Tag Archive for: building and construction legislation amendment bill

AMENDMENTS MADE TO THE SECURITY OF PAYMENT REGIME IN NSW – WHAT BUILDERS NEED TO KNOW

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Further reforms to the Building and Construction Industry Security for Payment Act 1999 (NSW) (the Act) have been proposed with the Building and Construction Legislation Amendment Bill 2022 (the Bill) and in the Building and Construction Legislation Amendment Regulation 2022 (the Regulation). The Bill outlines various proposed amendments in relation to the role of adjudicators, the threshold of value of projects when triggering retention funds, and regarding the process of serving payment claims.

Proposed Amendments

The following are the key proposed amendments:

  • The introduction of an ‘adjudication review model’ will allow claimants and respondents to request a review of an adjudication determination.
  • There will be a significant reduction in the threshold of the value of projects in triggering retention funds from $20 million to $10 million.
  • Payment claims which are served on owner occupiers will need to attach a Homeowners Notice information to the payment claim to ensure homeowners understand the SOPA provisions relating to payment claims and to outline the consequences of non-compliance.
  • Increasing the powers of adjudicators in engaging experts to investigate aspects relevant to the adjudication.

Adjudication Review Model

The adjudication review model will allow claimants and respondents to request a review of an adjudication determination.

However, there will be some restrictions in applying for a review of a determination. The determined amount must be:

  • Equal or greater than $100,000 of the scheduled amount; or
  • Less than $100,000 of the claimed amount.

While this amendment will allow parties to have a determination reviewed in specific circumstances, it will also add a layer of extra time and cost to the adjudication process. This is despite security of payment processes generally being considered a timely and less expensive means to resolve payment claim disputes.

Decrease in Threshold When Triggering a Retention Fund

The threshold of the value of a project which requires a retention fund will be reduced from $20 million to $10 million. This will allow for greater protection of retention funds held for the benefit of subcontractors, especially in circumstances where the head contractor becomes insolvent.

New Requirements for Payment Claims

The Bill has proposed changes with respect to the issuing of payment claims to homeowners, with the new requirement that there be a Homeowners Notice enclosed.

The Homeowners Notice will include information regarding the reason that the payment claim is being issued, the correct procedure in responding to the payment claim, and the consequences of disregarding the payment claim.

The Homeowners Notice has been proposed due to the level of uncertainty among homeowners who are unfamiliar with the security of payment regime. It is inferred that issuing a Homeowners Notice will allow homeowners to adequately understand the procedure under the security of payment regime and respond appropriately.

Strengthening the Powers of Adjudicators

The Bill endeavours to afford adjudicators further power in settling disputes. In brief, the powers will extend to adjudicators engaging an independent expert to investigate the relevant works and provide a report indicating their findings.

To Consider

In light of the proposed amendments to the security of payment regime, it is crucial that those who are involved in the construction industry are aware of the proposed changes and, if implemented, take note of the date the legislation will be in effect.

Please click the following link to access the Bill and Regulation:

Regulations link

Bill link

Change on the horizon for the NSW building and construction industry

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The NSW Government has proposed three bills to reform the building and construction industry. The bills introduce new changes and consolidate existing legislation, with the aim of promoting safety, quality, and transparency in the industry. The draft bills and the key changes associated with each are as follows:

  • the Draft Building Bill 2022 (Building Bill);[1]
    • repeals and replaces the Home Building Act 1989 (NSW) (HBA);
    • introduces further licencing requirements for building professionals;
    • consolidates the statutory duty of care provisions;
  • the Draft Building Compliance and Enforcement Bill 2022 (BCE);[2]
    • repeals and replaces the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW) (RAB Act);
    • introduces further regulatory and enforcement powers;
    • expands existing powers for class 2 buildings to all building work;
  • the Draft Building and Construction Legislation Amendment Bill 2022[3] and the Draft Building and Construction Legislation Amendment Regulation 2022 (BCLA)[4];
    • amend various NSW Acts and Regulations; and
    • introduce duties to avoid intentional phoenix activity.

The objects of the reforms

The NSW Government has identified seven key objects to be achieved by the reforms. These are:

  1. making home building fairer and easier;
  2. securing prompt and fair payment for building work;
  3. strengthening building compliance and enforcement;
  4. licensing commercial and home building work;
  5. supplying and using safer building products;
  6. upskilling the building and construction industry; and
  7. regulating prefabricated and manufactured homes.

