Northern Territory Second Reading Speeches

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BUILDING AMENDMENT BILL 2004


Bill presented and read a first time.

Dr BURNS (Transport and Infrastructure): Madam. Speaker, I move that the bill be now read a second time.

The bill amends the building act provide for the registration of home builders and introduction of compulsory warranty insurance Government made a commitment to the Territory community that it would introduce these measures to give protection to consumers that is the norm elsewhere in this country for people building and buying their own homes.

The family home is the single most valuable asset most families have and the consumer protection that it deserves is long overdue. We have all heard horror stories from family and friends whose builders have collapsed, leaving them with partly-built houses and considerable additional costs as well as stress to obtain another builder to complete the work. Names like Pricemaster, Bayview and Di Mello from our recent history immediately come to mind. The papers were full of tragic stories of victims. People were devastated as their dreams turn into nightmares.

At the time, the member for Fannie Bay as the Leader of the Opposition made a commitment to provide protection for home buyers. I am pleased to deliver on that commitment by introducing this bill to give consumers real protection.

Consumer protection will be provided through regulating the residential building industry to ensure that home builders are qualified, experienced and competent. This will allow compulsory home warranty insurance for non-completion and non-compliance of works to be provided by the insurance industry.

On 14 February 2003, my predecessor released a discussion paper on the registration of residential builders and home warranty insurance. An industry reference group was formed to manage the industry and community consultation, review the submissions received, and provide advice to government. The consultation was extensive throughout the Territory. Twenty-eight submissions were received and the Industry Reference Group made 70 recommendations on 7 August 2003. Government has accepted 59 of the recommendations. The remaining recommendations are generally related to expanding the registration system to include others in the building industry which are not the principal residential building contractor.

After considering, at length, the submissions and recommendations, and having regard to what was happening at a national level, particularly other jurisdictions’ legislative responses to the crisis in the insurance industry, government released details of its intentions. It also formed an extended industry reference group known as the Construction Industry Reference Group, to provide advice to government on the implementation of a range of construction industry reforms and initiatives, including this matter and other bills that will be considered by parliament.

The members of the group are Mr Gerard Butler, consultant (Chairman); Mr John Brears, Building Appeals Board and member of the Building Practitioners Board; Mr Jon Baker of the Territory Construction Association; Mr Graham Kemp, Housing Industry Association; Mr Brendan Meney, representing regional industry; Miss Penny Whinney-Houghton, Australian Institute of Building Surveyors; Mr Paul Nowland, representing medium-sized builders; Mr Joe Gallagher, Construction, Forestry, Mining and Energy Union; Mr Steve Ward, Contractor Accreditation Limited; and Mr John Emslie, Civil Contractors Federation.

The group continues to be very active and effective, and members are able to bring guests from their organisation to ensure maximum industry participation. At the last meeting, the members agreed that the process had been very successful and that consideration should be given to extending the life of the group, to be a forum for government and industry to address matters of mutual interest in the building and construction industry. Government is very appreciative of the work done by the group to date, and I wish to publicly thank all the members who have given of their time to contribute to the overall development of the industry.

It is true that sections of the industry have taken different positions on some matters to those proposed by the government, particularly in relation to the extent of registration proposed in the building industry and the nature of home warranty insurance. I will come back to these matters later.

At this stage, I wish to outline the main aspects of the bill. Matters relating to detail will be in subsequent regulations and determinations. However, I will include comment on government’s intentions where appropriate.

Firstly, builders’ registration. The bill creates a new category of Building Practitioner called Building Contractor. The regulations will make a sub-category of Principal Residential Building Contractor. A contractor will need to be registered to carry out prescribed residential building works. The regulations will prescribe those works as new houses and units, and extensions to existing houses and units, regardless of the height of the building. Renovations such as re-roofing and bathroom refurbishing, and extensions below a prescribed amount, proposed at this stage to be $12 000, will be excluded. This type of work is done by trade contractors and these trade contractors will not be required to be registered to do such work. Likewise, sub-contractors will not be required to be registered as they will be under the supervision of the principal residential contractor when building houses.

Government’s concern is for the person building a new home or extending an existing one. Most people rarely embark on such projects and are not familiar with the nature of the work which involves a considerable investment. By requiring the builder, as the supervisor of the project, to be registered, reasonable consumer protection can be achieved.

