Home Building Regulation 2004 - NSW Fair Trading · 7.1.4.14 Modification of Part 2 of the Licensing and Registration (Un iform Procedures) Act 2002 ... (regulations) after they have

Regulatory Impact Statement Subordinate Legislation Act 1989

Home Building Regulation 2004

A Regulation under the Home Building Act 1989

9 July 2004

Enquiries to: Leanne Porter

(02) 9338 8978 Submissions to: Home Building Regulation 2004 Policy & Strategy Division Office of Fair Trading Department of Commerce PO Box 972 PARRAMATTA NSW 2124 Fax: (02) 9338 8965 E-mail: [email protected] Final date for submissions: 31 July 2004 Additional copies of this Regulatory Impact Statement and the draft Regulation can be obtained from: http://www.fairtrading.nsw.gov.au or by calling Fair Trading on (02) 9338 8913.

Regulatory Impact Statement Home Building Regulation 2004

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TABLE OF CONTENTS

1. INTRODUCTION.............................................................................................................................................6

1.1 TITLE AND PROPONENT OF THE PROPOSED REGULATION .........................................................................6 1.2 WHY IS THE REGULATION BEING MADE? ...................................................................................................6 1.3 STATUS OF THE PROPOSED REGULATION...................................................................................................6 1.4 WHAT IS THE PURPOSE OF THIS REGULATORY IMPACT STATEMENT? .....................................................6

2. BACKGROUND................................................................................................................................................7

2.1 THE BUILDING INDUSTRY IN NSW.............................................................................................................7 2.2 THE HOME BUILDING ACT 1989 .................................................................................................................7 2.3 THE NSW GOVERNMENT LICENSING PROJECT.........................................................................................8

3. OBJECTIVES OF THE PROPOSED REGULATION..............................................................................9

4. OPTIONS TO ACHIEVE OBJECTIVES ....................................................................................................9

5. CRITERIA USED TO ASSESS THE REGULATORY OPTIONS .........................................................9

6. SCOPE OF THE PROPOSED REGULATION ........................................................................................10

7. IMPACT ASSESSMENT OF THE PROPOSED REGULATION.........................................................31

7.1 IMPACT OF INDIVIDUAL CLAUSES OF THE PROPOSED REGULATION ......................................................33 7.1.1 Part 1 Preliminary (clauses 1 to 3) .....................................................................................................33 7.1.2 Part 2 Prescriptions for the purposes of definitions in the Act (clauses 4 to 11)...........................33

7.1.2.1 Work excluded from definition of ‘building consultancy work’ (clause 4) ...............................33 7.1.2.2 Definition of ‘dwelling’ – certain structures and improvements included (clause 5)................35 7.1.2.3 Definition of ‘dwelling’ – certain residential buildings and other structures excluded (clause 6).........................................................................................................................36 7.1.2.4 Definition of ‘relevant law’ (clause 7)..........................................................................................37 7.1.2.5 Definition of ‘residential building work’ – installation of certain fixtures and apparatus included (clause 8) ........................................................................................................38 7.1.2.6 ‘Residential building work’ – certain work excluded (clause 9).................................................39 7.1.2.7 ‘Roof plumbing work’ defined (clause 10) ..................................................................................40 7.1.2.8 ‘Air-conditioning work’ and ‘refrigeration work’ defined (clause 11).......................................41

7.1.3 Part 3 Regulation of residential building work, specialist work, building consultancy work and the supply of kit homes (clauses 12 to 19).........................................................................42

7.1.3.1 Conditions to be included in certain contracts (clause 12) and Requirements for contracts for residential building work (clause 13)......................................................................42 7.1.3.2 Exemptions relating to contracting and advertising (clause 14) .................................................43 7.1.3.3 Exemptions from requirements for contracts with holders of contractor licences (clause 15) .44 7.1.3.4 Exemptions relating to provision of consumer information (clause 16).....................................45 7.1.3.5 Exemptions relating to cooling-off periods in contracts (clause 17) ..........................................46 7.1.3.6 Exemptions from requirements for contracts with holders of building consultancy licences (clause 18) ........................................................................................................................47 7.1.3.7 Exemptions relating to provision of information by holders of building consultancy licences (clause 19) ........................................................................................................................48 7.1.3.8 Exemption relating to the doing of residential building work (clause 20) and Exemption relating to employees of certain corporations (clause 21)........................................49 7.1.3.9 Exemption relating to the doing of specialist work (clause 22)..................................................50 7.1.3.10 Exemption relating to the doing of electrical wiring work by apprentices and trainees (clause 23).........................................................................................................................51 7.1.3.11 Exemptions relating to the supply of kit homes (clause 24)........................................................52

7.1.4 Part 4 Contractor licences, building consultancy licences, certificates and owner-builder permits (clauses 25 to 50).....................................................................................................................53

7.1.4.1 Requirements for obtaining licences and certificates under the Act (clauses 25 to 28)............53 7.1.4.2 Provisional authorities (clause 29)................................................................................................55 7.1.4.3 Conditions of contractor licences, building consultancy licences and certificates (clauses 30 to 38)............................................................................................................................56 7.1.4.4 Cancellation of contractor licence not compulsory in certain cases (clause 39)........................57 7.1.4.5 Renewal and restoration of certain contractor licences and supervisor


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certificates (clause 40) ...................................................................................................................58 7.1.4.6 Replacement authorities (clause 41) .............................................................................................59 7.1.4.7 Application fees (clause 42 and Schedule 4)................................................................................60 7.1.4.8 Examination fees (clause 43).........................................................................................................62 7.1.4.9 Refund of fees (clause 44) .............................................................................................................62 7.1.4.10 Owner-builder permits (clause 45)................................................................................................63 7.1.4.11 Categories of residential building work or specialist work (clauses 46, 47 and 50 and Schedule 5) ..............................................................................................................................65 7.1.4.12 Exemption from requirement to show insurance has been obtained (clause 48).......................66 7.1.4.13 Exemption from requirement to return authority when conditions are imposed (clause 49).......................................................................................................................................67 7.1.4.14 Modification of Part 2 of the Licensing and Registration (Uniform Procedures) Act 2002 (clause 51) ......................................................................................................................68

