“Are we there yet?” Release of First Report of NSW Inquiry into Regulation of Building Standards, Building Quality and Building Disputes
On 4 July 2019 a Parliamentary Inquiry was established by the NSW Government as part of the Government’s reform initiatives to report on the regulation of building standards, building quality and building disputes.
On 13 November 2019 an Interim Report was issued by the Public Accountability Committee1 making 19 recommendations each of which are dealt with more fully below (First Report).
The report commented that implementation of the reform initiatives has been too slow and has made a number of recommendations to speed up and improve the reform process which has been described in the Report variously as “limited”, “disjointed”, “lack lustre” and “piecemeal”.
The purpose of the First Report was to provide an early indication of the committee’s views on the key issues that have arisen as a result of the hearings and stakeholders views in order to inform the Parliament’s response to the government’s legislative agenda as it considers various reforms over the coming months.
The First Report undertakes a review of previous reports relating to the construction industry, proposed industry reform and a summary of recent “high profile building failures” including Opal Tower and Mascot Towers.
- The NSW Government expedite the implementation of the Regulations to support the Building and Development Certifiers Act 2018 to ensure the Act and regulations are operational well in advance of July 2020
The Act was passed by the NSW Parliament in October 2018. However, neither the Act nor the supporting regulations have come into force.
The draft Building and Development Certifiers Regulation 2019 was recently released for consultation which ended on 24 October 2019. The NSW Government indicated at that time that it intended for the amendments to the Act and the draft Regulations that both commence in July 2020.
The First Report states that the Act and Regulations is an “inexcusable delay” and recommends that this become operational sooner.
- The NSW Government commence amendments to the EPA Act
Amendments to the Environmental Planning and Assessment Act 1979 (EPA Act) were made in November 2017 and were scheduled to start in September 2019 but have not yet commenced.
The amendments included new compliance powers requiring principal private certifiers to issue a written notice when they become aware of non-compliance with the development consent and approved plans.
The Committee observed in its First Report that:
“it is unacceptable that those amendments have not yet commenced” (Para 2.104 at Page 23).
3. That the NSW Government act now to address the issue of flammable cladding. The committee supports a more centralised approach to the issue of flammable cladding on NSW buildings, including a financial support package to assist buildings to rectify and remove it as a matter of urgency
The Committee will be holding a further hearing on the issue of flammable cladding which will result in further recommendations to address the issue in more detail. In the meanwhile the First Report observed:-
“the committee was deeply concerned by evidence already received that shows a disjointed and lacklustre response from the NSW Government. By contrast, other state governments have had a more comprehensive approach, including a financial package to remediate buildings, co-ordinated through a stand-alone agency.” (Para 2.105 at Page 23).
- The Building Commissioner finalise his ‘work plan’ as soon as possible and by the end of 2019 at the latest, including detailing the powers, resources and funding required to undertake this role, and make this work plan publicly available
The NSW Government appointed Mr David Chandler OAM as the state’s first Building Commissioner on 1 August 2019 to lead and oversee building regulation and administration in New South Wales, including:
- licensing and authorisation of building practitioners
- residential building investigations
- building plan regulation and audit
- residential building inspections and dispute resolution
- plumbing regulation
- electrical and gas safety regulation
- strata building bond scheme
- building product safety
- building and construction security of payment scheme
- engagement and strategic collaboration with local government
The NSW Government advised that a critical part of this role ‘will be an intensive, risk-based approach to auditing building plans’ and that the Building Commissioner will have strong investigative powers to monitor and scrutinise suspected incidents of wrongdoing in the industry.
Mr Chandler told the committee during hearings that he would engage Ms Bronwyn Weir (the co-author of the Shergold Weir report) to provide advice and assist with the preparation of proposed legislation and that he will also establish a building and construction advisory committee.
Mr Chandler indicated during the course of the hearings that his work plan has been developed and will be available in early 2020. The Final Report seeks to have this work plan released sooner and specifically in 2019.
- The NSW Government establish a Building Commission as an independent statutory body led by a Building Commissioner, and that Building Commission be provided with broad powers and sufficient resourcing to oversee and regulate the building and construction industry in NSW
In the course of the hearings before the Public Accountability Committee a number of stakeholders called for the Building Commissioner to be supported by a fully resourced building commission with the requisite staff, budget and powers.
