The latest Building Act amendment

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This Bill is the third of four bills that we expect to see to give effect to the changes that the Government has signalled it wishes to make to the Building Act 2004.
There has been a lot written by the Department of Building and Housing (DBH) on what it wants to achieve. However, we are still waiting for the details on how it intends to do it — the current Bill leaves too much detail to the future amendments for the RMBF to support it.

In fact, the submission states that the RMBF “cannot offer support for the whole of the Building Amendment Act No. 3 because critical aspects are missing from it”.
The RMBF has been consistently “on message” that it supports a clarification of responsibilities and the “risk-based” consenting proposals.

It has also been equally vocal about the need to ensure other proposals, such as proportionate liability, a robust home warranty scheme and the availability of appropriate indemnity insurance for builders, are sufficiently developed and in place before the reliance on councils is wound back.
We have not seen any of this in the current Bill.

Too much detail missing
One of the Cabinet papers on the Bill was an “Overview of the reform proposals”. That paper stated that “simply reducing or streamlining … (the current Act’s requirements) … without first providing other means of quality assurance … would jeopardise building quality … the timing and sequence of each part of the proposed reform package is important.” We agree.

The paper proposed that amendments to Schedule 1 could be made first, and then recommended that accountability measures be put in place (including clarifying accountabilities and Code requirements), as well as new contract provisions and new legal remedies, before finally introducing stepped risk-based consenting.
The current Bill has skipped over the contracts and legal remedies measures and gone straight for changes to the accountability regime.

The RMBF has submitted that the Building Act Review is a review of the “system” of building controls; the integration of its parts is critical to its success.
Where one of the interdependent pieces, such as the balancing of responsibilities, is implemented without the others, such as a warranty and surety scheme or proportionate liability, the goals of the Building Act review are, in our view, not likely to be achieved.

Lack of risk management options
Another Cabinet paper looked at “Stepped Consenting” and the changes that are designed to “reinforce incentives … for building professionals and tradespeople to take primary accountability”.

The paper acknowledged that “caution has been expressed about the pace of change and the readiness of the sector to accept accountability for regulatory compliance”, and that “concerns have also been raised about the cost of liability protection for builders and designers”.
The RMBF has been expressing such concerns for a long time as well.

The Regulatory Impact Statement “Proposals and options for reform” (July 2010) stated that the reforms are likely to “result in building professionals and tradespeople facing greater risk overall”, but that “this is efficient because they are best placed to manage the risk”.
This is a naïve statement when it is recognised that there is no risk management mechanism such as insurance currently available to builders and, as the RIS recognises, it expects that insurers and surety providers will “react cautiously” to the imposition of responsibility.

Builders will not be able to insure for the increased risk; the RIS states that “certain classes of people may be priced out of the industry”.
Despite this analysis, which we believe is quite correct, and despite the DBH’s assertions that it has been “talking to” the insurance sector, and despite the RMBF’s continued concerns, there is still no sign of effective risk-management options for builders in the market.

The RMBF agrees with the RIS statement that “the design of warranties and any surety arrangements … is key to ensuring the costs of the package do not outweigh the benefits”, and has submitted that it is premature to make adjustments to the reliance/accountability framework until such times as the warranty/insurance framework that will support the designers/builders is in place.
Without the necessary warranty/insurance products available to them to manage the risk, many practitioners may choose to exit the industry altogether.

The role of contract
Additions have been made to sections 3 (Purposes) and 4 (Principles) of the Act designed to promote the accountability of owners, designers, builders and building consent authorities for their roles in the designing, consenting and constructing building work.

They are said to be “not a definitive and inclusive statement” of responsibilities of the parties, but are “for guidance only”.
The RMBF believes the statements in clauses 14A to F will be grist for the judicial mill when they are interpreted in the context of a civil claim — and they will, eventually.
Hence, it is important to ensure that such statements are fair and balanced, and take into account “the real world” of building and construction contracting.

The RMBF has argued for the inclusion of a statement that the accountabilities as stated should take into account the nature of the contracts between the parties, and what they have agreed between themselves about who is responsible for what.
Product manufacturers

The RMBF has also argued, for completeness sake, that a clause should be added about the accountability of product manufacturers.
This follows on from our submission to the Building Act Review discussion document last year that to credibly argue that there will be a rebalancing of responsibility then product manufacturers need to be there too.

With the exponential increase in the variety and complexity of building products, many of which are modular and/or require a specialist applicator, there is little opportunity for the builder to have any control over the manufacture or application of them.
To hold the builder responsible in such circumstances is unfair.

The RMBF submitted then that for a true rebalancing of the responsibilities to deliver accountability for all involved in building work, product manufacturers also needed to be included in the Bill.
We know this has caused some concern, but we feel it is important that all those who are a party to the building process are recognised in the legislation if a fair spreading, and articulation of, accountabilities is what the Government is truly seeking.

We have to ensure the Building Amendment Act changes, (along with the start of the LBP scheme being compulsory), and the legislative framework is right to create an environment that promotes accountability, and encourages better building and business practice so you all want to stay in this vital industry.