7.1.5 Part 5 Insurance requirements (clauses 52 to 77) ............................................................................69 7.1.5.1 Definitions (clause 52) and Application (clause 53)....................................................................69 7.1.5.2 Persons who may arrange insurance contracts (clause 54)..........................................................70 7.1.5.3 Beneficiaries (clause 55)................................................................................................................70 7.1.5.4 Losses indemnified (clause 56) .....................................................................................................71 7.1.5.5 Exclusion of amounts of deposit or progress payment (clause 57).............................................72 7.1.5.6 Limitations on liability and cover (clause 58)..............................................................................73 7.1.5.7 Amount of cover where one or more dwellings (clause 59)........................................................74 7.1.5.8 Manner of determining minimum cover (clause 60)....................................................................74 7.1.5.9 Period of cover (clause 61)............................................................................................................75 7.1.5.10 Misrepresentation or non-disclosure (clause 62)..........................................................................76 7.1.5.11 Time limits for notice of loss or damage (clause 63)...................................................................76 7.1.5.12 Refusal of insurance claims (clause 64)........................................................................................77 7.1.5.13 Insurance appeals (clause 65)........................................................................................................78 7.1.5.14 Certificates evidencing insurance (clause 66 and Schedule 1)....................................................79 7.1.5.15 Evidence of acceptance of risk (clause 67)...................................................................................79 7.1.5.16 Access for work (clause 68) ..........................................................................................................80 7.1.5.17 General requirements for insurance (clause 69)...........................................................................81 7.1.5.18 Insurance thresholds (clause 70) ...................................................................................................82 7.1.5.19 Meaning of ‘structural defect’ (clause 71)....................................................................................82 7.1.5.20 Persons entitled to apply for exemptions from insurance requirements (clause 72)..................83 7.1.5.21 Temporary exemption from section 92B and 93B requirements (clause 73).............................84 7.1.5.22 Exemptions from insurance for multi-storey buildings (clause 74)............................................84 7.1.5.23 Exemption from insurance in relation to retirement villages (clause 75)...................................85 7.1.5.24 Exemption from insurance for Home Modification and Maintenance Program of Department of Aging, Disability and Home Care (clause 76) ....................................................86 7.1.5.25 Exemption from certificate requirement where work not commenced (clause 77)...................87

7.1.6 Part 6 Resolution of building disputes and building claims (clauses 78 to 79) .............................88 7.1.6.1 Transfer of proceedings to or from other courts or tribunals (clause 78)...................................88 7.1.6.2 Warning notice for Tribunal orders (clause 79) ...........................................................................88

7.1.7 Part 7 General (clauses 80 to 88)........................................................................................................89 7.1.7.1 The Register (clause 80) ................................................................................................................89 7.1.7.2 Review by Administrative Decisions Tribunal (clause 81).........................................................90 7.1.7.3 Certificate evidence (clause 82) ....................................................................................................91 7.1.7.4 Proceedings for offences under any other Acts (clause 83) ........................................................91 7.1.7.5 Display of signs (clause 84)...........................................................................................................92 7.1.7.6 Advertising (clause 85)..................................................................................................................93 7.1.7.7 Hazardous specialist work: do-it-yourself publications and public addresses (clause 86)........93 7.1.7.8 Penalty notice offences (clause 87)...............................................................................................94

7.2 OVERALL IMPACT OF OPTION 3: THE PROPOSED REGULATION ..............................................................95

8. IMPACT ANALYSIS OF THE ALTERNATIVES TO THE REGULATION ....................................98

8.1 OPTION 1: DO NOTHING ............................................................................................................................98 8.2 OPTION 2: RELY ON THE INDUSTRY TO SELF-REGULATE ......................................................................100

9. CONCLUSIONS............................................................................................................................................100

10. CONSULTATION ........................................................................................................................................101


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11. APPENDIX A: Proposed Home Building Regulation 2004....................................................................103

Regulatory Impact Statement Property, Stock and Business Agents Regulation 2003

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1. INTRODUCTION

1.1 TITLE AND PROPONENT OF THE PROPOSED REGULATION The Home Building Regulation 2004 has been developed by the Office of Fair Trading and is proposed by the Hon Reba Meagher MP, Minister for Fair Trading and Minister Assisting the Minister for Commerce.

1.2 WHY IS THE REGULATION BEING MADE? The Subordinate Legislation Act 1989 provides for the automatic repeal of statutory rules (regulations) after they have been in force for five years. The Home Building Regulation 1997 is to be repealed on 1 September 2004. It is proposed that the Regulation be remade with some amendments.1

1.3 STATUS OF THE PROPOSED REGULATION The proposed Regulation is only a draft at this stage. This Regulatory Impact Statement is being released along with the draft Regulation so that the building industry, consumers and other interested people may consider the proposed requirements and submit comments and suggestions. The draft Regulation may then be amended to take into account suggestions made in submissions. The new Regulation will be published in the NSW Government Gazette and will come into effect on 1 September 2004.

1.4 WHAT IS THE PURPOSE OF THIS REGULATORY IMPACT STATEMENT? The Subordinate Legislation Act 1989 controls the making of regulations in NSW. This Act aims to reduce unnecessary regulation by government. It requires that a Regulatory Impact Statement be prepared and public consultation be undertaken before a new regulation can be made.

The Regulatory Impact Statement explains the purpose of the Regulation, weighs up the economic and social aspects of the proposed Regulation and considers other possible options to meet the aims of the proposed Regulation. The Regulatory Impact Statement must demonstrate that the proposed Regulation is the option which brings, on balance, the greatest overall benefit to the public.

The Regulatory Impact Statement procedure aims to ensure that: • the regulation is the most efficient and effective way of achieving the policy objective of

the legislation; and • the regulation imposes minimum cost on the community or produces an outcome where

the expected benefits resulting outweigh the expected costs.

The Regulatory Impact Statement must: • state the objectives of the proposed Regulation and the reason for them; • identify alternative options by which those objectives might be achieved; • assess the costs and benefits of each alternative - this assessment must consider the

alternative of not taking any action; • assess which of the alternatives will bring about the greatest net benefit or the least net

cost to the community; and

1 The table on page 31 of this Regulatory Impact Statement lists the key differences between the current

Regulation and the proposed Regulation.


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• outline the consultation program to be undertaken.

The impact of a proposed regulation is generally expressed in terms of: • ‘cost-benefit’ analysis of the options, where the costs and benefits flowing from the

regulation can be measured in monetary terms, or • ‘cost effectiveness’ analysis, where the benefits of the regulation cannot readily be

expressed in monetary terms.

