HHG Legal Group provides ongoing support to the construction
industry in WA by working with industry and government
representatives on proposals to reform how the law deals with
contractor insolvency, including:
the establishment by statute of special purpose trust accounts,
to quarantine progress payments, intended for suppliers of
materials and services to a construction site, from the effects of
a head contractor's insolvency;
consequential amendments to the Corporations Act 2001 requiring
liquidators to use best efforts to novate subcontracts so as to
preserve the rights of owners and subcontractors, in the event of a
head contractor's insolvency;
reciprocal provisions in a proposed standard form home building
works contract; and
related amendments to the home indemnity insurance provisions
of the Home Building Contract Act 1991 designed to:
keep subcontractors employed on site, thereby reducing
disruption to their workflow and cash flow;
ensure affected owners get what they paid for (a built home);
reduce the burden on home indemnity insurers, by limiting their
exposure in many cases to increased
construction costs resulting from the head contractor's
We consider these proposals to be essential to the proper and
efficient functioning of the home building industry in WA,
particularly in light of the following recent home builder
Capital Works Construction, trading as Free Life Homes and
Benchmark Designer Homes; and
Gage Road Construction.
Further, WA's only current home indemnity insurance
provider, QBE Insurance, has reported a 116% increase in indemnity
insurance costs over the past four years.
These developments have been matters of substantial concern to
both the WA Building Commissioner and to the WA branch of the
Master Builders Association. See, for example, CEO, Michael
Maclean's comments in the WA Business News press release of 13
November 2015 titled: "Insurance Premiums Hit as Builders'
Failure Continues to Cost" and its 21 December 2015 article
headed "No Scho Builds Insurance Pressure".
At a federal government level, the impact of construction
insolvencies on the right of subcontractors to be paid what their
work is worth was the subject of the Commonwealth Senate Economic
Reference Committee's report titled "I Just Want to be
Paid: Insolvency in the Australian Construction Industry".
This report, published in December 2015, is available at:
Notably, that report considers, amongst other proposals, a
solution similar to our own proposal for special purpose trusts to
be established. These are referred to as "Project Bank
Accounts" at pages xxiii to xxv under the heading
"Subcontractors Have a Right to be Paid for Work
Our own proposal takes these concepts a step further by
synthesising proposals for the use of Project Bank Accounts,
standard-form home building contracts, subcontract novation and
home indemnity insurance reform, to protect the interests of both
home owners and subcontractors in the event of home builder
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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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