A key benefit of a building commission would be to consolidate functions that are currently fragmented across government, in line with the response from other states.
During the hearings the newly appointed Building Commissioner, Mr Chandler stated that there was no need for a building commission.
The First Report however stated that the Department of Fair Trading
“is ill equipped to lead reforms” (Para 3.57 at Page 36)
and makes very strong comments in the analysis of this recommendation as follows:-
“The committee is disheartened by the government’s response to the Shergold Weir report to establish only a Building Commissioner and not a fully resourced commission to tackle the issues that have been evident in the building and construction industry for decades. Industry has been calling for a building commission for almost two decades. New South Wales is now significantly behind Queensland and Victoria in effectively regulating this major industry.” (Para 3.55 at Page 35)
- The NSW Government establish a statutory industry advisory committee to support the Building Commission
The First Report acknowledges stakeholders’ calls for better industry engagement and the establishment of an industry advisory committee.
Mr Chandler advised the committee he has taken steps to establish a building and construction advisory committee, however, the First Report commented that this body
“does not have the standing required to perform this important role” (Para 3.58 at Page 36).
The committee recommended that the proposed Building Commission be supported by a statutory industry advisory committee
“to strengthen industry ties with government and guide the strategic direction of the commission” (Para 3.58 at Page 36).
- The NSW Government, subject to engagement with the insurance industry and economic modelling, extend the time period in which to claim under statutory warranties for residential buildings to a minimum seven years for both major and minor defects
Section 4 of the First Report looks at insurance protection for consumers and the statutory warranties that apply to residential buildings to protect consumers and concludes that:
“the two year timeframe for minor defects, and six years for major defects are grossly inadequate, particularly when it can take many years for some of these defects to appear”. (Para 4.116 at page 61)
Mr Michael Lambert, author of the Lambert Report, recommended that
‘the two year and six- year period for notification of minor and major defects should be extended to a common seven years which until recently was the claim period’. (Para 4.10 at page 39)
2002 reforms were ineffective
In 2002, the Home Building Amendment (Insurance) Act 2002 was enacted in response to an increase in the cost of insurance cover for building defects and reduced the overall extent of insurer liability through five main changes that limited insurance coverage for new homeowners, including setting out separate types of cover for structural and non-structural defects. The 2002 reforms were ineffective.
As a result the Home Building Amendment (Insurance Exemptions) Regulation 2003 removed high rise buildings from the scheme in 2003.
Despite all these restrictions on insurance coverage the cost of meeting building defects eventually drove all private insurers out of the market. The NSW Government then entered the market in 2010 and became the sole provider of insurance in 2011 selling insurance at a subsidised rate.
INSURANCE AND WARRANTY CONSIDERATIONS
The committee made the following observations about the practical effect of the insurance and warranty factors in making this recommendation:-
“4.118 While the goal must be to rapidly arrive at an industry with sufficient quality assurance and standards that all homeowners, regardless of whether they are in a stand-alone dwelling or a multi-storey high rise, will have the benefit of a sufficient warranty period for all building defects this will clearly take time to implement. Simply mandating this now will see not a single private insurer enter the market and the inevitable expansion of the state-subsidised Home Warranty scheme run by icare. This will either cripple icare (and ultimately New South Wales taxpayers) with multi-billion deficits to meet the claims for the defects that are so endemic in the industry, or see premiums being offered at cripplingly high rates that will halt a significant part of the residential construction industry. Indeed it may do both.
4.119 The answer to this dilemma is to tackle both construction quality and insurance coverage as two parts of the one puzzle. This will require immediately moving to increase building standards by implementing the recommendations in the Shergold Weir and Lambert reports and as those improvements flow into the industry systematically increasing the level of insurance coverage. Done well with a government genuinely committed to the task, this can be achieved for all buildings three stories and below as the Shergold Weir report recommendations are implemented. Given the scale of the task it will likely take additional time to ensure there is sufficient confidence in the high rise sector for these insurance benefits” (Page 61)
The Building Commissioner gave evidence that he plans to create a situation in NSW where there is an option for developers to offer a 10-year guarantee on a structure by 2023, without making any legislative changes similar to the UK model.