‘Qualitative’ costs and benefits may also be important to these assessments. Consideration of qualitative costs and benefits allows important social issues to be taken into account, such as quality of life, environmental pollution and visual amenity.

2. BACKGROUND

2.1 THE BUILDING INDUSTRY IN NSW The New South Wales residential property market represents approximately 21 to 23 per cent of Australia’s residential building activity. New South Wales has more residential building activity than any other State or Territory2. According to the Housing Industry Association, work done on new housing in New South Wales was nearly $8.4 billion in 2002-2003. During the same period, expenditure on renovation work was around $595 million3. While some easing in residential building activity is expected in 2004-2005, the level of activity is nevertheless anticipated to remain strong4.

The Home Building Service of the Office of Fair Trading is responsible for setting and maintaining standards of competence for builders and tradespeople in the New South Wales home building industry. Builders and tradespeople who undertake residential building work where the labour content is worth more than $200 or who undertake specialist work (that is, plumbing, gasfitting, electrical work, or installation of refrigeration and air-conditioning) are required to be licensed or hold a supervisor or tradesperson certificate. At 31 May 2004, a total of 165,161 licences and certificates were in force.

The Home Building Service is also responsible for dispute resolution, particularly early on-site intervention in disputes, compliance, insurance approvals under the closed government schemes and consumer and trader advice and guidance.

Consumers and builders are able to apply to the Consumer, Trader and Tenancy Tribunal to assist in resolving building disputes. The Tribunal provides an independent, low-cost and accessible dispute resolution forum where the parties have been unable to resolve their dispute. It also hears appeals against insurers’ decisions on insurance claims. The Tribunal finalised 5,711 home building applications during 2002-20035.

2.2 THE HOME BUILDING ACT 1989 The Home Building Act 1989 (previously called the Building Services Corporation Act 1989) substantially commenced in March 1990. The Act was initially administered by the Building Services Corporation, then the Department of Fair Trading and now the Office of Fair Trading, which is a part of the Department of Commerce. Ministerial responsibility

2 NSW Home Warranty Insurance Inquiry Final Report, 30 September 2003, page 15 3 ‘New South Wales Building News’, Housing Industry Association, December 2003, page 6 4 ‘New South Wales Building News’, Housing Industry Association, May 2004, page 9 5 Consumer, Trader and Tenancy Tribunal Annual Report, 2002-2003


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for the legislation is shared jointly by the Minister for Commerce and Minister for Fair Trading.

The Act’s main purpose is consumer protection in the home building industry. The Act provides for: • licensing, and regulation of the activities of, builders and trade contractors who

undertake residential building work, the suppliers of kit homes and building consultants who undertake pre-purchase inspections;

• licensing and regulation of persons who carry out plumbing, electrical, air conditioning and refrigeration work in both the residential and commercial sectors;

• disciplinary action against licence holders by the Commissioner for Fair Trading; • statutory warranties against defective work by the holders of authorities issued under the

Act; and • an insurance scheme, delivered by private insurers, designed to protect consumers

against faulty or incomplete work in circumstances where the contractor becomes insolvent, disappears or dies.

Significant reforms have been made to the Act in recent years following from reviews of the legislation and a number of State and national Inquiries. These reforms have: • strengthened the licensing and disciplinary systems; • introduced licensing of building consultants who carry out pre-purchase property

inspections; • established continuing professional development requirements for the industry; • strengthened consumer protection in relation to contractual rights and dispute resolution;

and • changed the home warranty insurance scheme to a ‘last resort’ scheme and introduced

greater consistency with the insurance schemes operating in other States.

The insurance scheme provides cover of a minimum of $200,000 to home owners where their builder has died, disappeared or become insolvent and the building work is incomplete or defective. This is subject to the limitations contained in the Act and Regulation.

Copies of the Act and the current Home Building Regulation 1997 can be viewed or downloaded from the Parliamentary Counsel’s Office web site at: http://www.legislation.nsw.gov.au

2.3 THE NSW GOVERNMENT LICENSING PROJECT The Office of Fair Trading is participating in the development of the NSW Government Licensing Project, which will allow applications for the grant, renewal and restoration of licences and certificates to be made on-line via the internet6. The Project is being implemented in several phases. Phase 1 established the On-line Licensing Renewal System, which has allowed business name registrations and motor dealers’, travel agents’ and pawnbrokers’ and second-hand dealers’ licences to be renewed on-line since early 2003.

On-line licensing applications under the Home Building Act are expected to be available in a later phase of the Project, anticipated for 2005-2006.

6 More information on the NSW Government Licensing Project is available on the Office of Information and Communications Technology web site at http://www.oit.nsw.gov.au/


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The legislative framework for the Government Licensing Project is contained in the Licensing and Registration (Uniform Procedures) Act 2002, which was passed by the NSW Parliament in June 2002. This Act sets out consistent licence application procedures for all of the NSW government licensing schemes which will be part of the Project. The licensing procedures contained in the Licensing and Registration (Uniform Procedures) Act will apply to licences, certificates and permits under the Home Building Act from 1 September 2004, although on-line applications will not be available until later. Initially, the main effect will be on the way application fees are dealt with. For further information, see sections 7.1.4.7 and 7.1.4.14 below.

3. OBJECTIVES OF THE PROPOSED REGULATION The objectives of the Home Building Regulation 2004 are to: • promote and protect the interests of owners and purchasers of dwellings and kit homes

and users of water supplies, sewerage systems, gas, electricity, refrigeration and air conditioning,

• set, assess and maintain standards of competence of persons doing residential building work or specialist work;

• complement the work of industry organisations, public authorities and educational institutions in promoting standards; and

• provide the administrative detail required to support the operation of the Act.

4. OPTIONS TO ACHIEVE OBJECTIVES Three options for achieving the above objectives are considered in this Regulatory Impact Statement:

Option 1: Do nothing

This option would mean that the Home Building Act 1989 would operate without any accompanying Regulation.

Option 2: Rely on the industry to self-regulate

This option would place the onus on industry participants to set qualification and experience standards for themselves and their employees, determine who may do building and specialist work, establish an insurance scheme and dispute resolution process, among other things.

