Have your say in proposed NSW building reforms

Proposed reforms to the residential and commercial construction space 9 min read

The NSW Government has taken another significant step in its 'Construct NSW' building and construction industry reforms by releasing for consultation the following draft pieces of legislation:

• Building Bill 2022 (Building Bill);
• Building Compliance and Enforcement Bill 2022 (BCE Bill);
• Building and Construction Legislation Amendment Bill 2022 (BCL Bill); and
• Building and Construction Legislation Amendment Regulation 2022 (BCL Regulation).

The draft legislation is wide ranging in scope and will impact those operating in the commercial and residential construction space. In this Insight, we explain some of the key proposed areas of reform.

Key takeaways

• The proposed legislation will impact those operating in the residential and commercial construction space.
• Key reforms relate to:
  • expansion of an adjudicator's powers under the Building and Construction Industry Security of Payment Act 1999 (SOPA) to permit an adjudicator to obtain expert evidence and arrange testing on relevant matters;
  • a new avenue for review of SOPA adjudication determinations by 'review adjudicators';
  • personal liability of directors and other 'influential' individuals;
  • liability for developers, building professionals and manufacturers for defective building work and products;
  • a possible extension of statutory warranties for home-building work for up to 10 years for major defects (as opposed to the current six years); and
  • new licensing requirements for commercial and other non-residential building work.
• In short, the key effect of the proposed reforms would be to materially increase regulation in the residential and commercial construction space.

You can have your say on the reforms by completing a survey or making a submission here. The consultation period ends on Friday 25 November 2022.

Scope of the reforms

The draft legislation focusses on the following seven key areas of reform:

1. securing prompt and fair payment for building work;
2. safer home building;
3. safer building products;
4. further building compliance and enforcement;
5. licensing (both commercial and home building work);
6. regulation of prefabricated and manufactured homes; and
7. upskilling the building and construction industry.

We provide further detail on each area of reform below.

Reform 1: security of payment

This area of reform proposes amendments to SOPA. Notably, the BCL Bill and BCL Regulation propose:

• the ability for adjudicators to arrange for testing of the matter to which the adjudicated claim relates, or to engage an expert to investigate and report on it (unless both parties object) (see Schedule 3, item [5] of the BCL Bill).
  
  The circumstances in which adjudicators will be able to exercise these powers is not yet clear—eg it is not yet known whether these powers are limited to claims over a certain threshold, or which party will pay for the testing or the expert's fees.
  
  
• an ability for either party to an adjudication determination to apply for a review of the determination by a 'review adjudicator' if, relevantly:
  1. the claimed amount exceeds the adjudicated amount by $100,000; or
  2. the adjudicated amount in the original adjudication exceeds the scheduled amount by $100,000.

  If this occurs, any submissions which accompany the review application must not raise a matter that was not, but could have been, raised before the original adjudicator (and a review adjudicator must not consider this material) (see Schedule 3, item [7] of the BCL Bill and Schedule 2, item [5] of the BCL Regulation).

Reform 2: safer home building

This area of reform proposes to make home building fairer and easier. This will be effected by the Building Bill, which proposes to repeal and replace the Home Building Act 1989 (HB Act).

Key changes to the HB Act regime proposed by the Building Bill include:

the changes proposed under the Building Bill would have the effect of materially broadening the operation and reach of the current HB Act regime

• broadening the operation of some of the statutory warranties currently contained in the HB Act. For example, the regulatory impact statement for the Building Bill indicates that the Bill proposes to broaden the warranty at section 18B(1)(e) of the HB Act by requiring work to result in a home 'reasonably fit for habitation', instead of 'reasonably fit for occupation' as a dwelling (the former of which is intended to set a lower threshold);
• expanding the definition of 'developer' in the HB Act to apply to parties who contracted, arranged, facilitated or caused building work to be carried out—even if those parties do not own the building or land it is on (see the definition of 'developer' in the Building Bill and section 6 of the BCE Bill). This definition is consistent with the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (RAB Act) and the BCE Bill; and
• replacing the definition of 'major defect' in the HB Act with the broader concept of 'serious defect' in the RAB Act and BCE Bill (see section 76(7) of the Building Bill and the definition of 'serious defect' in the BCE Bill).

A defect will be a 'serious defect' if (relevantly) it is attributable to a failure to comply with the governing requirements or the performance requirements of the National Construction Code in force at the time the building work was carried out. It will not need to also cause or be likely to cause an inability to inhabit or use the building, the destruction of the building or the threat of collapse of the building.

In addition, the regulatory impact statement for the Building Bill states that the NSW Government is seeking feedback on an alternative proposal to extend the operation of the HB Act statutory warranties from 6 to 10 years for major defects and from 2 to 3 years for minor defects.

