to the DIRECTOR OF BUILDING CONTROL DEPARTMENT OF JUSTICE TASMANIA on the

to the DIRECTOR OF BUILDING CONTROL DEPARTMENT OF JUSTICE TASMANIA on the RESIDENTIAL BUILDING CONSUMER GUIDE AND DETERMINATION UNDER SECTION 14 OF THE RESIDENTIAL BUILDING WORK CONTRACTS AND DISPUTE RESOLUTION ACT 2016

1 Summary... 1 2 Impact on law on companies... 1 3 Residential Building Consumer Guide... 2 4 Determination under section 14(2)... 2 4.1 General comments... 3 4.2 Definitions... 3 4.3 Owner and building contractor details... 3 4.4 Withdrawal during cooling-off period... 4 4.5 Communication between owner and building contractor... 4 4.6 Statutory warranties... 4 4.7 Contract price... 4 4.8 Prime cost items and provisional sums... 5 4.9 Contract documents... 5 4.10 Insurance... 5 4.11 Indemnity... 5 4.12 Progress payments... 6 4.13 Practical completion of work... 6 4.14 Variations... 6 4.15 Variations warning... 6 4.16 Possession and site access... 6 4.17 Penalties for breach of contract... 6 4.18 Minor defects or omissions... 6 4.19 Dispute resolution procedure... 6 5 Required Checklist... 7

HIA : Rick Sassin Regional Executive Director Housing Industry Association 30 Burnett Street North Hobart TAS 7000 Phone: 03 6230 4604 Email: r.sassin@hia.com.au HIA is the leading industry association in the Australian residential building sector, supporting the businesses and interests of over 43,000 builders, contractors, manufacturers, suppliers, building professionals and business partners. HIA members include businesses of all sizes, ranging from individuals working as independent contractors and home based small businesses, to large publicly listed companies. 85% of all new home building work in Australia is performed by HIA members.

1 Summary The purpose of this submission is to provide comments on the draft Residential Building Consumer Guide and draft Determination for the purpose of section 14(2) of the Residential Building Work Contracts and Dispute Resolution Act 2016 ( the Act ). The submission also seeks guidance from the Director of Building Control about the intent and proper application of sections 14(3) and 14(1)(j) of the Act. HIA notes that the Act is expected to commence on 1 January 2017. Many builders and industry associations will be shut over the Christmas and New Year s holiday period and HIA and other industry stakeholders will need to have new versions of standard contracts completed by early December 2016. To ensure that there is sufficient time for HIA and others to draft, finalise and distribute standard contracts it is requested that the Director ensure that all determinations and related matters are resolved by late October 2016. It would be preferable for the government to consider a delay to commencement to allow more time for government, industry and other stakeholders to prepare properly for the new legislation. 2 Impact on law on companies HIA understands that the Department believes that the new legislation allows for a company to enter into building contracts even if they are not a licensed entity. The view appears to be that it is not mandatory for a building company to be licensed under the new legislation. The new Occupation Licensing legislation will require that a builder operating as a partnership or company will need to ensure that a partner or a director holds a building services licence in their own name. It will no longer be possible for a building company or partnership to rely only on a permanent employee being an accredited builder. Under the existing legislation, the Building Act 2000 in section 23A provides that a person must not manage, carry out or enter into a contract for building work over $5000 in value and requiring a building permit. There is a clear exception if the building practitioner, being a body corporate or partnership, complies with section 25 of the Building Act 2000. Section 25 provides that if a building practitioner is a body corporate or a partnership, the accredited person is to be the director, partner of permanent employee. So clearly a company or partnership can sign a building contract with a client and does not have to have the actual accredited builder sign the contract. So HIA expects that builders trading with a company would have their company sign the contract with their clients. Under the new legislation, the new section 22A of the Occupational Licensing Act provides that a person must not manage, carry out or enter into a contract for building work unless they hold a building services licence. This offence can be committed by a natural person or a body corporate. A building services licence means a licence issued under Division 3A of Part 4, so it includes applications made under new section 37C by a body corporate or partnership to obtain a building services licence as a licensed entity. So it appears that a company that is not a licensed entity cannot enter into a building contract without breaching section 22A. Another difficulty is that the transitional provisions, that are found in Division 3 of Part 4 of Schedule 5, expressly provide that a body corporate or partnership that before commencement of the new legislation could operate in accordance with section 25 of the Building Act 2000, are not a building services provider or licensed entity for the purpose of the new legislation. Instead, that body corporate or partnership must apply to be a licensed entity under section 37C. These provisions clearly seem to anticipate that from commencement of the new - 1 -

