Building Legislation Amendment Bill (Victoria) 04/06/2014

Building Bill takes aim at builders

The State Government has proposed significant reforms that will impact builders across Victoria.
In between political power plays on Spring Street, State Parliament is next week expected to debate the Building Legislation Amendment Bill. The Bill aims to boost consumer protection in the domestic building industry and will have significant impacts on builders.

Reforms in the Bill include changes to builder registration processes, domestic building insurance, building permits, consumer disputes and building surveyors. It will also introduce demerit points for builders found to have breached relevant building laws.

It will see the new Victorian Building Authority (VBA) empowered as a one-stop-shop for all matters regarding the building industry, removing the roles held by agencies like Building Advice and Conciliation Victoria in consumer disputes and the Victorian Managed Insurance Authority from the domestic building insurance market.

Master Builders has reviewed the 700 pages of legislative material covered by the Bill and held a range of discussions with key State Government policymakers to provide you the most detailed coverage of what these changes will mean for you and your business.

Domestic Building Insurance

The Bill proposes to introduce new domestic building insurance (DBI) triggers for defective building works. At present, DBI covers consumers for such works where a builder dies, disappears or becomes insolvent.

Should the Bill pass Parliament, new triggers will come into effect from 1 July 2014 to cover the following events:
• Failure by a builder to comply with a rectification order issued by the VBA;
• Where a builder has had their registration suspended, either temporarily or permanently; and/or
• Where the builder is incapacitated and unable to complete the works.

The maximum claim payout for consumers will also be lifted from $200,000 presently to $300,000. Building works worth $16,000 or more must be covered by insurance, up from $12,000 currently.

In addition, the government is proposing to establish a new consumer protection fund from 1 July 2015 to replace the current domestic building insurance scheme offered through QBE and underwritten by the VMIA. 

While the VMIA will initially manage the new fund, the VBA is expected to take control of it from 1 July 2016.

Master Builders has significant concerns with the VBA's ability and expertise in running such a large scale fund. 

In addition, the proposal breaks a commitment made by the State Government last year to keep the VBA out of domestic building insurance.
'Victoria's building regulator has gone through periods of chaos and upheaval and has had five different people leading it in the past couple of years,' said Mr de Silva. 'Now it is to be given more power over our sector and your business. While the VBA is learning to walk, the government wants to send it on a marathon it is not capable of running.

'Insurance goes to the heart of builders being able to run their business and our industry has seen a number of big changes over the last 15 years that brought many businesses to their knees. 'There is not a lot of time to set up this new, massive consumer fund scheme and there are no guaranteed rights of review for insurance decisions made by the VBA, which can significantly impact the volume and type of work builders can carry out.'

The new triggers and increases to maximum payments will drive the cost of insurance up. The government won't say how much premiums will rise by, but it could add $2000 onto the cost of a typical $300,000 house contract price. 'It is not tenable for builders to factor in an unknown rise of insurance costs into their contracts just weeks before these insurance changes start,' Mr de Silva stated. 'This is just another government policy that will add to the costs of home building and renovation projects and will further disadvantage our members trying to compete with unregistered or uninsured builders and tradespeople.

'The government seems intent on fixing things that are not broken rather than fixing existing problems like the number of unregistered tradespeople operating here or our extremely high rate of owner builder activity.'

Clients with queries regarding the impacts of the insurance changes or how to account for them in contracts should contact the Melbourne office on (03) 9411 4555.

Builder Registration

Whether you are applying for your builder registration for the first time or have been a registered practitioner for decades, new requirements will be introduced.

Rather than just paying an annual registration, registered building practitioners will need to renew their registration at least every five years and on each occasion will be required to undergo police background and financial probity checks. These checks replace the current 'good character' test used for new applicants.

These checks will be in addition to minimum qualifications, skills and experience as determined by the government. While this is not expected to change in the short-term, it may lead to future changes around mandated qualifications or compulsory professional development standards for builders to gain and maintain their registration status.

New applicants for registration will need to satisfy the new tests from 1 July 2014, while currently registered practitioners will go through this new process from 1 July 2015.

Additionally, the government is proposing to expand the registration system from individuals to include corporations and partnerships.

Corporations and partnerships will be required to be registered in order to satisfy domestic building insurance requirements and will also need to have at least one director who has a current, individual builder registration.

At this stage, the government is not proposing to extend the requirement for registration to commercial corporations or domestic building corporations that build residential high rise and do not enter into domestic building contracts. These companies will, however, be able to choose to seek corporate registration.

Consumer Disputes

One of the key components of the proposed reforms is to amend how consumer disputes are dealt with and resolved. 

Consumer Affairs Victoria will no longer hold any role in resolving consumer disputes. Instead, the VBA will handle this.

The government says the focus of these reforms to reduce the number of cases heading to VCAT by encouraging more onsite mediation and conciliation.

Where a dispute happens, a VBA-appointed conciliator will assist builders and consumers resolve disputes and inspectors will be able to provide advice on whether there is defective or incomplete building work.

The VBA will also be able to hand out rectification orders that compel builders to repair defective building work or finish incomplete work. Rectification orders will also be able to contain a finding that work is not defective or incomplete and that a consumer has no grounds for withholding payment from a builder.

Both registered builders and consumers will, however, retain the power to have decisions reviewed internally by the VBA and, subsequently, by VCAT. 