Option 3: Make the proposed Regulation

This option would enable the Home Building Act 1989 to operate with the Regulation to provide the required administrative detail for the operation of the Act. This is the preferred option.

5. CRITERIA USED TO ASSESS THE REGULATORY OPTIONS The following criteria, which relate to the regulatory objectives, are used in the evaluation of the three options: • the extent to which the proposed option supports the consumer protection objectives of

the Home Building Act 1989; • the extent to which the proposed option supports a viable building industry; • the cost effectiveness of each option, in terms of costs and benefits to consumers,

industry, insurers, government and the community generally; and • the extent to which the option contributes to the overall efficiency of the regulatory

system.


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6. SCOPE OF THE PROPOSED REGULATION The proposed Regulation provides the administrative detail to enable the provisions of the Act to be implemented. The scope of any regulation is limited by the regulation-making powers provided under the relevant Act. The relevant regulation making powers of the Home Building Act 1989and the scope of the proposed Regulation are summarised in the following table.

In this table, the provisions of the legislation are in some cases paraphrased for clarity or to save space. For the exact wording of a provision, refer to a consolidated copy of the Act on the Parliamentary Counsel’s Office web site (www.legislation.nsw.gov.au) and to the draft Regulation at Appendix A to this Regulatory Impact Statement. Table 1 Regulation-making power of the Home Building Act 1989 and scope of the proposed Home

Building Regulation 2004 Power provided by the Act Section Scope of the proposed Regulation Clause Part 1 Preliminary § Names the Regulation as the Home Building

Regulation 2004 § Specifies the commencement date of the

Regulation as 1 September 2004 § Defines certain terms used in the Regulation

1 2 3

Part 2 Regulation of residential building work and specialist work To prescribe work as included in the definition of building consultancy work

3(1) None prescribed, but see clause 4 below -

To declare work as excluded from the definition of building consultancy work

3(1) Declares all work other than pre-purchase visual inspections of dwellings as excluded from the definition. Pest inspections and inspections solely of specialist work are specified as excluded.

4

To declare: § additional structures and improvements

as included in the definition of a dwelling

3(1) Declares the following structures and improvements as forming part of a dwelling when constructed for use in conjunction with a dwelling: a) common areas of multi-dwelling buildings b) parts of a building containing one dwelling

only (if the building is also partly non-residential) that provide access to the dwelling

c) structural elements of non-residential parts of a building that give support or access to the residential part

d) fixed cupboards, vanity units and the like e) detached garages and carports f) detached decks, porches, verandas,

pergolas and the like g) cabanas and non-habitable shelters h) detached workshops, sheds, outbuildings

(but not jetties, slipways, pontoons or boat ramps and ancillary structures)

i) concrete tennis courts and the like j) driveways, paths and other paving k) retaining walls l) agricultural drainage designed or

constructed to divert water away from the footings of a dwelling or a retaining wall

m) fences and gates n) ornamental ponds, water features, and

other structural ornamentation, requiring development consent

5


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Power provided by the Act Section Scope of the proposed Regulation Clause § buildings or portions of buildings as

excluded from the definition of a dwelling

Declares the following as excluded from the definition of dwelling: a) a boarding house, guest house, hostel or

lodging house b) all residential parts of a hotel or motel c) any residential part of an educational

institution d) accommodation (other than self-contained

units) specially designed for the aged, disabled or children

e) any residential part of a health care building that accommodates staff

f) a house or unit designed, constructed or adapted for commercial use as tourist, holiday or overnight accommodation

g) any part of a non-residential building constructed or adapted for use as a caretaker’s residence

h) a moveable dwelling (with or without a flexible annexe) within the meaning of the Local Government Act 1993, that is, or is capable of being, registered under the Road Transport (Vehicle Registration) Act 1997 (such as a caravan or a motor home)

i) a residential building for the purposes of which development consent can be granted only because of State Environmental Planning Policy No 15—Rural Landsharing Communities

6

To prescribe: § a structure as included in the definition

of a kit home § a structure as excluded from the

definition of a kit home

3(1) None prescribed, but see clause 24, prescribed under section 140(2)(k) of the Act

-

To prescribe the method of registration of a nominated supervisor

3(1) None prescribed -

To declare an Act or statutory instrument as a relevant law that regulates specialist work

3(1) Declares the following: a) gasfitting work:

Gas Supply Act 1996 (reticulated gas) Gas Supply (General) Regulation 1997 Dangerous Goods Act 1975 (gas cylinders) Dangerous Goods (Gas Installations) Regulation 1998 Dangerous Goods (General) Regulation 1999

b) plumbing work: Sydney Water Act 1994 Hunter Water Act 1991 Local Government Act 1993 Water Management Act 2000

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To declare for the purposes of the definition of residential building work: § work as roof plumbing work or

specialist work in connection with a dwelling

§ work concerned in installing, adding to,

altering or repairing a prescribed fixture or apparatus in a dwelling

3(1) See clause 10, below Prescribes that work concerned in installing the following in a dwelling is residential building work: a) fixed apparatus for the heating or cooling

of water, food or the atmosphere or for air ventilation or the filtration of water in a swimming pool or spa

b) fixed apparatus such as a lift, escalator, inclinator or garage door with fixed guides

10 8


12

Power provided by the Act Section Scope of the proposed Regulation Clause § work as excluded from the definition of

residential building work Declares the following (other than specialist work) as excluded: a) work costing $200 or less b) manufacture of moveable dwellings, within

the meaning of the Local Government Act 1993 (other than manufactured homes)

c) site preparation, assembling or erection on site of moveable dwellings, unless approval under the Local Government Act 1993 is required

d) work in (c) done in relation to land on which a council has authorised a moveable dwelling to be placed

e) work prohibited without a licence or authority under another Act, unless the work is part only of work to be done under a contract to do residential building work

f) the supervision only of residential building work by: (i) a registered architect (ii) a person supervising owner-builder

work for no reward (iii) any other person, if all the residential

building work is being done or supervised by a licensed contractor

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To declare work as ‘roof plumbing work’ for the purposes of the definition of plumbing work, residential building work and specialist work

3(1) Declares the fixing, installation, renovation, alteration, repair and maintenance of guttering, downpipes, roof flashing and roof coverings on any building or structure (other than a non-habitable farm building) as ‘roof plumbing work’, except work in relation to roof coverings consisting of: a) non-metallic tiles and slates b) glass c) concrete d) timber and timber products e) thatching f) malthoid, bituminous or similar membrane

material

10

To declare work as ‘refrigeration work’ or ‘air-conditioning work’, for the purposes of the definition of specialist work

