Time for councils to review standard form contracts
The Design and Building Practitioners Act 2020 (DBP Act) is a significant part of the NSW Government's attempt to reform and restore trust in the building and construction industry.
The reforms are in part in response to the fires involving non-compliant combustible cladding at the Lacrosse Tower in Docklands, Victoria in 2014 and London's Grenfell Tower in 2017. Both fires spread rapidly because of aluminium composite panels with a polyethylene core, which acted as a source of fuel.
NSW Government Response
In February 2019, the NSW Government committed to implementing four major reforms across the NSW construction industry:
- The appointment of an expert Building Commissioner
An overhaul of compliance reporting introduced by the DBP Act. It states that:
- a regulated design can only be prepared by a registered design practitioner, who must provide a design compliance certificate with the initial design and any variations that follow
- building practitioners must provide a building compliance declaration to the principal before an occupation certificate can be sought. The certificate must confirm that the building complies with the Building Code of Australia and has been built in accordance with the regulated design, and must state whether a design compliance certificate has been obtained in relation to any regulated design.
All building and design practitioners with reporting obligations must be registered. Moreover, the DBP Act requires that:
- from 1 July 2021, building and design practitioners must be competent, qualified and suitably insured
practitioners must maintain the skills and insurances needed to meet registration
requirements and will be subject to disciplinary action for professional misconduct. (Note that the definition of practitioner is not yet clear. It remains to be seen whether it will include facade engineers and fire engineers.)
- The introduction of an industry-wide duty of care introduced by the DBP Act.
The New Duty of Care
Part 4 of the DBP Act provides that ‘a person who carries out construction work' has a duty to exercise reasonable care to avoid economic loss caused by defects which are either in or related to a building for which the work is done or arise as a result of the construction work.
The new duty of care provisions are in addition to the duties, statutory warranties and other obligations imposed under the Home Building Act 1989 (HBA). They do not in any way limit the duties imposed under the HBA, any other legislation or common law.
The new DBP Act broadly defines ‘construction work' to include:
- Building work
- Designs for building work
- Manufacture or supply of a building product used for building work
- Supervising, coordinating, project managing or otherwise having substantive control over the carrying out of any of the above.
This means that if a building is defective, owners can make claims not only against the builder or developer, but also against the architect, engineer, individual subcontractors, building product manufacturers and suppliers, and project manager.
The new duty of care is owed to each owner of the land on which the building stands and to each subsequent owner. That is, future sales and new ownership do not extinguish responsibility or liability for breaches of the duty of care.
A contract is not required to establish duty of care and nor can parties contract out of it.
The duty of care provisions apply retrospectively, provided the loss first became apparent no earlier than 11 June 2010 (10 years before the new Act was passed).
In addition, a claim made under the DBP Act for economic loss can be added to existing proceedings. This means that claims for the presence of aluminium composite panels can now be added to existing court proceedings against builders or developers as a breach of duty of care under the DBP Act, and not just for a breach of the statutory warranties under the Home Building Act.
Is the cladding defective and can a claim be made?
Aluminium composite panel cores are made of a variety of materials, including polyethylene. The higher the polyethylene content the more combustible the panels
In determining whether a claim in relation to aluminium composite panels can be made, the level of polyethylene content must be considered.
In NSW, panels with a core of more than 30% polyethylene by mass have been banned in any external cladding, external wall, external insulation, facade or rendered finish in buildings.
For the aluminium composite panels to be defective, a registered testing authority must confirm that the core is more than 30%. This is done by testing a number of samples from various points, which also allows an assessment of the overall risk it poses (low, medium, high or extreme).
The level of risk posed by the panels will depend on their location on the façade and the potential consequences of ignition. Low risk is tolerable and may be managed without removing the panels (it is also likely the panels complied with the Building Code of Australia at the time of installation). Medium risk will typically require partial removal of panels or removal of ignition sources. High or extreme risk will require immediate removal of the panels, as it represents an intolerable risk to life and safety.
What should councils do?
The Government has said the new scheme under the DBP Act will initially apply only to Class 2 buildings and buildings that include Class 2 components. While this may form part of the regulations which at the time of writing had not been released, it is not reflected in the Act itself.
We therefore recommend that councils review and amend their standard form contracts to reflect the regulated design and compliance declarations requirements under Part 2 of the DBP Act.
Amendments could require that:
- Design practitioners engaged directly by council or by the builder under a design and construct contract are registered
- Regulated designs are prepared by registered design practitioners
- Design compliance certificates are provided for all regulated designs
- Building work using regulated designs does not start without design compliance declarations
- Any claim for the variation of a regulated design must be accompanied by a relevant design compliance declaration
- Practical completion includes the building compliance declaration being provided to council
- The builder warrants that he or she is a registered building practitioner as prescribed by the DBP Act.
In addition, if any buildings owned by council may contain aluminium composite panels, testing should be undertaken immediately to determine the polyethylene content and subsequent advice obtained.
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.