Major Projects & Construction 5 Minute Fix 102: building reform and regulation, underestimated renovation costs, WA security of payment

The Major Projects & Construction Team

07 Jul 2022

Time to read: 5 minutes

Get your 5 Minute Fix of legal trends in Major Projects and Construction. In this edition: building reform on the agenda in the Northern Territory and Victoria, independent governance review makes recommendations for Queensland's building regulator, NSW Court of Appeal says underestimated renovation costs may be recoverable, and major reforms to WA security of payment regime set to commence on 1 August 2022.

Northern Territory introduces Building Compliance Taskforce

The Northern Territory Government has announced it will establish a Building Compliance Taskforce. The Taskforce will comprise senior agency representatives, and its role involves:

collectively reviewing all government-owned buildings in "building control areas"; and
advising the government on appropriate pathways to comply with the Building Act 1993 (NT) requirements.

The Taskforce's formation was prompted by the complexities of certifying older buildings, such as the Marrara Stadium. The full list of the "building control areas" that the Taskforce will be reviewing can be found here.

Further building industry reforms on the way in Victoria

Victoria is the latest State to respond to consumer concerns about building safety and quality. On 23 June 2022, the Building, Planning and Heritage Legislation Amendment (Administration and Other Matters) Bill 2022 received its second reading in the Victorian Legislative Assembly.

The Bill proposes various reforms to the Building Act 1993 (VIC) and other building-related Acts. Proposed reforms include:

establishing a Building Monitor, tasked with representing and advocating for domestic building consumers at a systemic level;
formalising and strengthening the role of the State Building Surveyor;
strengthening information sharing between statutory entities with a role in the building regulatory framework;
expanding the categories of building practitioners;
supporting the introduction of automatic mutual recognition of building practitioners, building employees and plumbers registered in other jurisdictions; and
amending the distribution of the cladding rectification levy and making it more flexible.

Overall, the Bill seeks to improve Victoria's building regulatory framework, with an emphasis on consumer protection.

Queensland completes independent review of building industry regulator

An independent review (led by Mr Jim Varghese AM) into the governance arrangements for the Queensland Building and Construction Commission (QBCC) has released its findings. The QBCC Governance Review 2022 aims to strengthen the building industry regulator's functions and internal processes. The Review makes 17 recommendations (and 77 corresponding actions), many refocussing the QBCC's regulatory role on licensing and industry compliance.

Here are some of the key recommendations:

refocusing the QBCC's licensing and regulatory compliance role – to implement this recommendation, the Review proposed transferring the administration of the Queensland Home Warranty Scheme to another agency or department;
establishing an independent, quarantined mediation, resolution and review unit (separate from the licensing and compliance functions);
structural changes to the Board and key executive roles, including reducing the size of the QBCC board; and
replacing the QBCC's various technology systems with a contemporary and fit-for-purpose integrated information management system.

The Queensland Government has announced that it will adopt the Review's recommendations "in full" or "in principle" and has released a 90-Day Action Plan to implement the recommendations.

NSW Court of Appeal says underestimated renovation costs may be recoverable

In Morris v Leaney [2022] NSWCA 95, the NSW Court of Appeal dismissed an appeal by homeowners who sued their architect for significantly under-estimating the cost of home renovations. In this instance, the architect only remained liable for nominal damages of $1,000. But the Court upheld the trial judge's finding that the architect was in breach of duty; and that he could (had there been sufficient proof) be liable for the difference between the cost of the renovations and the increase in value of the home. This aspect will likely make architects and other professionals (even more) nervous about their role in making such estimates.

At trial, the parties agreed that the homeowners had spent $781,000 on the renovations before stopping the work. The difference between the house's market value with the renovations and without was around $350,000. The owners claimed that the architect had represented that the "objectives" they had initially sought could be undertaken for about $600,000, whereas the probable cost was around $1.2 million. The homeowners claimed damages on a "no transaction basis", namely that if they had known that cost would have exceeded $600,000, they would not have proceeded with the renovations. The homeowners’ cause of action was based on section 18 of the Australian Consumer Law as well as contractual and tortious duties.