3(1) & 15

(1) Declares the following to be ‘air-conditioning work’:

a) installing, maintaining and servicing an air-conditioning system (other than certain plug-in systems) in a structure, building, vessel, container or railway vehicle

b) work required to comply with the requirements of Australian Standard AS 1668.2:2002, (the use of ventilation and airconditioning in buildings - Ventilation design for indoor air contaminant control)

c) work required to comply with the requirements of AS/NZS 3666:2002 (Air-handling and water systems of buildings - Microbial control) relating to the maintenance of cooling towers

d) certain associated electrical wiring work (2) Declares the following work as excluded

from the definition of ‘air-conditioning work’:

a) installation of an air-conditioning system in a railway vehicle by the manufacturer of the vehicle

b) installation, maintenance or repair of ducting or insulation in premises other than a dwelling

11


13

Power provided by the Act Section Scope of the proposed Regulation Clause (3) Declares the following to be ‘refrigeration

work’: a) installing, maintaining and servicing a

refrigeration system (other than certain plug-in systems) in a structure, building, vessel, container or vehicle

b) work required to comply with the requirements of AS/NZS 1677:1998 (Refrigerating Systems)

c) certain associated electrical wiring work (4) Defines associated electrical wiring work

To prescribe requirements with which contracts must comply

7(3) None prescribed, but see clauses 12 and 13 prescribed under section 7E(1)

-

To prescribe a class of contracts to which the requirement to provide consumer information does not apply

7AA(2) Prescribes contracts with holders of contractor licences that are: § subordinate to a principal contract, eg, a

contract with a licensed subcontractor § between a licensed builder and a licensed

trade contractor for work on the builder’s own property § for specialist work which is not residential

building work § for a price not exceeding $1,000, and contracts for residential building work that are: § between a licensed contractor and a

developer under section 3A(1) § for emergency work

16

To prescribe a class of contracts to which the cooling off provisions do not apply

7BA(8) Prescribes contracts with holders of contractor licences that are: § subordinate to a principal contract, eg, a

contract with a licensed subcontractor § between a licensed builder and a licensed

trade contractor for work on the builder’s own property;

and contracts for residential building work that are: § between a licensed contractor and a

developer under section 3A(1) § for emergency work § supplied and prepared by or on behalf of the

consumer § for a contract price or estimated price not

exceeding $12,000

17

To prescribe the form of notice by which notice of rescission of a contract must be given

7BB(4) None prescribed -

To provide for: § clauses or matters that must be

included in a contract or class of contracts § clauses or matters that must not be

included in a contract or class of contracts

7E(1) Provides that the conditions set out in Part 1 of Schedule 2 must be included in a contract to do residential building work Requires that contracts to do residential building work include the following conditions: § plans and specifications for the work form

part of the contract § any agreed variations must be in writing

signed by each party § work done will comply with building codes

and standards and the conditions of development consent § limitation of liability on the part of the

contractor where faulty designs or specifications have been provided by the owner

12(1)

Schedule 2, Part 1


14

Power provided by the Act Section Scope of the proposed Regulation Clause Provides that a contract between a person and a licensed contractor for residential building work must include a checklist in the form set out in Schedule 3, except contracts that are: § subordinate to a principal contract § between a licensed builder and trade

contractor for work on the builder’s property § for non-residential specialist work § for a value of $1,000 or less

13 &

Schedule 3

To prescribe a percentage as the maximum percentage of a contract price that may be accepted as a deposit under a contract to do residential building work


To make provision concerning how a contract price is to be determined for the purposes of calculating the maximum permissible deposit


To prescribe a provision of the Act or regulations for the purposes of disentitling a person to damages or any other remedy or from enforcing a contract


Part 2A Regulation of supply of kit homes To prescribe additional requirements with which a contract for the supply of a kit home must comply

16D(3) None prescribed, but see clause 12(2) prescribed under section 16DE(1)

-

To prescribe a class of contracts for the supply of kit homes to which the requirement to provide consumer information does not apply

16DAA(2) None prescribed -

To prescribe a class of contracts for the supply of kit homes to which the cooling off provisions do not apply

16DBA(8) None prescribed -

To prescribe the form of notice by which notice of rescission of a contract for the supply of a kit home must be given

16DBB(4) None prescribed -


included in a contract or class of contracts for the supply of kit homes

§ clauses or matters that must not be

included in a contract or class of contracts for the supply of kit homes

16DE(1) Provides that the conditions set out in Part 2 of Schedule 2 must be included in a contract to supply a kit home Requires that contracts to supply kit homes include the following conditions: § plans and specifications for building

components to be supplied § any agreed variations must be in writing

signed by each party § building components supplied will comply

with building codes and standards and the conditions of development consent § limitation of liability on the part of the

contractor where faulty designs or specifications have been provided by the owner

None prescribed

12(2)

Schedule 2, Part 2

-

To prescribe a percentage as the maximum percentage of a contract price that may be accepted as a deposit under a contract to supply a kit home

16E(2) None prescribed -

To make provision concerning how a contract price is to be determined for the purposes of calculating the maximum permissible deposit

16E(3) None prescribed -


15

Power provided by the Act Section Scope of the proposed Regulation Clause To prescribe a provision of the Act or regulations for the purposes of disentitling a person to damages or any other remedy or from enforcing a contract for the supply of a kit home

16G(1) None prescribed -

Part 2B Representations concerning contractor licences or certificates Part 2C Statutory Warranties Part 2D Regulation of building consultants To prescribe circumstances in which sections 18K-18O and 18R do not apply to a contract for building consultancy work

18J(3) Prescribes the following circumstances: a) a subordinate contract to a contract for

building consultancy work b) a contract between a licensed building

consultant and a licensed contractor c) where the work must be performed within

2 days of the contract date d) a contract between a licensed building

consultant and a solicitor or conveyancer acting for another party

18

To prescribe additional requirements with which a contract for building consultancy work must comply

18K(3) None prescribed -

To prescribe a class of contracts for building consultancy work to which the requirement to provide consumer information does not apply