The recommendation in the First Report specified that the implementation period should be as follows:
- residential buildings currently covered by the Home Building insurance scheme – the timeframe in which the Shergold Weir report recommendations are implemented
- all other high rise developments – as soon as reasonably practicable
- The NSW Government consider amending definition of “defect” for greater clarity for home owners
The Final Report states that
“the definition for ‘major defects’ is causing difficulties and creates a window for more disputes between a homeowner and developer or builder.”
The writer strongly agrees. (Para 4.116 at Page 61)
- The NSW Government increase the defect bond under the Strata Building Bond and Inspections Scheme, subject to economic modelling of the effect of these changes
The Strata Building Bond and Inspections Scheme commenced on 1 January 2018 and applies to buildings over three storeys. Under the scheme, the developer of any new high-rise strata building must pay a bond of two per cent of the contract price of the building work to the be held in a Trust until building inspections are undertaken to detect any defects and commence rectification.
The Committee heard evidence that participants raised a number of concerns with the time period for identifying defects and adequacy of the two per cent bond under the scheme.
The scheme is designed to incentivise developers and builders to build correctly and to rectify any issues early in the life of the building. The reason the scheme was brought in was to address the following patterns in the industry:-
“4.121 What is clear to the committee is that the industry is stuck in a vicious cycle, with some operators setting up $2 companies that build as cheaply and quickly as possible and then phoenixing once a building is complete. What is left is a defective building: it falls to those with professional indemnity insurance, such as private certifiers, to pay the bill.” (Page 62)
The First Report observes that the defect bond of two per cent of the contract price of building work is inadequate and should be increased.
- The NSW Government investigate the current licencing of building trades
Chapter 5 of the First Report deals with the regulation of building practitioners and comments on the inconsistent requirements for building practitioners to hold a licence, be registered and be held to account, and calls for a universal registration scheme.
This Report outlines the concerns raised by key stakeholders relating to electrical, plumbing, fire safety, engineering and other building practitioners which resulted in the following commentary:
“It is clear to the committee that the current system of licensing and registration of building practitioners in New South Wales is woefully inadequate. The system is piecemeal and in some areas of the industry, non-existent.”
(Para 5.103 at Page 84)
used by the NSW Government has caused much confusion as to which building practitioners will be covered. We note there was also confusion when the Design and Building Practitioners Bill 2019 was introduced by the government.
Both the 2015 Lambert and the 2018 Shergold Weir reports made recommendations regarding the licensing and regulation of all building practitioners and recommended a nationally consistent approach.
In making this recommendation the Committee stated that the NSW Government, as part of its implementation of Recommendation 1 of the Shergold Weir report, should immediately investigate the current licencing system for building trades in NSW, giving particular consideration to:
- The effectiveness of the existing inspection regime;
- the need for an independent examination of building trades before a licence is granted, especially for electrical trades
- which additional building practitioners should be licenced, including, but not limited to, installation of medical gas and maintenance of fire safety systems.
- That the NSW Government undertake to consolidate existing laws and regulations into a consolidated stand alone Building Act written in plain English (in accordance with the recommendation from the Lambert Review)
- The NSW Government establish a single senior Building Minister responsible for all building legislation and the Building Commission and the Building Commissioner
- The NSW Government amend the Design and Building Practitioners Bill 2019 to address stakeholder concerns that have emerged during the inquiry
These 3 recommendations relate to the criticism of the Design and Building Practitioners Bill 2019 introduced to the NSW Parliament in October 2019 dealt with in Chapter 6 of the First Report.
The committee invited key stakeholders to comment on the Bill who made some of the following observations:-
- Mr Lambert of the Lambert review gave evidence that the reforms are limited and piecemeal.
- this new piece of legislation adds another layer on an already complex regulatory environment and duplicates other Acts.
- the Building Commissioner is not mentioned in the bill which raises concerns that this role does not have clear statutory powers and independence to enable the enforcement that is needed to turn the industry around.
- not all practitioners involved in the design, building and construction of a building are captured under the bill.
- this bill requires design practitioners, principal design practitioners and building practitioners to be adequately insured. Stakeholders were concerned that the insurance market is not positioned to support this provision in the bill.
