Can the new statutory construction framework bring new consumer confidence?

By Rebecca Pickering  

The NSW Parliament recently passed the Design and Building Practitioners Act 2020 (NSW) (Act). These reforms are primarily aimed at restoring consumer confidence in the residential construction industry, which has been impacted by a number of recent high-profile disputes relating to building defects. The new provisions, passed on 11 June 2020, will affect a variety of different parties involved in building construction projects.

What has changed?

The Act creates a new statutory framework with a number of key elements, including:

- Statutory duty of care – Any person carrying out ‘construction work’ (defined broadly to include building and design work, the manufacture or supply of building materials, and supervision, coordination and project management) will now owe a duty of care to building owners to exercise reasonable care to avoid economic loss caused by defects. The duty of care operates retrospectively – projects in the ten years immediately prior to 11 June 2020 will also be subject to the new duty.

- Register of building practitioners – The Act creates a comprehensive registration regime, requiring builders, designers, engineers and other building practitioners who contract to undertake ‘construction work’ (both corporations and individuals) to be listed on a publicly available register of registered practitioners. A person who carries out construction work without registering as a building practitioner may be fined, and in some instances will be unable to claim payment for the construction work undertaken.

- Compliance declarations – Designers, engineers and other building practitioners must provide declarations to the principal of a construction project that all ‘construction work’ complies with the Building Code of Australia.

- Occupation certificates – Principals must give notice to the Secretary of the Department of Customer Services and each registered building practitioner who completed work on the relevant project of the Principals intention to apply for an occupation certificate within strict timeframes.

- Insurance obligations – Any building practitioner who gives a compliance declaration must be adequately insured. Specific details regarding insurance requirements for building practitioners will be prescribed by Regulations which have not yet been released.

- Disciplinary regime – The Secretary of the Department of Customer Service will be able to undertake investigations and disciplinary action against registered practitioners, including imposing fines, suspending registration and issuing stop work orders if construction work is undertaken in breach of the Act.

The provisions of the Act relating to compliance declarations, practitioner registration and the new disciplinary regime are scheduled to come into effect on 1 July 2021.

What does this mean for building practitioners in NSW?

The Act effectively broadens the scope of liability owed by parties undertaking construction works to building owners in a number of ways.

The new duties under Act are in addition to the statutory warranty scheme set out in the Home Building Act 1989 (NSW), which has generally been the only form of redress available to owners of residential property against building and design practitioners. Those warranties are enforceable for six years for major defects and two years for defects other than major defects. In comparison, the new statutory duty of care operates in respect of all construction work where loss first became apparent within the last 10 years.

The broad definition of ‘owner’ under the Act means that owners corporations will also now be able to claim damages from parties undertaking construction works for pure economic loss arising as a result of defects. This may overcome the decision of the High Court in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 ^[1] which established that builders will generally not owe a duty of care to owners corporations (and by extension, purchasers of investment property), as they are deemed to be capable of protecting themselves contractually.

With this in mind, parties involve in construction projects in NSW should:

• review and update relevant construction contracts and consultancy agreements to address the provisions of the Act, including contractual protections related to registration requirements and rectification orders;
• implement measures to comply with the new provisions relating to compliance declarations and registration, and ensure that all building practitioners undertaking ‘construction work’ on active projects are able to comply with these new obligations from 1 July 2021; and
• develop processes to ensure compliance with the range of notice requirements and strict timeframes imposed by the Act (including those associated with applying for occupation certificates) are observed and maintained.

[1] [2013] HCA 36