18L(2) Prescribes: a) a subordinate contract to a contract for

building consultancy work b) a contract between a licensed building

consultant and a licensed contractor c) where the work must be performed within

2 days of the contract date d) a contract between a licensed building

consultant and a solicitor or conveyancer acting for another party

19


included in a contract or class of contracts for building consultancy work § clauses or matters that must not be

included in a contract or class of contracts for building consultancy work

18M(1) None prescribed -

Part 3 Licences, building consultancy licences and certificates To prescribe additional modifications and limitations in respect of the application of the Licensing and Registration (Uniform Procedures) Act 2002 to contractor licences To prescribe modifications and limitations in respect of the application of the Licensing and Registration (Uniform Procedures) Act 2002 to tradesperson and supervisor certificates

19(2)

24(2)

Prescribes that: § sections 9 and 10 of the ‘Uniform Procedures

Act’ (renewal and restoration) do not apply to owner-builder permits § section 14 of the ‘Uniform Procedures Act’

is varied in its application so as to enable the Commissioner to require an applicant to have their photograph taken or to provide a photograph in specified form § section 21(2) of the ‘Uniform Procedures

Act’ is varied in its application so that a restored licence comes into force on the date following the expiry date, except in relation to proceedings for an offence § section 21(2) of the ‘Uniform Procedures

Act’ is varied in its application so that a contractor licence can be suspended

51

To provide for matters concerning a contractor licence as are relevant to the operation of uniform licensing procedures


To fix or provide for the Commissioner to determine standards or other requirements for the issue of a contractor licence

20(2) Provides that the Commissioner must be satisfied that an applicant for an authority (except an owner-builder permit), and any partner or company director: § is not disqualified from holding the kind of

authority applied for § does not hold a suspended authority of the

kind applied for

25


16

Power provided by the Act Section Scope of the proposed Regulation Clause § is not a debtor to the Commissioner or

Administration Corporation § is at least 18 years old § is a fit and proper person of good character § does not hold a suspended authority under

other fair trading legislation § is not the subject of a Tribunal order which

was not complied with in the required period, or, if complied with late, there was a reasonable excuse for the delay § is not the subject of an unreasonable number

of complaints § has not been issued with an unreasonable

number of formal cautions § has not been issued with an unreasonable

number of penalty notices § has not had an unreasonable number of

insurance claims paid in respect of their work § except in relation to a tradesperson

certificate, is not currently, or was not within the preceding 3 years, bankrupt or involved in an insolvent company § was not, within the preceding 3 years,

involved in a disqualified company or partnership, unless the Commissioner is satisfied that all reasonable steps were taken to prevent the conduct that led to disqualification § is not an apprentice or trainee

An applicant for a contractor licence must additionally satisfy the Commissioner that they: § have an adequate number of nominated

supervisors § in relation to an endorsed licence equivalent

to a supervisor certificate: − has the qualifications or has passed the

necessary examinations − has the necessary experience to obtain a

qualified supervisor certificate − is capable of doing or supervising the work − is not disqualified from holding a

supervisor certificate − is not the holder of a suspended supervisor

certificate

26(1)

Enables the Commissioner to issue a contractor licence to an applicant who is bankrupt or involved in an insolvent company if: § the licence restricts the types of work that

may be performed by the holder § there is no evidence of risk to the public of

incomplete work § the licence restricts the holder to contracting

for work valued at $12,000 or less § the person took all reasonable steps to avoid

the bankruptcy or insolvency

26(2)-(3)

Provides that to be a nominated supervisor, a person must: § hold an endorsed contractor licence or

supervisor certificate in the relevant category § be an employee, member of the partnership

or director of the corporation for which the person will be supervisor § have a current consent declaration lodged

with the Commissioner

26(4)-(6)


17

Power provided by the Act Section Scope of the proposed Regulation Clause not be a supervisor for more than one contractor licence except with the Commissioner’s written permission

To prescribe categories of residential building work which the holder of a contractor licence may be authorised to do by their licence

21(1)(a) Prescribes the following categories of residential building work: a) general building work b) swimming pool building c) swimming pool repairs and servicing d) structural landscaping e) carpentry f) joinery g) flooring h) bricklaying i) stonemasonry j) dry plastering k) wet plastering l) painting m) decorating n) wall and floor tiling o) general concreting p) demolishing q) excavating r) underpinning or piering s) fencing t) glazing u) waterproofing v) roof tiling w) roof slating x) roof plumbing y) mechanical services z) metal fabrication (aa) minor tradework (bb) minor maintenance and cleaning

46(1)

Provides extended descriptions of certain categories of work authorised by contractor licences and certificates

50 &

Schedule 5

To prescribe categories of specialist work which the holder of a contractor licence may be authorised to do by their licence

21(1)(b) Prescribes the following categories of specialist work: a) plumbing work b) water plumbing work c) draining work d) gasfitting work e) liquified petroleum gas fitting work f) advanced liquified petroleum gas fitting

work g) air conditioning work h) refrigeration work i) electrical wiring work j) disconnection and reconnection of fixed

electrical equipment

46(2)

To prescribe circumstances to which the cancellation of a contractor licence for residential or specialist work is subject

22(1) Prescribes that a contractor licence is not required to be cancelled on the basis of the holder’s bankruptcy or insolvency if: a) the licence is in a category prescribed by

clause 46 (except 46(1) (a), (b) and (d)) b) there is no evident risk to the public of

failure to complete a contract c) the licence is subject to a condition that the

holder contract for work valued at $12,000 or more

39

To prescribe circumstances to which the cancellation of a contractor licence to supply kit homes is subject


To provide for matters concerning tradesperson and supervisor certificates as

24(5) None prescribed, but see clause 51, prescribed under section 24(2)

-


18

Power provided by the Act Section Scope of the proposed Regulation Clause are relevant to the operation of uniform licensing procedures To specify or provide for the Commissioner to determine qualifications or other requirements for the issue of a supervisor or tradesperson certificate

25(2) Refer to clause 25 (above) In addition to the requirements of clause 25, an applicant for a certificate must satisfy the Commissioner that they: § hold the required qualifications or have

passed the relevant examinations to do or supervise the work for which the certificate is required § have had the required experience § is capable of doing or supervising work for

which the certificate is required To decide whether special circumstances warranting the issue of a provisional supervisor certificate exist, the Commissioner must be satisfied that the applicant: a) has a sufficient knowledge of English to

read and understand drawings and specifications and the relevant Australian Standards or Codes of Practice to do or supervise the work

b) passed a minimum standard test approved by the Commissioner in relation to the work

c) will have the opportunity to satisfy the prescribed requirements for the certificate within 12 months of being issued the provisional certificate

