Final Report of the Public Accountability Committee: Regulation of building standards, building quality and building disputes

01 May 2020

The NSW Parliament recently released the final report of the Public Accountability Committee, entitled Regulation of building standards, building quality and building disputes: Final report.

The recommendations contained in the report are, in some instances, broad and far-reaching and, if implemented, could result in a major upheaval of aspects of the construction industry. In this context, the report warrants careful consideration by industry participants.

About the report

The report is the culmination of the Committee’s inquiry into the regulation by Government agencies in NSW of building standards, building quality and building disputes. The terms of reference for the inquiry were self-referred by the Committee on 4 July 2019 and an interim report was published by the Committee on 13 November 2019. Among other things, the inquiry canvassed the role of private certification in protecting building standards, the adequacy of consumer protections for owners and purchasers of new dwellings, the role of strata committees in responding to building defects in common property, flammable cladding on buildings in NSW, the defects in the Mascot Towers and Opal Tower, and the extent to which previous report recommendations have been implemented.

Key issues identified in the report

The report highlights a number of “systemic issues plaguing the building and construction industry”. Particularly, the report:

  • Identifies flammable cladding as a major public safety issue requiring urgent attention;
  • Characterises the NSW Government’s response to date to the issue of flammable cladding as “wholly inadequate”;
  • States that a “collapse of the professional indemnity market” is impacting on the ability of homeowners to rectify flammable cladding because many professionals will not carry out the rectification work due to a lack of available insurance;
  • Describes private certification as “an experiment of the last 20 years” which “has not worked”, citing concerns regarding conflicts of interest;
  • Criticises the “widespread lack of accountability or regulation” in the industry and the way in which liability for defective work has been left in the hands of innocent home owners; and
  • Highlights the need to give strata committees the right tools to deal with defective work.

Recommendations contained in the report

Having highlighted these significant issues, the report then goes on to make a series of 22 recommendations for reform. Broadly speaking, the recommendations can be categorised as follows:

  • Recommendations for the introduction and/or progression of new legislation;
  • Recommendations regarding the role of the NSW Building Commission and Commissioner;
  • Recommendations as to how to address the issue of flammable cladding;
  • Recommendations in relation to the role of private certifiers; and
  • Recommendations for the provision by the NSW Government of financial assistance for strata homeowners who have major defects in their buildings.

Given the number of recommendations, we have not addressed each and every one of them in this article. However, we outline below some of the key recommendations:

Design and Building Practitioners Bill 2019 (NSW)

The report recommends that Parliament resume debate on the Design and Building Practitioners Bill 2019 (NSW) as a matter of urgency. The Bill (debate regarding which was interrupted when it was last before Parliament on 19 November 2019) deals with the registration and insurance cover of design practitioners, a statutory duty of care to be owed by persons who carry out construction work, and investigative powers and penalties, amongst other things.

Cladding

The report makes a significant number of recommendations in connection with the issue of flammable cladding. These include requirements for disclosure to proposed purchasers or lessees or invitees of buildings that contain flammable cladding. Importantly, the report also recommends that the NSW Government provide substantial funding for the rectification of buildings containing aluminium composite panels and building products that may be banned in future. The proposed funding package would be available to homeowners who have already commenced remediation work and would be proportionate to the Victorian Government’s $600 million funding package. In circumstances where insurance has not provided a suitable solution to the flammable cladding issue, the NSW Government is being called upon to itself pay for the rectification of flammable cladding on dwellings in NSW.

Certifiers

An example of one of the more significant recommendations contained in the report relates to building certification services. Somewhat controversially, the report recommends that the Committee consider strengthening public control of certification, including returning certification functions to local councils. The return of certification functions to local councils is not considered in detail in the report, however the report proposes that this issue be considered as part of a further inquiry that the Committee has foreshadowed into the NSW Government’s reforms for the building and construction industry (Further Inquiry). Were the Government to conclude on the basis of a Further Inquiry that certification functions should be returned to local councils, that could see private certifiers disappear as a profession. The return of certification functions to councils could also take the industry back to the former days of extreme delays in obtaining certifications from councils, slowing the pace of development and re-creating the bottle neck that the introduction of private certifiers was intended to overcome in the first place, all at a time when the NSW Government is trying to encourage development.

Pending the Government’s Further Inquiry however, the report also makes a range of recommendations for improvement of the certification system, to be implemented as soon as possible and in any event within two years.

It is clear from the above that, if private certifiers are still to have a role following the Government’s foreshadowed Further Inquiry, that role is likely be heavily regulated, with a significant increase in requirements for certifiers to comply with.

Financial assistance for strata homeowners

The report also recommends that the NSW Government explore additional financial assistance measures for strata homeowners who have major defects in their buildings, insofar as those homeowners are unable to claim under:

  • The statutory warranties scheme created by Part 2C of the Home Building Act 1989 (NSW); or
  • The Home Building Compensation scheme, created by Part 6 of the Home Building Act 1989 (NSW).

What happens next?

It is not possible to give any definitive opinion or commentary on the significant reforms proposed until such time as the proposed legislation giving effect to those reforms is published and reviewed. What does however seem clear to us is that many of the proposed reforms may prolong, and make significantly more expensive, the development and construction process. Whilst the foundations of the recommendations in concerns for public well-being are obviously sound, the economic and social impact of these proposed reforms on the housing and construction industry, at a time when affordable housing and high construction costs are already a significant issue, may present a significant challenge to those charged with the responsibility of dealing with the recommendations of the report.

The recommendations are now before the NSW Government for consideration. We cannot presently say when and to what extent the recommendations will be implemented. This is particularly so given the significant nature of some of the recommendations, and the high cost to the NSW Government of implementing the recommendations. However, it should be noted that a range of the recommendations are urgent in nature. Among other things, the report recommends that certain legislation should be debated as a matter of urgency when NSW Parliament reconvenes in May 2020. We will provide a further update when and if that legislation is passed. For the time being however, the report can be viewed in full here.

This article was written by David Vaughan, Partner and Katrina Mae, Special Counsel.

Katrina Mäe

Special Counsel | Sydney

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