In short, the changes proposed under the Building Bill would have the effect of materially broadening the operation and reach of the current HB Act regime.

Reform 3: safer building products

This area of reform proposes to improve the supply and use of safe building products. This will be effected by amendments to the Building Products (Safety) Act 2017 (BPS Act) which are proposed in the BCL Bill.

The key proposed change to the BPS Act is to impose duties on participants in the building product supply chain – including designers, manufacturers, engineers, suppliers, and installers of building products – to:

• not design, supply, manufacture or install a non-compliant building product;
• provide information in respect of the building product to other participants in the supply chain; and
• notify the Secretary of a building product with a non-compliance or safety risk,

(see item [7] of Schedule 1 of the BCL Bill).

Reform 4: building compliance and enforcement

This area of reform proposes to create a single legislative framework for the regulation of building compliance and enforcement. This will be effected via the BCE Bill, which proposes to replace the RAB Act (see section 173 of the BCE Bill).

Key changes to the RAB Act regime proposed by the BCE Bill include:

• tying the requirement for developers to issue an expected completion notice (ECN) where a project is close to applying for an occupation certificate to the Design and Building Practitioners Act 2020 (DBP Act) (eg see sections 9(1)(b) and 12 of the BCE Bill);
  
  This would mean the ECN requirement applies to class 2 buildings (or buildings with a class 2 part) as well as any new classes of buildings that the DBP Act is expanded to apply to in the future. This is relevant because earlier this year the New South Wales Government sought feedback to expand the DBP Act to apply to class 3 (ie long-term or transient accommodation, such as boarding houses) and class 9c (ie aged care) buildings;
  
  
• expanding the compliance and enforcement powers of the Secretary and NSW Building Commissioner to issues arising under 'building enforcement legislation', which is set out at section 5 of the BCE Bill and includes the BCE Bill, the Building Bill, SOPA and the DBP Act (among other legislation);
  
  As part of these expanded powers, the Secretary and Building Commissioner would be able to make stop work orders that apply beyond residential apartment buildings (eg see sections 52, 57 and 58 of the BCE Bill); and
  
  
• include powers to 'pierce the corporate veil' such that a director or other influential individual involved in the management of the corporation may be personally liable for an offence committed by a corporation against the building enforcement legislation (eg see sections 156 and 157 of the BCE Bill).

In addition, Part 8 of the Building Bill proposes to consolidate the duty of care that is currently in the DBP Act with Division 6.6 of the Environmental Planning and Assessment Act 1989—making it clear that there is a duty of care which applies to non-residential buildings. This is not unexpected given the recent New South Wales Supreme Court decision of Goodwin Street Developments Pty Ltd atf Jesmond Unit Trust v DSD Builders Pty Ltd (in liq) [2022] NSWSC 624), where the court came to the view that this is how the existing duty of care provision should be interpreted.

The Building Bill will, however, also expand the duty to apply to the design, inspection and certification of both building work and subdivision work (see sections 215 and 216 of the Building Bill).

Reform 5: licensing

This area of reform proposes changes to licensing of building work. It will be effected by the Building Bill.

Notably, the Building Bill proposes to:

• expand licensing requirements to the commercial sector;
• expand licensing requirements to design work (among other participants in the building and construction industry); and
• effect other amendments to licensing requirements, including in respect of fire safety work and engineering work.

The Building Bill also proposes to impose additional obligations on corporations licensed to carry out work that is regulated by the Bill, as well as directors and 'nominee supervisors' of those corporations. For example:

• corporations and directors will be required to ensure the work is carried out by an appropriately licensed individual (see sections 43 and 45 of the Building Bill);
• directors will be required to ensure (among other things) that the corporation complies with the requirements of the Building Bill and appropriate management systems are in place to ensure the corporation complies with those requirements (see section 43 of the Building Bill);
• directors will also be required to report to the Secretary certain conduct that they suspect or reasonably suspect is a ground for taking disciplinary action (see section 44 of the Building Bill); and
• the Building Bill proposes to create a new concept of a 'nominee supervisor', being an individual that a corporation must engage to supervise the building work to ensure it complies with the Building Bill, the BCE Bill and the National Construction Code (sections 46–48 of the Building Bill).

Reform 6: prefabricated and manufactured homes

This area of reform proposes to introduce a new regulatory scheme for prefabricated and manufactured homes.

Reform 7: upskilling

This area of reform proposes to increase the focus on education in the building and construction industry, including by standardising CPD requirements across the industry.

What's next?

You can have your say on the reforms by completing a survey or by making a submission here. The consultation period ends on Friday 25 November 2022.

If you would like a further explanation of the reforms or assistance in writing a submission, please contact any of the team listed below or your usual Allens contact.