25

28

29

To prescribe categories of work which the holder of a supervisor certificate may be authorised to do and supervise by their licence

27(1)(a) Refer to clauses under section 21(1)(a) above (clauses 46 and 50)

46(1)

To prescribe categories of specialist work which the holder of a tradesperson certificate may be authorised to do by their licence under the supervision of the holder of an endorsed contractor licence

27(2) Refer to clauses under section 21(1)(b) above (clauses 46 and 50)

46(2)

To prescribe the threshold value of work below which owner-builder permit requirements do not apply

29(1) Prescribes an amount of $5,000 45

To prescribe an interest in land whereby the person holding that interest is deemed an owner of land for the purposes of the requirements of the Act relating to owner-builder work

29(3) Prescribes: a) a freehold interest b) a leasehold interest in perpetuity, for life,

or for a term exceeding 3 years whether held individually, jointly or in common, either at law or in equity Enables the Commissioner to require an applicant to obtain written permission from the owner of land described in 44(2)(b)

45(2)

45(3)

To prescribe modifications and limitations in respect of the application of the Licensing and Registration (Uniform Procedures) Act 2002 to owner-builder permits

30(2) Provides that sections 9 and 10 (renewal and restoration) of the Uniform Procedures Act do not apply to owner-builder permits

51

To provide for matters concerning owner-builder permits as are relevant to the operation of uniform licensing procedures


To prescribe an alternative to the 5 year period in which the issue of an owner-builder permit disqualifies an applicant from being issued with another owner-builder permit

31 None prescribed -


19

Power provided by the Act Section Scope of the proposed Regulation Clause To prescribe modifications and limitations in respect of the application of the Licensing and Registration (Uniform Procedures) Act 2002 to building consultancy licences

32A(2) Refer to clause 51 above, prescribed under section 30(2)

51

To provide for matters concerning building consultancy licences as are relevant to the operation of uniform licensing procedures

32A(4) None prescribed -

To fix or provide for the Commissioner to determine standards or other requirements for the issue of a building consultancy licence

32B(2) Refer to clause 25 (above) In addition to the requirements of clause 25, an applicant for a building consultancy licence must satisfy the Commissioner that the applicant: § holds the required qualifications or has

passed the relevant examinations to do the work for which the licence is required § has had the required experience § if a corporation, at least one director or

employee holds a building consultancy licence § if a partnership, at least one partner or

employee holds a building consultancy licence § is not disqualified from holding a contractor

licence or a certificate, or from being a member of a licensed partnership or director of a corporation that holds a licence or certificate § if a corporation or partnership, no members

or directors are so disqualified Enables the Commissioner to issue a building consultancy licence to an applicant who is, or was within the preceding 3 years, bankrupt or involved in an insolvent company, if the person took all reasonable steps to avoid the bankruptcy or insolvency

25

27(1)

27(2)

To prescribe categories of work which the holder of a building consultancy licence may be authorised to do by their licence

32C(1) Prescribes the pre-purchase inspection of dwellings as a category of building consultancy work

47

To prescribe circumstances to which the cancellation of a building consultancy licence is subject

32D(1) None prescribed -

To prescribe conditions that apply to authorities issued under the Act

36(1)(a) The holder of a contractor licence generally must notify the Commissioner of the following within 7 days and provide any specified documents: a) details of a material change in the

circumstances under which special permission or an exemption was given in regard to nominated supervisors

b) details about a nominated supervisor’s cessation as an employee, member or director of the relevant licence holder

c) details of a person’s being selected as a nominated supervisor and a copy of their consent declaration

Division 2 of Part 4: (cl 30-38)

31

The holder of an individual contractor licence must notify the Commissioner of the following within 7 days: a) details about becoming a nominated

supervisor for another contractor licence b) details about the holder’s cessation as a

nominated supervisor for another

32


20

Power provided by the Act Section Scope of the proposed Regulation Clause contractor licence

The holder of a partnership contractor licence

must notify the Commissioner of the following within 7 days: a) details of any change of directors for each

corporation which is a member of the partnership

b) details of a change in the membership or in the name of a member of the partnership or the dissolution of the partnership

33

The holder of a corporation contractor licence must notify the Commissioner within 7 days of the details of any change of directors, including name, date of birth and address

34

A partnership holder of a building consultancy licence must notify the Commissioner of the following within 7 days and provide any specified documents: § details of a change of director in a

corporation that is a member of the partnership § details of any employee of a corporation

partner who holds a building consultancy licence who ceases to be an employee § details of a change in membership or names

of members of the partnership or dissolution of the partnership § details of any employee of the partnership

who holds a building consultancy licence who ceases to be an employee

A corporation that holds a building consultancy licence must notify the Commissioner of the following within 7 days: § details of a change of director, including

name, date of birth and address § details of any employee who holds a building

consultancy licence who ceases to be an employee

A corporation that holds a building consultancy licence must have at least one director or employee who holds a building consultancy licence A partnership that holds a building consultancy licence must have at least one partner or employee who holds a building consultancy licence

35

The holder of a qualified supervisor certificate must notify the Commissioner of the following within 7 days: a) certain details about becoming a nominated

supervisor b) certain details about ceasing to be a

nominated supervisor

36

The holder of an authority must provide further details of changes as required by the Commissioner

37

The holder of an authority that is lost, stolen, defaced or destroyed must notify the Commissioner within 7 days

38


21

Power provided by the Act Section Scope of the proposed Regulation Clause To empower the Commissioner to reject an application for renewal or restoration of an authority

40(2)(g) None prescribed -

To prescribe types of accreditation held under the Environmental Planning and Assessment Act 1979 as exempting a holder of a building consultancy licence from continuing professional development requirements under the Act

40(2F)(b) None prescribed -

To prescribe qualifications which exempt the holder of a building consultancy licence from continuing professional development requirements

40(2F)(d) None prescribed -

Part 3A Resolving building disputes and building claims To declare a claim not to be a building claim


To prescribe circumstances in which goods or services supplied in connection with residential building, specialist or building consultancy work are deemed building goods or services