legislation any company or partnership that starts or continues to build will be breaching the new section 22A until they can arrange to be licensed as a licensed entity and therefore a building services provider. If HIA understood the Department s initial reaction correctly, it stated that the new legislation does not cause a problem because building companies in Tasmania have the director or permanent employee sign contracts in their own right and therefore the new legislation is not stopping this from continuing. If the above concerns are correct the new legislation will require all builders using companies to trade in Tasmania to urgently apply to the Administrator of Licensing be licensed entities on 1 January 2017. It is far from clear that this will be possible for the Administrator of Licensing to achieve. HIA therefore urgently requests clarification of the impact of the new legislation on builders who trade as partnerships and companies. 3 Residential Building Consumer Guide HIA has provided comments on a previous draft of this draft Guide. There is however one part of the draft that requires further comment as HIA is preparing new versions of its standard contracts to comply with the Act. The section about Practical Completion, Defects and Acceptable Standards should be amended to reflect the contents of industry standard contracts. The draft Guide states that the building contract ends when the building work has been practically completed. This is not correct as the contract continues past practical completion with a handover process once the owner has paid the final claim. Traditionally industry standard contracts have also had a defects liability period and the contract continues during this period. The Act recognises this by including a requirement for a defects document. The draft Guide also states that the owner and builder must agree on the minor defects and minor omissions on the day of practical completion (or handover). This is confusing as it suggests that the final inspection must be done on the exact date of practical completion or the date of handover. In practice, a defects document if required is prepared once the builder has advised the owner that practical completion has been reached and before a handover takes place. To improve this part of the draft Guide and avoid the risk of confusion it is suggested that the following amendments be made. First, the draft Guide should not use the expression contract ends or similar. Instead it would be preferable to refer to the building work being completed. Second, the reference to the owner and builder agreeing on the contents of the defects document should not be linked to an exact date. Instead, this should be left to the building contract to resolve. 4 Determination under section 14(2) The Act in section 14(2) authorises the Director to specify by notice matters in relation to which provisions must be included in a residential building work contract. HIA believes that the power to make a determination needs to be carefully exercised by the Director so only matters that are required to protect consumers are included in the determination. While a regulatory impact assessment is not required for making a determination - 2 -

the Director needs to have proper regard to the impact of imposing extra requirements on the parties to residential building work contracts. 4.1 General comments HIA s general comments about the draft determination can be summarised as follows: 1. The determination includes material that may be only advisory and not intended to be a formal requirement for inclusion in a residential building contract. It would be preferable for the determination to clarify which matters are requirements and which material is advisory only. 2. Some of the apparent requirements are already required by the RBWC&DR Act. There is a risk of this duplication causing confusion unless the exact words of the legislation are used in the determination. To avoid confusion, it would be preferable to make duplication of the legislation advisory material only and refer expressly to the legislation. It is recommended that the determination more clearly identify what are the requirements and what information is advisory or for guidance of the reader. The determination will not suffer from being reduced in length by having duplication of the legislation requirements removed or simplified. 4.2 Definitions The determination requires that the contract include a list of definitions that match those listed in the Act or the Building Act 2016. Industry standard contracts routinely include a definitions clause and ensure that definitions are consistent with those used in legislation when required. With this determination, is it intended that the definitions in the contract are identical to those in the legislation or simply that the definitions are consistent? The use of the word match does not clarify the intent of this requirement. As an example, the term owner is defined in the existing HIA contract as the party named as the Owner in the Particulars of Contract. In the Act the definition is the person for whom residential building work is being, is to be, or has been, performed. And in the Building Act the definition is more complicated and may mean the legal owner of the land, a person who has contracted to buy the land, the holder of the equity of redemption, a life tenant, a lessee, or another person. In this scenario, how does the definition of owner comply with the requirement in the determination? Another example is the term builder which is used in the existing contract. The term is not defined in the Act though the term building contractor is defined. The Building Act does however have a definition of builder. These examples illustrate the point that this requirement is unnecessary and will cause confusion. HIA agrees that definitions used in contracts should be consistent with the definitions in relevant legislation but does not agree that the definitions must be identical. It is recommended that this requirement be removed from the draft determination. 4.3 Owner and building contractor details The determination requires that an authorised representative, if any, of a party be specified in the contract. The Act does not use this term though it does use the term authorised agent in section 15 when referring to the signing of contracts. - 3 -