The reform is substantial and the transition will require careful management by industry and government, and will be subject to ongoing review. The Building Practitioners Board will be expanded with appropriate industry membership to administer the registration of building contractors, along with all other building practitioners. All registration for building practitioners will be for a two year term. Currently, there are persons and firms registered as building certifiers, certifying plumbers and certifying engineers. A registered building certifier can rely on certification by a registered engineer or plumber when issuing a building permit. They have no time limit on their registrations, and it is appropriate that they should.

Under the new provisions, re-registration will be subject to past performance, continuing professional development and a fee. Existing builders who demonstrate competency to do building work will be registered and, subject to their ongoing satisfactory performance, will quality for re-registration. However, new entrants will need to have, in addition to competency, the required qualifications and experience. This will also apply to anyone in the future whose registration has lapsed. If an applicant has accreditation by Contractor Accreditation Limited, known commonly as CAL, any common ground to the two processes will not need to be covered again in an application for registration as a builder; that is, appropriate recognition will be given of prior accreditation. Likewise, any other relevant accreditation provided by a recognised provider will be treated in the same manner.

Owner builders will be exempted from the requirement for builders registration but, instead, will be required to obtain an owner builder certificate by successfully completing a short course prior to obtaining a certificate. An owner builder will be restricted by regulation to building on one parcel of land in a six-year period. That building certification will be annotated that the works have been carried out under the owner builder provisions and placed on the building record to inform future purchasers.

I now turn to home warranty insurance. Secondly, this is an important matter, along with the builders registration. Home warranty insurance provides homebuyers with protection from financial loss due to non-completion of house building contracts due to the building contractor’s death, disappearance or insolvency. It also covers owners and future owners for non-compliance with building regulation of building works; for example, structural defects in houses and units in buildings up to and including three storeys for six years after completion. Again, this is in the case of death, disappearance or insolvency. The bill provides for both components of home warranty insurance to be mandatory to houses and extensions above a prescribed amount - as I have said previously, proposed at this stage to be $12 000. Renovations that do not require a registered builder will also not require insurance.

Unit developments will not be required to have the non-completion component, as they are built by developers as a commercial venture and sold individually with unit titles on completion of construction. The non-compliance component will be required for buildings up to and including three storeys. The three-storey cap is a national one that other jurisdictions and the insurance industry have made to ensure home warranty insurance remains available. A building above three storeys has a large enough body corporate to seek redress through the courts. Owner builders and speculation house builders will only be required to have non-compliance insurance to cover the event of the property being sold within the six-year period. Government authorities will not be required to take out non-completion or non-compliance insurance as, by definition, governments will always exist to make good any defects. The insurance policy will be part of the official record in the building file held by government.

The existing home building certification fund established with the introduction of private certification in 1993 and managed by the Territory Insurance Office on behalf of the government, will be wound up from the date of implementation of the new insurance scheme. This fund already has the national three-storey cap that I have referred to. In order for competitive insurance products to be available in the relatively small Territory market, it is important that the prescribed conditions relating to the home warranty insurance are consistent with the norm nationally.

I now turn to matters that are related to the registration of builders and home warranty insurance. In order to increase building practitioner accountability and reduce the vulnerability of the home buyer to financial loss, the following reforms to the certification process are provided for in the bill. For residential building works that require non-completion insurance, there must be a contract between the parties with certain prescribed matters. The prescribed matters are proposed to include a declaration that the builder has secured the home warranty insurance, a declaration that the home buyer has secured appropriate finance; a statement of the work stages to which the progress payments will be linked, and the amount of each progress payment; the location and description of building works to be undertaken; the proposed building permit number, which identifies the compulsory building inspection stages; a dispute management process between the parties; and a deposit limit.

The bill requires evidence of a project’s specific home warranty insurance policy, and a building contract, prior to the issuing of a building permit and commencement of building work. Compulsory inspection stages will be prescribed by legislation. Generally, they are proposed to be at the stages of pre-slab, pouring of the slab, wall framing or reinforcing of block walls, roof frame, wet areas, and final inspection prior to the issuing of the occupancy permit. The building certifier will be responsible for inspection and certification of each compulsory stage.

