Building Product Safety Act 2017 (NSW): introducing the chain of responsibility

Introduction

The Building Legislation Amendment Bill 2023 was passed on 21 November 2023.

The Bill amends several Acts to expand the powers of the NSW Building Commissioner to improve customer protection for homeowners, tackle poor industry behaviour and promote DLI insurance.

One of the goals of the Bill is to create accountability in the building products supply chain. Accordingly, Schedule 2 of the Bill will amend the Building Products (Safety) Act 2017 (NSW) (BPSA) to:

• create a "chain of responsibility" for building products and clarify the duties owed by each person in the chain (see below);
• enhance the powers of the Secretary to identify and intervene in the use of non-conforming building products (see below); and
• create new executive liability offences for directors and individuals in management positions in respect of building product safety risks (see below).

At the date of this article the Bill is awaiting assent. The Bill also provides for the amendments to the BPSA to come into effect only upon proclamation, suggesting that they may commence later than the remainder of the Bill.

Despite this, industry participants may wish to consider how the upcoming amendments to the BPSA will impact their businesses and day to day operations. We have set out some practical considerations for industry participants below.

The building products supply chain

The Bill will create a legally enforceable regime of responsibility in respect of building products, being any product, material, or other thing that could be used in a building.

The building products supply chain will include any person who:

• designs or deals with a building product and who knows, or ought to have reasonably known that a product will or is likely to be used in a building eg. manufacturers, importers and suppliers of building products;
• prepares a building design that incorporates or recommends the use of a product in the building eg. designers, engineers and architects;
• uses the product in a building by incorporating it into, connecting it to, or otherwise installing it in a building by means of building work eg. a person who installs, coordinates or supervises the installation of a product during construction (such as a builder); and
• any other person specified in the regulations (with none yet passed at the time of this article),

(together, Building Supply Chain Actors).

These duties must be discharged as far as reasonably practicable and taking into account the following risk factors:

• the likelihood of the existence of a non-compliance risk or safety risk;
• the harm that could result from that risk;
• what the person knows or ought to reasonably know about the risk and how to minimise it; and
• the availability and suitability of ways to remove or minimise the risk and the cost associated with removing or minimising the risk.

It is important to note that:

• persons may have more than one duty in the chain of responsibility;
• more than one person may have the same concurrent duty (and must discharge such a duty to the extent which they have capacity or control of such matters, or would have control except if an agreement/arrangement limited their capacity); and
• these duties cannot be transferred from one person to another.

Penalties may apply for a failure to comply with any of the duties set out below.

Duty to ensure no non-compliance risk exists in building products

The BPSA creates an obligation for Building Supply Chain Actors to ensure that no non-compliance risks exist in building products.

A non-compliance risk will exist if the building product is:

• non-conforming (ie. it does not satisfy a requirement of the National Construction Code (NCC), another relevant regulatory provision, or if a Building Supply Chain Actor makes an incorrect representation about a feature of the product, the product's compliance with a particular standard, the NCC or another legal requirement); or
• non-compliant for its intended use (ie. the use does not comply with the NCC, a relevant regulatory provision or is otherwise unsuitable).

The Bill provides that a contravention of this duty is an executive liability offence. Accordingly, directors and managers of corporations may be liable for failing to comply with this duty (see below for further information).

Duty to provide information in relation to building products

Building Supply Chain Actors will be required to provide required information to the next person in the chain in respect of each building product. Required information means, for each intended use of the product:

• the suitability of the product for the intended use;
• whether the product is only suitable for the intended use in some circumstances or conditions;
• instructions for ensuring the intended use is not a non-compliant use;
• information about the maintenance required to ensure the product performs correctly in relation to its intended use; and
• if a product includes a system or building component containing multiple elements, the required information must be provided for that system as a whole.

In particular, the Bill provides that a person who:

• designs a building product must ensure that the required information accompanies that design if it is given to another person who will give effect to that design for a product;
• deals with a building product must ensure that the required information accompanies the product where the person sells, supplies or otherwise transfers the product to another person (or facilities such sale, supply or transfer);
• prepares a building design that incorporates or recommends the use of a building product in a building must ensure that the design is accompanied by the required information for a product if the person gives the design to another person who is to give effect to that design; and
• uses a building product in a building must ensure that the owner of the building is given any information about the product specified by the regulations (with none yet passed).

For architects, engineers and builders this may require significant additional information to be provided with any design package or during construction of a building. In addition, builders will be obliged to provide information about building products directly to owners of buildings, even though there may not always be a direct contractual relationship between the builder and the owner.

Penalties will apply where a Building Supply Chain Actor fails to provide the required information.

Duty to notify Secretary of non-compliance or safety risk

Building Supply Chain Actors have a duty to notify the Secretary if they become aware (ie. "reasonably suspect") that a non-compliance risk, or safety risk, exists in relation to the intended use of a building product.

The notice must be given within 7 days of becoming aware of the risk and must be in a form which is approved by the Secretary and is publicly available on the internet.

Duty in relation to building product recall

Building Supply Chain Actors who are responsible for a building product the subject of a building product recall must stop using or supplying the product, comply with the recall and provide repairs, modifications, replacements or refunds in respect of the building product (whichever is appropriate in the circumstances) if they are a supplier, manufacturer or importer of the product.

Additionally, a Building Supply Chain Actor who prepares a building design incorporating a recalled building product must inform each recipient of the design of the product recall and either amend the design to remove the recalled product or give notice specifying an alternative product.