It is assumed that the intention of the requirement is to have each party identify a person, if not the actual party, who is responsible for at least some of that party s obligations under the contract. Is it intended however that persons such as architects or building consultants engaged by the owner would have to be identified in the contract? There is also the complication that the owner may seek to appoint a representative after the building works contract has been signed. In that situation, are the parties expected to amend the contract to identify the authorized representative? HIA requests that if this requirement is to be retained that a definition of authorised representative is included in the determination. 4.4 Withdrawal during cooling-off period The requirement is to include a notice about the owner s right to withdraw during the cooling-off period. In the second paragraph there is a reference to a clause but it is assumed that this is meant to be a reference to the notice. HIA proposes to include a cooling-off notice towards the front of its standard contracts. This notice will include the information required by the draft determination. There will be no separate clause about the cooling-off period. 4.5 Communication between owner and building contractor This requirement needs clarification as it potentially imposes significant restrictions on the relationship between builders and owners. The first requirement is that the contract is to state how the parties, or their authorised representatives, will communicate with each other. Is it intended that the contract must include a clause about how notices under the contract are to be delivered? This seems unlikely as there is a separate requirement about notices at the end of the determination. Or is it intended that the contract must state how the parties will communicate at all times? If this requirement is intended to have the wider application it is critical that the determination is more precise about what the contract must include about communications between the parties. It is assumed that the second paragraph includes two requirements and third paragraph includes another requirement. It would be useful to make it clear that these are requirements by expressly stating the contract must include clauses to the effect of these three requirements. It is also assumed that the requirement that the owner must only rely on statements made or representations given by the authorised representative also includes the actual party. 4.6 Statutory warranties The determination lists the new versions of the warranties in a summary form. Is it intended that this format be used for contracts or should the exact wording of the statutory warranties be included in the contract? Is the final paragraph about the limitation period for the statutory warranties meant to be a requirement for the contract or only information for the reader? This statement also duplicates what is already required by the Act. 4.7 Contract price Is the second paragraph meant to be a requirement for the contract or just information for the reader about what makes up the contract price? The contents of the first and second paragraph - 4 -

