to serious building defects. These orders can be appealed within 30 days of the notice being given.
2. Authorised Officers
Authorised officers will be able to be appointed by the Secretary and will be permitted to lawfully enter premises at a reasonable hour when building work is in progress, to monitor and enforce compliance with the RAB Act. This includes taking and removing samples of objects from the building site, permitting an authorised officer to do so destructively.
A failure to comply with a direction of an authorised officer carries a maximum penalty of $110,000 for body corporates, or $22,000 in all other cases.
The RAB Act applies to residential apartment building work and “mixed-use” developments where only part of a building is used for residential purposes. It also applies to existing residential apartment building work that is incomplete or has been completed within the previous 10 years.
Analysis & Conclusion
This is a watershed moment in building industry regulation in Australia. NSW has moved first to impose these harder obligations on builders and designers, and the local industry will inevitably take some time to acclimatise to the new regime.
Plainly, increasing regulation correlates with an increase in the cost of doing business. These changes will have ripple effects across the industry, which will only be well understood after the dust has settled and some claims have been run in the Courts. One thing is certain: insurers will be looking closely at the fallout and will price the increased risk of claims into professional indemnity insurance policy premiums.
Construction industry clients doing business in NSW should take the time to familiarise themselves with these important changes, to avoid the potential ramifications of deliberate or inadvertent non-compliance with the new laws.
Acknowledgment: The authors would like to acknowledge and thank Aya Shahin (Law Clerk) for her assistance in the preparation of this insights.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.