We discuss how the bills deal with each of these objects below.

  1. Making home building fairer and easier

The Building Bill and the BCLA aim to protect consumers from loss caused by defective building works by:

  • Consolidating the duty of care provisions under the Design and Building Practitioners Act 2020 (NSW) (DBP Act) and Environmental Planning and Assessment Act 1979 (NSW) (EPA Act).
    • This consolidation of the duty of care provisions achieves consistency across NSW building legislation and reflects Justice Stevenson’s interpretation of the DBP Act duty of care in Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq).[5]
    • The duty of care is further expanded to subdivision work.[6]
    • The Building Bill specifies a 10-year limitation period for civil actions for loss or damage arising out of or in connection with defective building work.[7] This will displace the typical 6-year limitation period for breach of contract claims but may be subject to shorter limitation period for breaches of statutory warranties.[8]
  • Expanding on the HBA regime for home building works.
    • The concept of ‘major defect’ is replaced by ‘serious defect’, a broader definition including (for example) a failure to comply with the National Construction Code, relevant standards, or relevant approved plans.[9]
    • Certain statutory warranties are cast more broadly.[10]
    • The definition of a developer is expanded to parties which do not own land but have nonetheless contracted for, arranged, or facilitated the building work.
    • The NSW Government is considering extending the limitation periods for breach of the statutory warranties to 10 years for serious defects (previously 6 years) and 3 years for minor defects (previously 2 years).[11]
  • Requiring that payment claims served on residential owner-occupiers under the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) include a “Homeowners Notice” document explaining the effect of and possible responses to a payment claim under SOPA.[12]
  1. Securing prompt and fair payment for building work

The BCLA introduces reforms to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) to ensure builders and tradespeople are paid more quickly and fairly. These reforms include:

  • Granting broader powers to adjudicators under SOPA including a power to obtain expert evidence and testing to resolve disputed factual issues.[13]
  • Creating ‘review adjudicators’ which are empowered to review SOPA adjudication determinations.[14] This is designed to operate as a new review mechanism of adjudication determinations which avoids the cost and delay associated with seeking judicial review of adjudication determinations in court.
  1. Strengthening building compliance and enforcement

The BCE introduces a consistent regulatory framework for the building and construction industry, by:

  • Repealing the RAB Act.
  • Expanding the NSW Building Commissioner and Secretary’s compliance and enforcement powers.[15]
    • Expanded powers include the ability to carry out investigations, require remedial action and/or rectification of serious defects, dispute resolution powers, and disciplinary action powers.
    • Existing compliance and enforcement powers for class 2 buildings will apply to all building work.
    • Promoting NSW Fair Trading as a body empowered to resolve building disputes.
    • Introducing a demerit points scheme to deter building licence holders from committing offences under building enforcement legislation.[16]
  • Establishing personal liability for directors and other ‘influential’ individuals for offences by the corporation.[17]
    • Directors or other individuals involved in the management of a corporation may be held personally liable for offences committed by the corporation/contracting entity. This shifting of liability acts as a significant deterrent for unauthorised behaviour and exposes individuals to harsh penalties.
    • This shift follows decisions of the NSW Supreme Court which indicate that the DBP Act duty of care is owed by directors or other individuals exercising ‘substantive control’ over building works.[18]
  • Regulating intentional phoenix activity, i.e., the liquidation of a company to avoid payment of debts and establishment of a new company in its place.[19]
    • The BCE and BCLA propose a duty for licence holders, registered certifiers, registered design practitioners, and other building professionals to take reasonable steps to avoid engaging with persons involved in intentional phoenix activity.
  1. Licensing commercial and home building work

The Building Bill streamlines and expands licencing requirements for building work. The reforms include:

  • Expanding licencing requirements from home building works to also:[20]
    • commercial works;
    • intellectual works, e.g., design works; and
    • other miscellaneous works, e.g., fire safety works and engineering works.
  • Holding directors responsible for supervising compliance with licencing requirements. A failure to properly supervise regulated works will result in heavy penalties for directors.[21]
  1. Supplying and using safer building products

The BCLA proposes changes to improve the safety and quality of building products.[22] These include:

