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Brief Counsel

Government proposes changes to building consent framework

18 March 2010

The Government has invited feedback on proposals to improve the Building Act 2004.  Submissions can be made online, by email, fax, post or courier.  The deadline is 23 April 2010.  

This Brief Counsel summarises the key recommendations in the review.

A new risk-calibrated approach to building consents

Building and Construction Minister Maurice Williamson suggests in his foreword to the discussion document that the current regime is heavy-handed in places and that there is a need to strike a better balance between the amount of control, the level of risk and the capability and responsibility of those involved. 

Specifically, he wishes to move away from “an undue over-reliance on building consent authorities” and to transfer some of this risk to the industry. 

This is to be achieved by replacing the current one-size-fits- all approach with a risk calibrated building consent framework in which:

  • major commercial building work would go through a simpler, more streamlined consent process than now, in recognition of the experience and skills of the professionals involved and of the fact that commercial contracts for major projects include quality control provisions

  • lowest risk building work (a basic shed or a low deck) would not need a consent

  • low risk work (a simple one-storey house), when undertaken or overseen by licensed building practitioners, would be subject to a quicker consenting process with fewer council inspections, and

  • high risk, complex houses would go through the current approval and inspection process.

Improved consumer protection

Specific recommendations to improve the protections available to consumers include a provision that all contracts between consumers and principal building contractors be in writing and signed by all parties.

Contracts

The contract would have minimum terms that could not be contracted out of.  It is suggested for the purposes of discussion that these might include:

  • the full names and addresses of the parties

  • the date the contract is agreed and signatures

  • a description of the work to be carried out (with plans and specifications appended)

  • details of warranty, or a statement that there is no warranty

  • the contract price and payment schedule or, if not fixed, an explanation of how the price will be calculated

  • a clause stating that any agreement to vary the contract will be taken to form part of the contract and must be in writing and signed by both parties

  • start and completion dates or, if not known, an explanation of how these will be determined, and

  • an outline of who to contact and the process to be followed in the event of a dispute.

Disclosures

Before entering an agreement with the consumer, the principal contractor will be required to make certain disclosures.  It is suggested for the purposes of discussion that these might include:

  • trade qualifications, number of years in practice, practitioner licence number (if licensed) and any professional memberships of everyone working on the site, including subcontractors

  • details of arrangements to back up the warranty or a statement that no such backing exists

  • information to prompt consumers to consider all relevant matters before signing (e.g. a checklist), and

  • details of any previous disputes over warranty obligations.

Warranties

Proposals are:

  • to move to a two-tier system with a statutory warranty period of six to ten years for critical building elements (such as weather tightness and structural stability) and two to three years for non-critical elements, such as interior fittings

  • to cap the warranty at either the contracted value of the building work or at a fixed amount (e.g. $500,000)

  • to extend the coverage of the warranty to encompass: compliance with legal requirements, suitability of building materials, standard of work and exercise of care and skill, adherence to plans and specifications, suitability of the premises for habitation, reasonable diligence in conduct of the work and calculation of claims for provisional sums

  • to include guarantees in relation to loss of deposit and non-completion of the work within a reasonable timeframe, and

  • to allow the obligation to fix defects to be voided under certain circumstances (such as a change of use from residential to commercial or if the defect is due to the owner’s actions or inactions (e.g. incorrect use of a water blaster)).

The review also asks:

  • whether warranties should be mandatory for all residential building work or limited to new dwellings or to contracts priced over a threshold amount (say, $15,000)

  • whether the building owner should have the option of renouncing the right to a warranty

  • whether residential property developers should be required to offer an independent third-party warranty at no extra cost to the buyer to protect the consumer against the use of special purpose companies that are liquidated when the development is complete, and

  • whether building contractors should remain liable for warranty service claims for six to ten years after they retire or wind up their company.

Dispute resolution

There are gaps in the coverage of current dispute resolution measures, notably where disputes are too high in value to be heard in the Disputes Tribunal yet are too small to suit court action.  Options to remedy this include:

  • requiring contracts for residential work to provide for an alternative dispute resolution process where a dispute cannot be resolved directly by the parties, and

  • establishing a specialist dispute resolution service for residential building disputes.

Other recommendations

  • Ensuring the fundamental elements of regulation – the Building Code and the purpose and principles of the Building Act – are clear

  • exploring ways to make the administration of the regime more cost-effective, including “clustering” options that could see building consent authorities operating on a regional rather than a district basis and whether there is scope for private provision of regulatory services

  • simplifying processes to review the fire safety of building plans and the inspection and maintenance of essential systems such as fire sprinklers and lifts, and

  • examining whether the building consent system is the best way to regulate public infrastructure works such as bridges and tunnels.

Chapman Tripp comment

The primary objective of the Building Act review is to make it easier and cheaper to build “dependable-quality, cost effective homes and buildings” while maintaining, and improving, quality.  This objective is commendable.  However, in reality, it is difficult to strike the right balance between cost effectiveness and quality.  Simple defects on straight-forward building projects can have disastrous consequences. 

An independent party (e.g. the local authority) to provide the checks and balances during construction operates as an important safeguard, although with its own limitations.  We should be cautious about departing from such a structure without being very clear that the replacement framework will in fact deliver a mindset change to focus builders on delivering quality.  In other words, the focus of the review should be a framework that operates as the fence at the top of the cliff rather than the ambulance at the bottom.

The discussion document is available here.

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