Cutting Through the Red Tape - Reform in the Construction Industry

Building Licensing Requirements

Each State and Territory has a unique approach to regulation of building work, including those who can perform it. In all States and Territories there is a requirement for registration or licensing, however, the requirements differ depending on the class of work performed, the value of work, and the type of contractor performing the work.

In New South Wales, the requirement for registration depends on whether the contractor is working on a regulated building (for example, apartment buildings and residential buildings), whether the contractor needs to declare or lodge documents through the NSW Planning Portal, and whether they are a qualified building practitioner interstate. In South Australia, all contractors that perform ‘building work’[2] must be registered in one of two classes of registration.[3] Conversely, the requirement for registration in Victoria depends on whether the contractor falls into the 9 classes of building practitioner (each containing multiple subclasses) and whether the ‘building work’ is prescribed.[4]

Further, some States or Territories distinguish between head contractors and subcontractors, removing the requirement for registration if the subcontractor contracts directly with a licensed builder.[5]

Domestic Building Regulation

Domestic building (DB) regulation in Australia is principally aimed at providing protection for consumers building a new home or renovating an existing home. Over time, each State and Territory has passed its own legislation setting out detailed controls over:

registration of domestic building practitioners

form and content of a DB contract (including checklists and consumer notices and restrictions on particular kinds of payment clauses)

statutory warranties as to quality

limitation periods applying to specified types of defects

deposit taking

termination

insurance (including coverage and triggers)

dispute resolution (including in some States, the banning of arbitration).

Each of the above areas are approached differently by each State and Territory. In some respects, the differences are significant. In others, they are minor.

Some examples illustrate the point:

Each jurisdiction contains different thresholds at which the requirements are triggered (typically linked to the value of work performed, ranging variously from $3,300 to $50,000).

In South Australia, DB regulation applies to all ‘domestic building work’ exceeding $12,000.[6] Whereas, in Victoria, DB regulation applies to all domestic building work (which extends to managing such work, and so applies to a person not actually doing the building), with building practitioners who perform domestic building work exceeding $10,000 being required to hold specific registration.[7]

In NSW the installation of a garage door is not DB work. In Queensland, it is.

The installation of a benchtop or splashback is not DB work in WA [8] but it is in Victoria, Tasmania, ACT, SA and Qld[9].

In NT, the requirement for building registration to perform domestic building work only applies if the renovations or alterations increase the floor area. This criterion does not apply in any other State or Territory.

A national business involved in domestic building work seeking compliance with the DB regimes must develop a compliant contract for each State and Territory, and set up operational, risk and management controls (and then it must do this eight times).

A further challenge arises. As construction has become more complex, numerous gaps in the legislative framework have arisen, and there is confusion around the application of the DB regimes to:

certain forms of student housing

solar panel and battery installation work

pre-fabricated construction

work performed by certain trades

project management services.

The domestic building industry needs a regime which is consistent across Australia and sufficiently flexible to enable adaptation to trends and developments in the industry.

There is no immediately obvious rationale for each jurisdiction to have different regimes applicable to DB- it just increases compliance costs. Certain aspects of construction are already managed at a Commonwealth level, notably the National Construction Code, which is the product of a collaboration across all State and Territory governments to promote nationally consistent regulations.

The legal challenges of effecting harmonisation have been ventilated by the Senate Standing Committee on Insolvency in the Construction Industry[10] but in spite of this, this reform should be pursued as a priority.

Security of Payment

Security of payment (SOP) legislation establishes a statutory right for a builder or subcontractor to recover payment due under a construction contract and implements a low cost, expedited system of resolution of claims known as adjudication. The first SOP legislation was passed in NSW in 1999[11] and the other states and territories soon followed.[12] There are now eight separate regimes in place, each with slightly differing requirements as to time for payment claim, time and form of payment schedule, time for payment, specific security requirements, triggers for claims and timeframes for adjudication (in the latter case the timings range from 10 to 65 business days after the relevant trigger).