Building Supply Chain Actors should note that once the amendments to the BPSA come into effect, disciplinary action may be taken against registered practitioners under the Design and Building Practitioners Act 2020 (NSW) and contractor licence holders and holders of supervisor or tradesperson certificates under the Home Building Act 1989 (NSW) if that registered practitioner or licence holder has:

• used or supplied a building product in contravention of a building product use ban, building product supply ban or building product recall under the BPSA; or
• contravened a requirement of the BPSA (whether or not that person is prosecuted or convicted for that contravention).

Enhanced powers of the Secretary relating to building products

Building product safety notices

The Bill will empower the Secretary to issue building product safety notices if the Secretary is satisfied on reasonable grounds that a non-compliance risk or a safety risk exists, or may exist, in relation to a product. The building product safety notice may be a warning, supply ban, use ban or recall in respect of a building product.

Failure to comply with a building product safety notice may attract penalties of up to:

• $1.1 million for a corporation and $220,000 for an individual for the offence; and
• $110,000 for a corporation and $44,000 for an individual for each day the offence continues.

The Bill designates certain offences in relation to building product safety notices as executive liability offences. We explore these further below.

Building product directions

An authorised officer (being a person appointed by the Secretary) may give an appropriate person a building product direction to prevent, minimise or eliminate a safety risk or a non-compliance risk in relation to a building product.

This may include (amongst other things) directing the person to stop using or supplying a building product either generally or in specific circumstances, or make a building product incapable of being used or operated.

An appropriate person is a person in the chain of responsibility, a person in possession of the relevant building product, or the occupier or employee of a place or building site where the building product is manufactured, supplied, stored or used.

However, a building product direction cannot require something to be done in relation to a building that is occupied or fit for occupation (e.g. a direction to remove the relevant product from an occupied building).

Removing persons from the building supply chain

The Bill will empower the Secretary to remove people from the supply chain if they repeatedly engage in unlawful conduct.

In the first instance, the Secretary may issue a show cause notice, requiring an individual to justify why they should not be banned from carrying out a business of supplying building products if the Secretary is satisfied that a person has, in trade or commerce, engaged in unlawful conduct relating to the use or supply of a building product on more than one occasion in NSW or somewhere else.

The Secretary may then apply to the Supreme Court for a trading prohibition order if the Secretary has considered their submission and still believes that person will continue to engage in unlawful conduct. A trading prohibition order prevents a person from carrying on a business of supplying building products either indefinitely, or for a period of time stated in the order.

The Supreme Court may also order that a person the subject of a trading prohibition order pay damages to any person for loss or damage derived from the unlawful conduct.

Seizure of building products

The Bill will enable authorised officers to seize and test building products if they are of the reasonable belief that a non-compliance risk exists, a safety risk exists for the intended use of the product or an offence against the BPSA has been committed in relation to the product.

Executive liability offences

Under the BPSA, directors of a corporation or individuals involved in the management of a corporation who influence a corporation's conduct in respect of a building product can be liable for an executive liability offence if:

• a corporation commits an executive liability offence (being an offence designated as an executive liability offence in a provision of the BPSA); and
• that person:
  • knows or ought reasonably to know that the executive liability offence (or an offence of the same type) would be or is being committed; and
  • fails to take all reasonable steps to prevent or stop the commission of that offence.

The Bill designates the following offences to be executive liability offences:

• failure to ensure that no non-compliance risks exist in a building product;
• supplying a building product in contravention of a building product supply ban;
• causing a building product to be used in a building in contravention of a building product use ban;
• contravening, or failing to carry out a requirement of, a building product recall or failing to notify the Secretary of a voluntary recall of a building product; and
• representing, in trade or commerce, that a building product is suitable for a use in a building that would contravene a building product use ban, building product supply ban, or a building product recall.

In the context of a failure to ensure that no non-compliance risk exists in a building product, the Bill expands the existing concept of reasonable steps to include a failure to take product safety steps:

• action to obtain and maintain an up-to-date understanding of the building products for which the corporation is a person in the chain of responsibility, including:
  • the nature of the corporation's building activities in relation to the products;
  • the safe use of the products; and
  • potential safety risks and non-compliance risks associated with the products;
• action to ensure the corporation is appropriately resourced and has appropriate processes in relation to potential safety risks and non-compliance risks associated with the products, including processes to remove or minimise the risks and receive and respond to new information about the risks or incidents that may be relevant to the risks; and
• action to ensure the resources and processes mentioned in paragraph (b) are appropriately implemented.

What should Building Supply Chain Actors do to prepare for the reforms?

While the Bill awaits assent, building industry participants should review their business practices to determine how to manage duties where they potentially fall into the chain of responsibility under the BPSA.

Building Supply Chain Actors should consider:

• implementing adequate compliance protocols and guidelines with respect to building products including monitoring any safety notices, building product warnings, recalls, supply bans issued by the Department of Customer Service;
• putting in place procedures for the provision of "required information" to the next person in the supply chain;
• contractual risk mechanisms including warranties, indemnities, declarations and positive obligations in contracts with other Building Supply Chain Actors, to call out duties, including ensuring that all required information is supplied; and
• training, industry awareness and consideration of building products used in current and future building projects and updating registers of building products to discharge duties by ensuring that unsafe building product are not used.

Directors and individuals in management positions of corporations involved with building products should also:

• familiarise themselves with the new categories of executive liability offences; and
• consider how they can implement the actions set out above on to the duty to ensure no non-compliance risks exist in building products.