As we all know, the Territory covers one sixth of Australia. The Building Act does not apply to it all. However, there are remote areas to which it does apply. Consideration has been given to the difficulty and cost of servicing those remote areas and it is proposed to exempt them from some of the requirements, particularly those that relate to mandatory inspections. Government will give people in those areas the choice to have the full package, or only part. The principal residential building contractor will be required to sign a legally binding declaration upon completion of the building project that the works comply with the building permit.

I refer to my introduction to the matters of difference between some sections of the industry and Government. I now wish to address these two matters. Firstly, there has been criticism that the government is not going far enough in the regulation of the industry. Those who hold this view want a fully regulated industry, including trade contractors dealing directly with the public, generally doing renovations and repairs, and sub-contractors. As I have already said, the government maintains that the primary issue is consumer protection, and the target audience is the house builder and the house or unit owner when they are making substantial investment in property. The objective is achieved by registering the principal residential building contract.

Secondly, some have called for the home warranty insurance not to be made mandatory until the insurance difficulties of recent years are behind us and suitable competitive insurance products are available in the Northern Territory marketplace. A major issue relating to insurance eligibility is the capitalisation requirements of the insurance industry for a building contractor. Everywhere else in the country, builders must have between 5% and 20% of their annual turnover as accessible assets. This, combined with the financial report that will be required, will mean that builders may need to restructure their companies, as has happened in every other jurisdiction.

Home warranty insurance has had a controversial history interstate, particularly since 2001 following the collapse of HIH. Most of the controversy has been in New South Wales and Victoria where there have been numerous inquiries and investigations. In 2002, the Ministerial Council on Consumer Affairs engaged Professor Percy Allen to do a national review of homebuilder’s warranty insurance, and consumer protection. Later that year, the working party of the Standing Committee of Officials of Consumer Affairs made a response to the report. In New South Wales in 2002, the joint Select Committee on the Quality of Buildings handed down the Campbell Report. In 2003, Mr R Grelvin presented his report to the New South Wales Home Warranty Insurance Inquiry to the New South Wales government. This was followed later that year by a review of the New South Wales Insurance Inquiry 2003 by Peter Tyler who was commissioned by a consortium of contractor associations and professional institutes. It is understood that the consortium included BFair and Builders Collective lobby groups formed by small builders opposed to private underwritten home warranty insurance, and advocating government underwritten schemes.

All of these reports and the many debates, demonstrations, letters and media articles they have generated, produce many conflicting statistics to support their recommendation. However, the end result is that government has rejected alternative models, such as voluntary and government run schemes and amended their regulations and administrative requirements to ensure there are suitable competitive insurance products in the market place.

Queensland is the only jurisdiction with a long-standing government-run scheme. The Queensland government takes 25% of the risk and reinsures the remainder through insurance companies. It does appear that the major issues have been resolved, and that there are three insurance companies established in the national market with a fourth giving serious consideration to entering the market. Some evidence of this is that Australia has just experienced a boom in the building industry that would not have been possible if the industry was being seriously restricted by the availability of home warranty insurance.

The government has consistently given assurances that the scheme will not be commenced until suitable competitive products are readily available in the Northern Territory. In order to re provide the substantial lead time that has been shown to be necessary inter state and allow more time for the insurance market to demonstrate it is working satisfactorily, it is proposed to stage the introduction of the scheme. The registration of builders part of the scheme will be commenced in January 2006, and the home warranty insurance part later in that year.

In conclusion, considerable work still needs to be done on regulations, determinations and administrative procedures. The Building Practitioners Board will need to be restructured. Transitional arrangements for existing builders, processes for the assessment of applications, staff recruitment, fees and funding will all need to be addressed. Qualifications will need to be determined and training and education programs developed. Industry will need to make the required applications, restructure business if necessary, undergo any training requirements and budget for the associated cost.

All building contractors affected by the Building Amendment Bill will also be affected by other bills that are the subject of consideration by the Construction Industry Reference Group. It is therefore essential that the government continues to work closely with industry to ensure mutually beneficially outcomes in the interests of the whole community. A comprehensive communication strategy has been developed to ensure the whole building and construction industry and the Territory community is fully informed on the progressive implementation of the complete package.

Madam Speaker I commend the bill to honourable members.

Debate adjourned

 

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