Contracts drafted for national application need to include bespoke schedules for individual States and Territories to enable compliance.

Whilst the policy rationale for the SOP legislation – the reduction of insolvencies in the construction sector – remains compelling, it is neither feasible, nor clear why a party contracting in this sector should need to set up systems to comply with eight regimes. National harmonisation is required to create certainty driving more efficiencies in businesses operating in this sector which will cut contract and project administration costs.

Harmonisation of the SOP legislation has been raised many times.[13] In 2015, a Senate Standing Committee Report on Insolvency in the Construction industry described the multiple SOP Acts as ‘absurd’ which present ‘manifold difficulties for construction industry businesses that routinely operate in more than one state.’[14] This Committee also recommended the implementation of a national SOP Act.[15]

In 2018 John Murray AM handed down a final report (the Murray Review) recommending that all Australian states and territories harmonise their SOP regime by adopting the east coast legislative model based on the New South Wales scheme.[16] A review undertaken in WA by John Fiocco strongly supported this recommendation[17] as did a more recent inquiry in Victoria which produced 28 recommendations drawn from the Murray Review.[18] The Victorian Government has now responded to this inquiry and have expressed support for each of the recommendations either in full or in part.[19] If enacted, these reforms would remove the uniquely Victorian concept of ‘excluded amounts’ (which prevents contractors from making claims for delay costs, latent conditions, or disputed variations)[20] and would introduce a requirement to hold retention monies on trust, a significant point of difference in the current Victorian SOP Act.[21]

However, even where similar concepts are enacted across jurisdictions, minor or procedural differences mean that compliance challenges are likely to persist. For example, Victoria looks set to introduce a blackout period during the usual industry shutdown from 27 December to 10 January, which would align the state with WA and QLD.[22] Whilst NSW does have a shutdown period, it runs across different dates (27-31 December). So, a national contractor would still need to be cognisant of these differences when calculating time frames in each jurisdiction. While the movement towards greater national consistency presents a positive step forward within the industry, there remains a large degree of uncertainty to be resolved. Even where states intend to adopt similar approaches, the complexity is likely to remain unless and until they adopt uniform legislation which irons out some of the more intricate differences that cause compliance pain for contractors. Given that New South Wales and Victoria have the two biggest construction sectors in Australia, a strong signal will be sent to the rest of the country should Victoria more closely adopt the exact approach in New South Wales.

Design Regulation

Recent legislative changes in NSW require certain design and engineering practitioners to be registered. These reforms also regulate the preparation, finalisation and variation of designs for certain kinds of buildings including most types of residences[23] and require that design to be certified by the registered practitioner. Finally, the Act imposes a statutory duty of care on designers, builders, manufacturers and suppliers in relation to residential and other specified work

Builders and designers are changing their systems to enable compliance, and it is hoped that this regime will drive different behaviour and reduce defects in the apartment sector in particular. But NSW is not the only State with these challenges. There have been well publicised issues in other states including Victoria[24] and Queensland.[25] If we accept as a society that our homes should be safely and competently designed and built, there is no place for exceptionalism. There should be a review of the NSW regime, and if it is working, it is suggested it should be implemented (as is) in other States.

OHS Harmonisation

After an extensive cross governmental review period, the Model Work Health and Safety Act (Model Law) was published in June 2011. The Model Law is supported by model WHS Regulations and Codes of Practice. The rationale for harmonisation (enhanced health and safety standards, greater regulatory efficiency and effectiveness, more certainty for duty holders and the elimination of unnecessary regulatory compliance burdens) remains[26], and applies equally to the areas raised above.

All jurisdictions have now largely harmonised their Acts to the Model Law,[27] except Victoria despite all jurisdictions committing to do so.[28] In 2012 the reasons given by the Victorian Government for not adopting the Model Law included damage to small and medium businesses, reduced productivity and job losses.

Given the passage of time, and absent a compelling economic argument, it seems unarguable that Victoria should revisit its position, given the Model Law was originally based on the Victorian OHS Act, especially as harmonisation remains supported by major business groups.