Two building and construction-related issues have received much
media and political attention in WA recently: subcontractor
payments and home indemnity insurance.
Historically, these issues have been treated as separate and
dealt with separately.
For example, there are proposals to deal with
subcontractors' difficulties in getting paid for their work,
through proposed amendments to the Construction Contracts Act 2004
(in WA) and the use in some government works of Project Bank
Accounts. There are separate reforms under consideration to deal
with, for example, the 116% increase in the home indemnity
insurance premiums that WA home builders have been charged over the
past four years.
We at HHG Legal Group, however, see the two issues as
The connection lies in the impact on both home owners and
subcontractors of home builder insolvencies. Put simply, when a
home builder experiences financial difficulty, subcontractors
become less likely to get paid on time or at all and the owner may
find themselves stuck with an incomplete house that the builder
cannot afford to finish building.
So far, the law has responded to this by requiring the
builder's home indemnity insurer to pay the owner up to
$100,000 to compensate, basically, for not getting what the owner
had bargained for.
This may put a band aid on the owner's immediate financial
concerns (sometimes not even that!) but it does not address the
bigger issue, that the works are left unfinished and
owners are unhappy because they do not get the homes they
subcontractors are unhappy because they are no longer engaged to
carry out works on site;
the insurance industry is that unhappy that premiums have
increased 116% over the past four years and there is only one major
provider of home indemnity insurance in WA; and
the public at large is unhappy because unfinished home building
works detract from the built environment and have an obvious social
and economic cost.
Our proposals involve insurers applying the funds that under the
current regime, would be paid to the owner by way of compensation,
to fund completion of the works instead. This could work when
giving liquidators/administrators a statutory duty to novate the
head contract (as is sometimes done in any event – for
example, by the administrators of the Home Art Building Group Pty
Ltd, under recent administration in WA);
using insurance monies to compensate for delays and cover
increases in labour and material costs under the novated contract
in a generally rising market for labour and materials; and
using insurance monies to further compensate owners for any
consequential capital losses in a generally declining real estate
That way, the owner's bargain may be better secured,
subcontractors may be kept in paid work, insurers' costs and
therefore premiums may be better managed and the community may be
enriched by a properly and efficiently built environment.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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