Impact of the Act No 4 Bill

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The Building Act Amendment Bill No. 4 has been referred to the Local Government and Environment Select Committee, with submissions having closed on June 11.

This is the second instalment in a series of reforms, and is aimed predominantly at providing consumers with greater protections (along with a host of changes to how dams are regulated — which doesn’t concern us too much).
So what does it all mean for the average residential builder? Well, a whole lot if the Bill gets enacted without some changes. We summarise some of the key points and comment as follows:

Definition of building contractor and client
There is some confusion over this, as our reading of the Bill suggests that anybody who contracts for building work is a client, and anyone who undertakes building work is a building contractor (including a designer /architect).
Given the Bill has a whole host of obligations on these parties around disclosure, written contracts and warranties, then virtually everyone is both a client and building contractor. So this needs to be clarified.

Introduces mandatory written contracts over a prescribed amount
We agree in principle with written contracts except we can see a few fish hooks in having a mandatory written contract over a prescribed amount. For example, what if there is some scope creep so the job started out under the amount but ended up over it?

Or if a home owner has a whole lot of contracts that individually are under the prescribed amount but collectively are significantly higher?
We think it is best practice to always have a contract, but the size and extent of that contract can be tailored to the size and extent of the job.

Furthermore, the Bill provides for certain things to be in the contract and we agree with this principle, but do not think it is a good idea for the Government to have its own contract or write specific clauses, as this will cause problems for all the current contracts (and potentially NZ Standards) out there that have been years in the making.

Introduces mandatory disclosure of certain information by building contractors
There will be a requirement for a building contractor to provide “prescribed information” and/or a “prescribed checklist” to the client prior to entering into a building contract.
While it is not unreasonable to provide a client with certain information so they can make an informed decision as to which contractor to use, it is not up to the contractor to tell them how to go about selecting a building contractor, eg, obtain several quotes etc.
Such information needs to be available on consumer web sites and the like. If you don’t provide the information above you can be fined.

Increases the maximum penalties for the offence of doing building work without a building consent from $100,000 to $200,000
While we do not condone anyone undertaking building work without a building consent we question what mischief such a large increase is trying to remedy.

Introduces and clarifies a series of statutory-implied warranties
Many of these warranties are carried over from the principle Act, and ensure things such as the building work is carried out in a proper and competent manner, is done in accordance with the plans and specifications and the relevant building consent, that the materials supplied will be suitable for the purpose and, unless otherwise agreed, will be new.

Requires the building contractor to remedy defects notified within one year of completion of the work
If there is a fault then the building contractor is required to go back and fix it if that fault was discovered within one year from completion. The problem here though is the process in which culpability is asserted.

The Bill stipulates that the onus is on the building contractor to prove the cause of the defect, and if the work is still underway then the contract can basically be cancelled.
We think that a building contractor should fix problems but the manner in which the Bill is crafted means there is no fair process for the building contractor to contest an unreasonable cancellation of contract, particularly when the Bill also introduces wider general damages that can be claimed if the defect is not remedied.

But the real matter to contemplate is whether all the building reforms do what they originally intended.
Given the fact that the changes have been introduced in stages, it was always our contention that they needed to be viewed as a package, and that it was difficult to agree with the first set of amendments without seeing the second.

One thing is clear though — there has been a significant shift in accountability away from the councils and onto the building contractor.
Councils will argue that they have shouldered too much of the financial burden from the leaky homes problem, and that is probably fair comment.
But by removing them altogether does not mean the public is better off, because the building contractor is not suddenly able to fill the void as the residential sector consists of 90%+ of small-to-medium enterprises with less than half a dozen staff, most of whom have no insurance or ability to pay as they are highly under-capitalised.