If you work in the New South Wales (NSW) building and construction industry it is essential that you are aware of recent sweeping regulatory changes to the industry. This includes if you work as an engineer, architect, builder or other tradesperson, or if you are engaging any of these practitioners.

The NSW Parliament has passed the Design and Building Practitioners Bill 2020 (NSW) (DBPB), which:

  • introduces a new statutory duty of care on anyone who carries out construction work to exercise reasonable care to avoid causing economic loss caused by defects; and 
  • requirements for design and building practitioners to be registered and adequately insured. 

The new duty of care is particularly significant because it benefits subsequent owners of a property.

In addition, non-compliance with the regulatory changes can carry significant penalties. To assist you in understanding the regulatory changes, this article explains what they are and their implications.

New Duty of Care From 11 June 2020

A duty of care, at its simplest, is an obligation to take reasonable care towards others. A statutory duty of care is one that arises from legislation.

The DBPB creates a new statutory duty of care, owed by a person who carries out “construction work”. 

The duty of care requires a person who carries out construction work to exercise reasonable care to avoid economic loss caused by defects:

  • in or related to a building for which the work is done; and
  • arising from the construction work.

Who Benefits From the Duty of Care?

The duty of care benefits owners of properties (and importantly, subsequent owners of properties). This means that if a developer on-sells units in a new block of apartments, the purchasers of the individual units (and the owners’ corporation) can rely on the duty of care. This substantially departs from the existing legal position, under which a builder did not typically owe a duty of care to subsequent owners to avoid economic loss.

“Owners” includes:

  • owners corporations;
  • owners of freehold estates and strata lots;
  • people who receive or are entitled to receive rent; and 
  • owners of lots under the Community Land Management Act 1989 (NSW).

Who Owes the Duty of Care?

The duty of care is relatively expansive in terms of who owes the duty. 

For example, the definition of “construction work” is broad and extends to:

  • “building work” (see below); 
  • the preparation of designs (for example, architectural designs); 
  • the manufacture or supply of a building product used for building work (for example, a supplier of bricks for a building); and
  • supervising, coordinating, project managing or otherwise having substantial control over any of the above categories (for example, a project manager, and potentially, a superintendent).

The duty of care will apply even where there is no contract for the relevant construction work.

Definition of “Building Work”

“Building work”, for the purposes of the duty of care, includes “residential building work” (as defined by the Home Building Act 1989 (NSW)). It is unclear whether the duty of care will apply only to residential buildings (including houses and apartments), or if it will also cover commercial buildings (for example, offices and factories).

The Regulations (which are yet to be published) will hopefully provide more detail. The Second Reading speech before the NSW Parliament, however, did shed some light on what can be expected from the Regulations. In particular, it suggests that owners of houses, multi-unit residential buildings, boarding houses, hostels, backpackers’ accommodation, and residential parts of hotels, motels or schools will all obtain the benefit of the duty of care. 

It seems more likely than not that the duty of care will only apply to buildings used for residential purposes.

What is “Economic Loss”? 

The DBPB does not exhaustively define “economic loss”. However, it provides guidance on what it could include where an owners corporation or an association is the party suffering the economic loss. In these circumstances, it includes:

  • the costs of rectifying defects;
  • rectifying damage caused by defects; and 
  • reasonable costs of providing alternative accommodation (for example, if owners or tenants are required to evacuate and live elsewhere).

The DBPB has otherwise left this term to be interpreted by the Courts, in accordance with the common law.

The duty of care operates in addition to any other common law or statutory remedy that may be available to owners, including the statutory warranties under the Home Building Act 1989 (NSW). Importantly, the statutory duty of care cannot be delegated to another person, and cannot be excluded under a contract (known as ‘contracting out’). It is also subject to the proportionate liability legislation in NSW, which principals or head contractors often try to exclude in their contracts.

What Happens If I Breach the Duty of Care?

The DBPB allows an owner (or subsequent owners) to claim damages for a breach of the duty of care.

It is also important to be aware that the duty of care applies retrospectively, in that, a claim for a breach of the duty of care can be brought by a person who became aware of economic loss within the 10 years prior to 11 June 2020.

Legal proceedings brought in relation to the duty of care still need to occur within the statutory limitation periods applying in NSW. For example, if a claim is brought in negligence, it needs to be commenced within six years of the relevant loss or damage arising. A 10 year limitation period applies for some building defect claims under the Environmental Planning and Assessment Act 1979 (NSW).