- a number of issues with the currently drafted duty of care provisions and there was a call for them to be made retrospective
- the bill does not address the issue of illegal phoenix activity which is occurring in the residential building and construction industry and is leaving homeowners without recourse to rectify building defects.
“TINKERING WITH THE STATUS QUO”
The First Report does document the replies by Government to these stakeholder concerns and the Committee in summary states:-
“6.149 The committee is disappointed that this bill continues the fragmented way in which the government is addressing the crisis in the building and construction industry. It is astounding that the solution put forward to us, as Mr Lambert put it, is merely to tinker with the ‘status quo’.
6.150 There is no question that a standalone Building Act is both necessary and urgent. A standalone Building Act, as suggested by many of the key industry stakeholders, overseen by a single Minister and regulated by a properly resourced Building Commission, would ensure that a comprehensive regulatory regime is put in place to address the current building crisis. Instead, the government has taken a siloed approach: we are left with parallel regimes with similar sounding regulatory models that have no connection with existing arrangements.
6.153 The bill as drafted is entirely dependent on the regulations that the government has said it will develop in the coming 12 months. Even if it was rushed through Parliament this year it will not contain a single new right, obligation or remedy until those regulations are in place. Given the extremely large number of concerns with the drafting and nature of the bill it is difficult to see how simply rubber stamping the bill by Parliament and hoping that matters will be addressed in the regulations would be an appropriate response. Indeed given the recent history of the same department concerning the laggardly implementation of the regulations following the passage of the Building and Development Certifiers Act 2018 such a course of action would be placing hope before experience.” (Pages 116 – 117)
- The NSW Government not proceed with the Design and Building Practitioners Bill 2019 until appropriate insurance products are available
In the Design and Building Practitioners Bill 2019, the NSW Government has included the requirement that design practitioners and building practitioners are to be ‘indemnified by insurance that complies with the regulations against any liability to which the practitioner may become subject as a result of providing the declaration or doing the work’. (Para 4.60 at Page 49)
Unfortunately there is no current insurance product that would provide the kind of professional indemnity insurance that is required under this bill.
In Chapter 4 of the First Report the Committee expands on this issue and concludes that the real cause is a failure of building standards across the industry that needs to be addressed.
Accordingly, the committee has recommended that the NSW Government not proceed with the bill until it works closely with the Insurance Council of Australia to develop appropriate insurance products. The committee supports bringing forward the final implementation of the bill and the regulations to 31 March 2020.
- The NSW Government not proceed with the Design and Building Practitioners Bill 2019 until draft regulations have been prepared with stakeholder interest considered
The NSW Government have advised that they intend to develop the supporting regulations in 2020. The First Report notes that a number of stakeholders advised that it was difficult for them to comment on aspects of the bill due to the lack of detail in the bill itself and due to the tight timeframes for consultation. There were also submissions on the lack of parliamentary oversight of regulations compared to legislation.
The First report concludes in making this recommendation:-
“6.158 We concur with stakeholders that the bill is only a framework and lacks the detail to be able to determine if it will deliver what the government has promised. At this stage we can only hope that the regulations will fill the gaps in a credible and coherent way. (Page 118)
6.159 It is critical that all relevant stakeholders are engaged on the way forward to ensure we get this right for the sake of all those who live, work and play in the built environment in New South Wales. The committee therefore recommends that the government not proceed with the bill until the draft regulations are developed in close consultation with stakeholders, with their concerns addressed in detail, and the regulations are made available to the Parliament for scrutiny. Again, the committee supports bringing forward the final implementation of the bill and the regulations to 31 March 2020.” (Page 119)
- The NSW Government review its Responses to the Shergold Weir Report in light of inquiry which indicates the response did not fully implement the recommendations made.
Further, that the NSW Government expedite its response to fully implement the recommendations within 3 years, by February 2021.
- The NSW Government revisit its Response to the Lambert report and commit to implement those recommendations not covered in the Shergold Weir Report that are specific to NSW building and construction industry by February 2021
The Committee have recommended that the full implementation of the 2015 Lambert (NSW specific) and the 2018 Shergold Weir Reports (seeking a nationally consistent approach) is needed in order to bring about the reform needed by the industry.
The recommendations in the Shergold Weir and Lambert reports received near unanimous support from inquiry participants and Local Government NSW gave evidence that some of the current problems could have already been addressed, had the Lambert report recommendations been fully implemented since it was released in November 2015.