In finding that the architect was in breach of duties in contract and tort, the trial judge found that where, as here, the architect "felt himself unable or unqualified to give an accurate estimate of costs, he should have warned of that in writing and advised the [homeowners] to obtain an estimate from a properly qualified professional". Likewise, the architect should have given more forthright advice about the risks of a cost-plus contract. However, the primary judge found that the homeowners did not suffer any loss, awarding the appellants nominal damages.

Only the damages aspect was considered on appeal. Justice Beech-Jones accepted that the trial judge had erred in the approach to damages, especially in finding that the homeowners did not suffer any loss and in failing to assess damages on a "no transaction" basis. However, he was not convinced that the homeowners had demonstrated that the proper discharge by the architect of his duties would have caused the homeowners not to undertake the renovations. Hence, the homeowners' appeal was dismissed.

Major reforms to WA security of payment regime set to commence on 1 August 2022

Western Australia's security of payment regime is about to change significantly, with the first stage of the Building and Construction Industry (Security of Payment) Act 2021 (WA) (SOPA) and related Building and Construction Industry (Security of Payment) Regulations 2022 commencing on 1 August 2022. Further stages will commence on 1 February 2023 and 1 February 2024.

The Regulations have clarified key operational aspects of the SOPA:

Key changes

What do they involve?

Construction contracts must be in writing and contain certain mandatory information

Construction contracts involving a registered building service contractor for a value of $20,000 or more must be in writing and contain certain mandatory information. A failure to comply with this requirement will be an offence and may result in a penalty of $400.

Further prohibited terms

A term that requires a person, who is entitled to make a claim under the SOPA, to engage in a dispute resolution process as a precondition to doing various things under the SOPA (including making an adjudication application) is now prohibited.

Limitations on the circumstances in which parties can apply for a review of an adjudication determination by a senior adjudicator

Parties can apply for a review of an adjudication determination by a senior adjudicator if:

the adjudicated amount is less than the claimed amount and the difference exceeds $200,000 (or where the adjudicated amount is more than the scheduled amount and the difference exceeds that sum); or
the adjudicator decides he or she does not have jurisdiction and the claimed amount exceeds $50,000.

Adjudicators' fees and expenses for low value adjudications

For adjudication applications concerning payment claims <$50,000, adjudicators can now charge between $900 and $7,250, depending on the claim amounts.

Changes to service requirements for statutory adjudication process

Documents can be served by email or electronic lock box and will be taken to be received:

in accordance with the Electronic Transactions Act 2011 (WA); and
when the document is uploaded to the electronic lock box.

Qualifications and experience required for adjudicators and review adjudicators

Qualifications required include a degree in one of several prescribed fields from a university or tertiary institution and the completion of a Building Commissioner prescribed course. The experience required will differ for an adjudicator, as compared to a review adjudicator and for example, may include experience as a judicial officer or prior experience as an adjudicator.

Codes of conduct for nominating authorities and adjudicators

Nominating authorities and adjudicators will be expected to comply with detailed codes of practice and will face consequences for non-compliance (such as revocation or authorisation or registration).

Retention money trust scheme

The scheme will commence in two phases:

Phase 1, which applies to construction contracts over $1 million, on 1 February 2023; and
Phase 2, which applies to construction contracts of $20,000 and above, on 1 February 2024. Certain small-scale contracts will be excluded.

A trustee will be entitled to withdraw amounts (in part or whole) from the retention money trust account equal to the total interest earned every 6 months or at any time after the trust retention date.

Requirements for a SOPA “compliant performance bond”

It will need to be issued by an authorised institution with a credit rating of “A” under the Standard & Poor’s Long-Term Issuer Credit Ratings or the lower contract prescribed rating.

Get in touch

Graham Read

Partner • Sydney