New Regulatory Requirements From 1 July 2021

The DBPB also contains a number of new requirements for design and building practitioners, scheduled to come into effect on 1 July 2021. These include:

  1. The creation of new roles on construction projects and the requirement for these people to be registered. These include:
    • design practitioner, a person who prepares regulated designs;
    • principal design practitioner, a person who coordinates the provision of design compliance declarations (see below), for the purposes of building work done by a building practitioner and principal;
    • professional engineer, an engineer carrying out work in certain areas of engineering, including structural, civil, mechanical, fire safety and electrical;
    • specialist practitioner, someone who carries out “specialist work”, which means design, construction, installation or maintenance of a building element. The Regulations may provide further guidance on what is and what is not specialist work; and
    • building practitioner, which either means a person who does building work, or if there are multiple people, the principal contractor for such work.
  2. Obligations on design practitioners to provide compliance declarations, including:
    • for each design practitioner to provide a design compliance declaration, declaring whether the regulated designs they have prepared comply with the Building Code of Australia (BCA) and any other applicable standards, codes or requirements. Importantly, they must also issue a further design compliance declaration where a regulated design is varied; and
    • for the principal design practitioner to provide a principal compliance declaration, which declares whether each design practitioner has provided a design compliance declaration and whether they were authorised to do so.
  3. Obligation on building practitioners:
    • to provide a building compliance declaration, declaring whether the relevant building work complies with the BCA, whether it complies with any requirements in the Regulations, and if it does not comply, the steps taken to ensure compliance. The building compliance declaration must also declare certain things in relation to regulated designs used for the building work, including whether the design was prepared by a registered design practitioner, whether a design compliance declaration has been obtained, whether a principal design practitioner has been appointed and whether a principal compliance declaration has been obtained;
    • to take all reasonable steps to ensure all regulated designs are prepared by a registered design practitioner and that a design compliance declaration has been obtained, as well as a principal compliance declaration (if applicable); and
    • to not carry out building work (without reasonable excuse) unless a design compliance declaration has been obtained, and it states that the design is BCA compliant.
  4. Requirements on the person applying for an occupation certificate to notify all registered building practitioners on the project before making (and once it has made) an application for the occupation certificate. It must also provide the Secretary of the Department of Customer Services (Secretary) each regulated design and any other prescribed documents no later than 90 days after any occupation certificate is issued. 
  5. Obligations on private certifiers (PCAs) to satisfy themselves that all compliance declarations for the building work have been lodged before issuing an occupation certificate.
  6. Obligations on these practitioners to be properly qualified and recognised by professional bodies, registered with the Secretary, and ‘adequately insured’ (which means to be indemnified by insurance against any liability that the practitioner may become liable for as a result of carrying out its work and providing a compliance declaration). 
  7. Penalties for registered practitioners for providing compliance declarations or performing work for the purposes of the DBPB, or holding themselves out to be adequately insured, unless they are in fact adequately insured.
  8. Registration requirements, including:
    • all design and building practitioners will need to apply to the Secretary to be registered (which will last for one, three or five years); and
    • to give the Secretary the ability to refuse an application for registration for a range of reasons, including if they consider a person to not be a suitable person to carry out work. The Secretary could make this finding if a person has breached the DBPB or their equivalent authorisation (for example, a builders’ licence) has been suspended or cancelled.

The DBPB introduces various investigative and enforcement powers for the Secretary and authorised officers to assist in ensuring compliance, including stop-work orders. There are also numerous penalties, many of which are significant, for breaches of the DBPB.

Key Takeaways

The NSW Parliament has introduced new laws that have significant implications for people working in the building and construction industry. These include:

  • a new statutory duty of care that is already in effect (as at 11 June 2020), which  benefits owners and subsequent owners of properties and also applies retrospectively;
  • from 1 July 2021, new regulatory requirements on design and building practitioners, including registration and insurance requirements and requiring practitioners to provide compliance declarations; and
  • significant penalties that can be imposed for breaches of the DBPB, making compliance all the more important.

The Regulations (once published) should provide further clarity, particularly with respect to the regulatory changes coming into effect on 1 July 2021. Watch this space!

If you would like any assistance in understanding the obligations under the new legislation, or if you need any assistance preparing or amending your contracts, contact LegalVision’s construction lawyers on 1300 544 755 or fill out the form on this page.

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