Further the committee commented that various issues now being considered were raised in the Campbell report in 2002 (only four years after private certification was introduced) but were not dealt with resulting in the scale and severity of building defects reached the current crisis levels. (Para 7.49 at Page 130)
The February 2019 Building Stronger Foundations Report by the NSW Government in response to the Shergold Weir Report discussed progressing 20 out of the 24 recommendations made, although in reality it appears that some recommendation had been partially met but none were fully realised. The committee commented that in respect of the Shergold Weir report:-
“the NSW Government is not in fact fully implementing the recommendations. Additionally disappointing is the evidence that even these weak efforts are taking too long.” (Para 7.49 at Page 130)
In September 2016 the Government issued a Response to the Lambert report which supported 72 out of the 150 recommendation in full or in part. In particular the government have failed to implement the Lambert recommendations re fire safety and regulation of certifiers. The committee commented in respect of the Lambert report:-
“7.51 We are disappointed that this was another missed opportunity to take action in 2015, and to prevent at least some of the significant and concerning building defects that have arisen in the intervening period” (Page 130)
- The NSW Government consider reintroducing a ‘clerk of works’ for projects of significant scale
Several stakeholders asked for the return to a “clerk of works” model.
A clerk of works is a full-time inspector of building works, who is on site throughout the build, and works on behalf of the owner and usually under the direction of a site architect.
Mr Lambert did not agree with this proposal. He told the committee that it would be very difficult to reinstate a clerk of works into the new ‘design and construct’ system.
The committee found this proposal attractive, despite Mr Lambert’s dissent and recommended that the Building Commissioner consider the merits of this proposal looking at the following key issues:
- whether this model can be reinstated in the current ‘design and construct’ system, noting that overseas jurisdictions continue to use this (or a similar) model
- the scale of construction that would justify the cost, and how to define ‘large and complex’ buildings, for example commercial and multi residential buildings over three storeys.
- The NSW Government require on line contemporaneous lodgement through the NSW Planning Portal all relevant documents, plans, drawings, certifications to documents projects as built
The First Report confirms the need to improve the adequacy of records and documentation (as called for in the Shergold Weir and Lambert reports) and stated:-
“7.5.6 It is unacceptable that there can be a significant difference between the as-built building and the available building documentation, and that where documentation is provided, it is of poor quality.” (Page 131)
More needs to be done to make documentation publicly accessible.
The Design and Building Practitioners Bill 2019 introduces new obligations on design and building practitioners and does require electronic lodgement, it does not specify where this documentation will be held, and does not introduce a requirement for contemporaneous lodgement.
The committee therefore recommends that the NSW Government require on-line contemporaneous lodgement through the NSW Planning Portal of all relevant documentation, including plans, drawings and certification, to clearly document the full project as built.
Further hearings are being conducted on 11 December 2019 and in early 2020 to gather further evidence for the final report including a regional hearing. One hearing will focus on flammable cladding on NSW buildings.
There are various other matters being considered as part of the terms of reference to that will the subject of future report.
The Terms of Reference require a final report to be submitted by 14 May 2020.
This First Report of the Public Accountability Committee draws attention to the serious lack of standards in the building industry and the resultant lack of faith in the industry.
Essentially the Report shows that the ‘blueprint’ to reform has been present since 2015 with the Lambert report and the 2019 Shergold Weir report and recommends that these reports be implemented fully and not in the piecemeal disappointing way they are currently being handled.
We will write further on the issues raised in the Report as developments arise. We are very much in the position of “watch this space!”
For more information, please contact our lawyers David Glinatsis or Catherine Lucas at firstname.lastname@example.org or on 02 8239 6500.
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- Regulation of building standards, building quality and building disputes Report. Download the Report
- See our article in relation to the draft Regulations https://kreisson.com.au/regulation-overhaul-for-certifiers/
- See our articles re NSW Government Response to the Shergold Weir report at https://kreisson.com.au/nsw-proposed-reforms-to-the-building-industry/
- See our various earlier articles re these reports at https://kreisson.com.au/articles/
- See our article re this Bill at https://kreisson.com.au/draft-design-and-building-practitioners-bill-2019/