Chapman Tripp Partners Brian Clayton and Hamish Bolland discuss the promise of Jenny Salesa, Building and Construction Minister, that her review will deliver “the most far-reaching changes” to the construction sector in 15 years.
Among the larger reforms being proposed are:
- expanding the Building Act to include the regulation of building products and methods
- a new certification regime for engineers
- capping Building Consent Authority liability at 20% of total losses, and
- substantially increasing penalties.
Submissions closed last 16 June 2019.
The review seeks to address three perceived weaknesses in the current structure:
- a lack of clarity around the different roles and responsibilities of the various participants within the building industry and how they intersect with each other
- the fact that necessary product information is not always available when needed, and
- difficulties in holding people to account for the quality of their work.
The discussion paper covers five areas for reform – building products and methods, occupational regulation, risk and liability, the building levy, and penalties.
Building products and methods
The key change here would bring the regulation of building products and methods fully within the Building Act. Other changes would strengthen the level of regulation by:
- requiring product manufacturers to provide product information in accordance with set minimum standards with penalties for non-compliance (a two year transition is proposed for this)
- clarifying the responsibilities of manufacturers, suppliers, designers and builders – e.g., creating an explicit obligation on manufacturers and suppliers to ensure that a building product is fit for purpose, or stipulating that the use of a different product or method from that contained in the building consent will require a variation, and
- giving the Ministry of Business, Innovation and Employment (MBIE) the power to compel information on products and methods where required to support an investigation.
The review also addresses the need to create a regulatory framework for off-site manufacture, consistent with the Government’s desire to encourage pre-fab production. Features would include:
- enabling a manufacturer certification scheme for repeatable manufacture processes, and
- minimising duplication by not requiring two consents for the same building work and considering whether Building Consent Authorities (BCAs) should accept each other’s consents and Code of Compliance Certificates.
The proposals here would:
- expand the definition of restricted building work in the Licensed Building Practitioners Scheme from houses and small apartments to include multi-storey residential and office buildings, schools, hospitals and stadiums – all of which can present a risk to public safety
- phase out the Chartered Professional Engineer registration and replace it with a new voluntary certification system; create a licensing scheme to regulate who can carry out or supervise engineering work that has been restricted (a six year transition period is suggested for both these reforms), and restrict who can carry out safety-critical structural, geotechnical and fire-safety engineering work
- repeal some of the 11 exemptions in the Plumbers, Gasfitters, and Drainlayers Act 2006 and amend others to ensure that restrictions on building work are proportional to the risks to public safety.
Risk and liability
Both homeowners and BCAs can be left with a disproportionate share of the costs when things go wrong.
The paper contemplates requiring that all residential new builds and significant alterations be covered by a guarantee and insurance product (although the homeowner would be able to opt out of this provision). A two year transition is envisaged.
Two options are mooted for BCAs:
- either no change to the current risk and liability settings (on the basis that the changes implemented elsewhere in the review would put them in a less vulnerable position than they are currently), or
- imposing a liability cap of 20% of total losses.
This is paid by building owners and developers on successful consent applications for projects above a specified amount. Three changes are proposed:
- reduce the rate of the levy from $2.01 to $1.50
- standardise the threshold at $20,444, and/or
- enable MBIE to spend levy revenues on broader sector responsibilities and a system-wide view of building regulation.
Bringing the penalties in line with those provided for in the Health and Safety at Work Act. This would mean, for example, replacing the current $200,000 maximum fine for very serious offences with ceilings of $300,000 for an individual and $1.5m for an organisation.
Extend the time in which charges can be laid under the Building Act from six to 12 months.
Brian Clayton, Partner in Auckland, has specialised in projects for over 17 years and was formerly a partner at leading and prestigious US law firm, Shearman & Sterling, where he worked in the Project Development & Finance team. Brian has extensive experience working on projects both within New Zealand and around the globe in a wide variety of sectors. He has worked on many PPPs and other project finance deals.
Hamish Bolland, Partner in Auckland, has worked on major construction projects, both within New Zealand and around the world, in a variety of sectors including infrastructure, mining, energy, water, oil and gas, commercial and residential. His experience includes both greenfield and brownfield projects, and a significant amount of this experience has involved project finance transactions.