  • Proposing amendments to the Building Product (Safety) Act 2017 (NSW).
  • Establishing various mechanisms to prevent the use of defective building products, including building product use bans, building product supply bans, and building product recalls.
  • Introducing a chain of responsibility for developers, building professionals, and manufacturers in respect of defective building work and products.
    • Each participant in the chain owes multiple and concurrent duties which relate to their involvement in the supply/installation of the defective building product, and relevant risk management factors.
    • Each participant may be liable for offences relating to using/supply a building product in contravention of a building product use ban, building product supply ban, or building product recall.
  1. Upskilling the building and construction industry

The Building Bill and BCLA introduce reforms aimed at promoting the technical competence of building professionals, including:

  • Introducing standardised guidelines for continuing professional development of builders, specialist tradespeople, engineers, building designers, and other professionals.[23]
  • Permitting penalty notice officers to issue education and training notices. These introduce training or education as an alternative to disciplinary action.[24]
  • Expanding skills assessments for contractor licence holders.[25]
  1. Regulating prefabricated and manufactured homes

The Building Bill introduces provisions specifically targeting ‘kit homes’, i.e., pre-fabricated or manufactured homes, including:[26]

  • Introducing new regulations for kit homes to improve building quality.
  • Emphasising that certain consumer protections for owner-builder and contractor work extend to kit homes. This ensures that purchasers of kit homes are adequately protected from loss caused by defective manufacture/construction of kit homes.

Take home tips

The amendments which may be of most interest to you are set out below:

If you are a… You may be particularly affected by…
Residential owner Consolidated duty of care provisions and HBA regime (item 1)
Developer Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Personal liability for directors (item 3)
Builder Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Personal liability for directors (item 3)

Licensing requirements (item 4)
Specialist tradesperson Consolidated duty of care provisions and HBA regime (item 1)

SOPA reforms (item 2)

Licensing requirements (item 4)

Reforms to safer building products (item 5)
Architect Consolidated duty of care provisions and HBA regime (item 1)

Licensing requirements (item 4)

Reforms to safer building products (item 5)
Certifier Consolidated duty of care provisions and HBA regime (item 1)

Licensing requirements (item 4)
Building product supplier or manufacturer Reforms to safer building products (item 5)

 

The draft bills closed for submissions on 25 November 2022. The NSW Government will now consider further amendments. The bills will be implemented following public consultation, likely in 2024. For personalised advice on how you may be impacted by and can best prepare for the implementation of the reforms, please contact Bradbury Legal by phone on (02) 9030 7400 or by email at [email protected].

 

[1] See full text of the Draft Building Bill 2022 here.

[2] See full text of the Draft Building Compliance and Enforcement Bill 2022 here.

[3] See full text of the Draft Building and Construction Legislation Amendment Bill 2022 here.

[4] See full text of the Draft Building and Construction Legislation Amendment Regulation 2022 here.

[5] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624. For further detail, see our article on this decision here.

[6] Draft Building Bill 2022 (NSW) s 216.

[7] Draft Building Bill 2022 (NSW) s 217.

[8] Limitation Act 1969 (NSW) ss 7, 14(1)(a).

[9] Draft Building Bill 2022 (NSW) s 76; Draft Building Compliance and Enforcement Bill 2022 (NSW) Schedule 2.

[10] Draft Building Bill 2022 (NSW) s 75.

[11] Regulatory Impact Statement Part 3 for the Draft Building Bill 2022, accessible here.

[12] Draft Building Bill and Construction Legislation Amendment Regulation 2022 (NSW) Schedule 2 item [5].

[13] Draft Building Bill and Construction Legislation Amendment Bill 2022 (NSW) Schedule 3 item [5].

[14] Draft Building Compliance and Enforcement Bill 2022 (NSW) Schedule 3 item [7].

[15] Draft Building Compliance and Enforcement Bill 2022 (NSW) Parts 2–6.

[16] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 7.

[17] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 8 Division 4.

[18] Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624; The Owners – Strata Plan No 84674 v Pafburn Pty Ltd [2022] NSWSC 659. See our previous articles here and here.

[19] Draft Building Compliance and Enforcement Bill 2022 (NSW) Part 6; Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 10.

[20] Draft Building Bill 2022 (NSW) Parts 1–3.

[21] Draft Building Bill 2022 (NSW) Part 3 Division 3.

[22] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 1.

[23] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 11.

[24] Draft Building and Construction Legislation Amendment Bill 2022 (NSW) Schedule 9.

[25] Draft Building Bill 2022 (NSW) Part 3 Division 2.

[26] Draft Building Bill 2022 (NSW) Parts 2, 4.