also seem to duplicate section 14(1)(f) of the Act and the definition of contract price in the Act. It may be that these two paragraphs are intended to be guidance material only and if this is the case the determination should clarify this matter. The third paragraph refers to the method by which a provisional sum component or prime cost items are calculated. Does this mean that estimated unit cost and quantity must be disclosed or is other information about the method of calculation to be included? It is noted that the example schedules include a column for including a margin in the calculation. Usually the margin for a provisional sum or prime cost item is included in the contract price and not allocated separately. If the margin must be included in the provisional sum and prime cost item schedules then this will cause confusion for builders and owners about how to calculate the relevant deduction or addition from the contract price once the final cost for the provisional sum or prime cost item is determined. 4.8 Prime cost items and provisional sums The example schedules include a column for the margin. As explained above, this is inconsistent with current practice and will cause confusion. It is requested that the margin column be removed from the example schedules. 4.9 Contract documents It is assumed that this is a requirement and requires the contract to include a clause stating that the contract includes all agreed documents describing the building work to be undertaken. This overlaps with section 14(1)(e) of the Act. HIA notes that it is good commercial practice to include a reference to all relevant documents describing the building work in a building contract. 4.10 Insurance HIA agrees that the contract must state the insurance responsibilities of the builder. The reference to professional liability (professional indemnity) insurance will however cause confusion as this insurance product is not available for building contractors. HIA requests that the reference to professional liability insurance be removed as standard contracts cannot provide for an unavailable insurance product. 4.11 Indemnity The required indemnity is too broad and unfair to the builder. It is also an unreasonable intrusion into the freedom of contract between owner and builder. It is not unreasonable for the builder to indemnify the owner for breaches by the builder. The required indemnity however requires the builder to indemnify the owner for breaches by any third party other than the owner s authorized representative. This means that the builder could be required to compensate the owner for damage or injuries during the building work even if the builder was not in any way responsible for that situation. The required indemnity could be a significant change to the balance of risk between the owner and the builder. This increase in risk for the builder will increase the cost of residential building work and may require changes to insurance policies held by builders. It may also increase the cost and maybe even the availability of insurance policies for Tasmanian residential builders. Initial feedback from an insurer broker indicates that the proposed indemnity will not be covered by existing insurance products in Tasmania. HIA requests that the Director re-consider the need for an indemnity. - 5 -

4.12 Progress payments The required progress payment warning is out of date as it includes a reference to clause 42(2)(b) of the Bill which we understand was removed in the Legislative Council. The warning only needs to the progress payment being directly related to the progress of the performance at the building site of the building work to be performed under the contract. HIA notes that example progress payment stages are included in the determination. The example given has an unrealistically high practical completion stage percentage and this should be reduced to 10% if the example is to be retained. The progress stages and percentages for a building contract will vary depending on the nature of the building job. Including one example of progress stages and percentages in the determination may result in people incorrectly assuming that the determination s example is the industry standard or default. HIA recommends that an example is not needed. If an example is to be included it should be accompanied by another example. 4.13 Practical completion of work It is assumed that the final paragraph is meant to be advisory only as it duplicates the requirements of section 43 of the Act. 4.14 Variations It is appropriate to include a requirement that the contract must include a variation clause to ensure that the parties follow the Act. It is not necessary for the determination to repeat the requirements of the Act. 4.15 Variations warning This first requirement appears to be a duplication of the contract price warning requirement earlier in the determination. It does not seem to be necessary. 4.16 Possession and site access It is assumed that the second paragraph is a requirement. To ensure that the builder can comply with their obligations to keep the building site safe and secure, and to manage the risk of delays to the building work, this requirement should also include a requirement that the owner give reasonable notice before access to the site. 4.17 Penalties for breach of contract The common law does not allow contracts, including residential building contracts, to include penalties. Instead, the contract may include interest for late payment and liquidated damages as a reasonable preestimate of loss. This requirement needs to be reworded to remove the reference to penalties. 4.18 Minor defects or omissions It is assumed that the final paragraph is advisory only as it duplicates section 44(3) of the Act. 4.19 Dispute resolution procedure It is assumed that the final paragraph is advisory only as it duplicates section 79 of the Act. - 6 -

5 Required Checklist Section 14(1)(j) of the Act requires that the builder must ensure that the contract includes the required checklist in relation to the contract. Failing to comply with the requirement is an offence. Section 14(3) of the Act defines a required checklist as a document containing, in language that is readily comprehensible, a summary of the provisions of the residential building work contract to which the checklist relates. HIA notes that section 14(1)(k) also requires a copy of the Domestic Building Consumer Guide be attached to the contract. This Guide already contains a lot of information about the contents of the contract and also on page 12 and 13 includes a checklist for the client to use before signing the contract. The intent of the legislation imposing the requirement to include the required checklist in the contract is unclear to HIA. Is it intended that the required checklist be a document that briefly summarises the clauses of the contract? Or is it intended that the required checklist include other information? Any clarification about the intent of the required checklist and the expectations of the Director of Building Control would be appreciated. - 7 -