Any builder who fails to comply with a rectification order may be subject to VBA disciplinary action, the consumer may terminate the contract and seek damages at VCAT and a domestic building insurance claim may be triggered. Likewise, if a consumer fails to comply with a rectification order, the builder may cancel the contract and seek damages against the owner. 

However, it is unclear as to whether the builder can use these provisions to compel consumers to make final payments where works have been completed.

'There are no guarantees about the quality, number or availability of inspectors and conciliators, who are going to be critical in resolving disputes in a timely, fair manner,' said Radley de Silva, CEO at Master Builders. 'If we don't have people involved with real building industry expertise, this system will fail to deliver protection for builders trying to construct high quality home projects for Victorians. 'The Bill seems to heavily favour the needs of consumers while offering very little reform that will save builders time or money.'

It appears the Bill would also allow disputes to arise between consumers and subcontractors, leaving the builder out of the process even though they may be held liable for the repercussions. 

Building Permits

The building permits process is proposed to be significantly overhauled from mid-2015 in response to damning reports from both the Victorian Auditor-General and Ombudsman. These reports heavily criticised the building permits process.

However, the planned changes could see new layers of red tape introduced into the permits process, leading to an increase in time needed to fill in more paperwork, verify the value of a building project and obtain a building permit. Combined, this would all lead to more project delays. 

The Bill will see the VBA issue building permit numbers to building surveyors before they can issue a building permit to you. The building permit number will only be issued once the VBA has received all required paperwork and the building levy payment.

In order to implement these reforms, the VBA has confirmed it will need to introduce a new IT system to ensure it has the capacity to handle the new building permits processes, so it is unlikely these reforms will commence prior to July 2015.
'If the VBA refuses to issue a number for a building permit, the only option available seems to be an appeal at VCAT,' Mr de Silva said.
'We all know that VCAT wait lists are long and, combined with the new administrative processes, this could unnecessarily delay projects for months, hurting builders and consequently owners in the process.'

Discipline and demerit points

Rather than the lengthy investigations process through the Building Practitioners Board that often take months to resolve, the Bill will allow the VBA to gather information quickly and move against a builder who has failed to comply with their registration obligations, no longer meets registration requirements or fails to rectify work as ordered by the VBA.

Demerit points for offences will be established for builders found to have breached the law. The system is expected to operate similar to the demerit points system for motorists, but it remains unclear what the points cap will be or how many points will be accrued for violations.

'There is a large amount of uncertainty about how this system will work or whether it will take account for the volume of work a builder does,' said Mr de Silva. 'The VBA will be able to issue penalties and rather than proving a builder has committed an offence, the builder will be required to show why any proposed disciplinary action should not take place. 'Penalties can include a fine, suspension or cancellation of a builders' registration and any offences can be viewed by consumers online for the next five years through a new Building Practitioner 

Register of Disciplinary Action.

'While it is important for the VBA to weed out dodgy builders, these steps seem excessive and could unfairly punish hardworking builders trying to do the right thing.'

Consumer information

The Bill proposes to improve consumer awareness of the role of building surveyors in projects. As a result, building surveyors will be required to provide owners with a VBA-approved information statement before accepting appointment for that work.

Builders will not be able to provide this information to owners. The government says the information statement will inform owners who is responsible for engaging a surveyor, what the role of a surveyor is for building permits and inspections as well as the choices consumers have to engage a builder surveyor.

It's another reform likely to introduce more red tape and make it harder to get building projects off the ground.

Seize and search

If the Bill passes Parliament, the VBA will be given wide-ranging police-style powers that will allow its officer to enter and search premises.

While these powers will assist the VBA enter sites belonging to owner builders or where works are being done unlawfully by unregistered builders and tradespeople, it will no doubt also be used on sites of legitimate builders.

Owner Builders

Disappointingly, the Bill overlooks the need to introduce much-needed reforms into owner builder activity.

Owner builder activity is substantially higher in Victoria than other eastern states because the law is not tight enough here. This escalating activity can deprive registered builders from winning new work and diminish the quality of our state's housing stock.

That's why Master Builders has recommended a range of actions for owner builders, such as increasing their recertification periods for different properties from three to six years, requiring them to undertake mandatory courses and sitting/passing a compulsory test before being certified.

Unfortunately, none of these actions have been incorporated into the Bill.

Registering Tradespeople

Likewise, our recommendations to broaden requirements for registering tradespeople have also been overlooked. Mandatory registration of tradespeople in states like New South Wales and Queensland have been attributed to delivering construction projects quicker and more cost-effectively than here in Victoria, which would benefit builders and owners alike.

Guaranteed industry representation

The Bill will also abolish a range of committees that allow industry to provide direct input and feedback into government decision-making processes that impact our industry. 

In its place, committees will be established as the government sees fit and there is no guarantee in the proposed legislation for industry to have a seat at the table, which is inadequate.

So if the government decides to review anything from minimum qualifications for builders to introducing compulsory professional development to further tinkering with insurance, Master Builders may not be able to advocate for the needs of you and your business.

What's next?

The Bill is scheduled to be debated in State Parliament next week. Master Builders will continue to discuss its contents with policymakers for both sides of politics in the meantime.

We will keep you informed as to what takes place with this Bill and the impacts it may have, particularly in relation to Domestic Building Insurance, as more information becomes available. Updates will be posted on the MBAIS website and our social media accounts. 

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