48A None prescribed -

To specify the manner in which proceedings must be transferred from a court or other tribunal to the Consumer, Trader and Tenancy Tribunal

48L(2) Specifies that: § proceedings are to be transferred by order of

the court hearing the building claim § notice of the transfer is to be given to the

Registrar of the Tribunal by the registrar of the court § all relevant documents in the custody of the

court are to be transferred to the Registrar of the Tribunal § on receipt of a notice and accompanying

documents, the Registrar must serve the parties a notice fixing a date and time for the hearing or a directions hearing

78

To prescribe a higher or lower amount for which a court has jurisdiction in relation to a building claim that relates to the refusal of an insurance claim

48M None prescribed -

Enables modifications to be prescribed with respect to the application of sections 9-13 of the Consumer Claims Act 1998 to a building claim

48O(3) None prescribed -

To prescribe the form of the warning about non-compliance that must be included in orders made under this Part

48R Prescribes a warning notice that must be included in orders

79

Part 4 Disciplinary proceedings To declare an instrument as equivalent to a contractor licence, building consultancy licence or supervisor or tradesperson certificate

50(3)(d) None prescribed -

To make provision for determining when a notice of a disciplinary decision is taken to have been served


Part 4A Reviews by the Administrative Decisions Tribunal To prescribe a decision under Part 4 for which an application for review may be made to the Administrative Decisions Tribunal

83B(3)(b) Prescribes a decision of the Commissioner to: a) vary an authority by imposing a condition b) suspend an authority c) cancel an authority d) disqualify the holder of an authority from

being: i the holder of an authority ii a member of a partnership holder, or an

officer of a corporation holder that is a member of a partnership

iii an officer of a corporation holder

81


22

Power provided by the Act Section Scope of the proposed Regulation Clause Part 5 Jurisdiction of Tribunal regarding appeals and unjust contracts To prescribe the manner in which an appeal may be made against a decision of the Commissioner relating to a house purchaser’s agreement under the Builders Licensing Act 1971


Part 6 Insurance To prescribe the form of a certificate of insurance evidencing a contract of insurance in relation to residential building work

92(1)(b) 92(2)(b)

Prescribes the form set out in Form 1 66(1) &

Schedule 1

To prescribe an alternative amount as the threshold below which home warranty insurance requirements do not apply in relation to a contract for residential building work

92(5) Prescribes $12,000 70(1)

To prescribe matters relevant to a contract for residential building work of which the insurer of the work must be informed

92A(c) None prescribed -

To prescribe the form of a certificate of insurance evidencing a contract of insurance in relation to the supply of a kit home

93(1)(b) 93(2)(b)

Prescribes the form set out in Form 2 66(2) &

Schedule 1

To prescribe an alternative amount as the threshold below which home warranty insurance requirements do not apply in relation to a contract for the supply of a kit home

93(4) Prescribes $12,000 70(2)

To prescribe matters relevant to a contract to supply a kit home of which the insurer of the work must be informed

93A(c) None prescribed -

To prescribe the form of a certificate of insurance evidencing a contract of insurance in relation to owner-builder work

95(2) Prescribes the form set out in Form 3 66(3) &

Schedule 1

To prescribe a class of owner-builder work as exempt from home warranty insurance requirements

95(3)(c) None prescribed -

To prescribe an alternative amount as the threshold below which home warranty insurance requirements do not apply in relation to owner-builder work

95(3)(c) & (5)

Prescribes $12,000 70(3)

To prescribe the form of a certificate of insurance evidencing a contract of insurance in relation to residential building work done otherwise than under a contract

96(2) Prescribes the form set out in Form 1 66(4) &

Schedule 1

To prescribe an alternative amount as the threshold below which home warranty insurance requirements do not apply in relation to residential building work done otherwise than under a contract

96(4) Prescribes $12,000 70(4)

To prescribe the form of a certificate of insurance evidencing a contract of insurance which must be attached to a contract for the sale of land entered into by a developer

96A(1) None prescribed, but see clause 66(4), prescribed under section 92

-

To prescribe a person or class of persons as entitled to apply for an exemption from certain insurance requirements

97(1A)(a) Prescribes the following as entitled to apply: § contractors doing residential building work

or supplying kit homes § a developer required to comply with section

96A of the Act

72

To prescribe circumstances entitling a person to apply for an exemption from certain insurance requirements

97(1A)(b) None prescribed -


23

Power provided by the Act Section Scope of the proposed Regulation Clause To prescribe a class of persons who are not required by section 92 to be insured under a contract of insurance relating to residential building work

99(2)(b) None prescribed, but see clause 55, prescribed under section 102(5), for persons not required to be beneficiaries under an insurance contract

-

To provide for clauses or matters that must be included in an insurance claim form or class of forms

101A(3)(a) None prescribed -

To provide for clauses or matters that must not be included in an insurance claim form or class of forms

101A(3)(b) None prescribed -

To prescribe an alternative amount of minimum cover which a contract of insurance must provide for each dwelling to which the contract relates

102(3) Allows an insurance contract to provide for a reduction in the amount of cover payable in respect of a multi-dwelling complex or building where a claim has been paid in relation to common property Allows the Minister, by notice in the Gazette, to increase the minimum amount of cover that must be provided by an insurance contract In relation to work valued over $12,000 on a residential flat building, prescribes that, if the amount obtained by dividing the value of the work by the number of dwellings in the building: a) does not exceed $12,000 - the contract of

insurance must provide for minimum cover of $200,000

b) exceeds $12,000 - the contract of insurance must provide minimum cover of $200,000 in relation to each dwelling in the building

59

60

69

To impose requirements with which any limitations on liability under a contract of insurance must comply

102(4) Restricts time limits for notice of loss or damage that may be included in insurance contracts

63

To impose requirements with which a contract of insurance must comply

102(5) Specifies the persons that must be beneficiaries under an insurance contract and persons that are not required to be beneficiaries Requires that beneficiaries: § in relation to residential building work, be

indemnified from loss or damage due to: − non-completion because of the insolvency,

death or disappearance of the contractor − breach of statutory warranty where the

beneficiary cannot recover compensation because of the insolvency, death or disappearance of the contractor or owner-builder

§ in relation to the supply of a kit home, be indemnified from loss or damage due to: − non-supply because of the insolvency,

death or disappearance of the supplier − unsuitable materials or components or

faulty kit home design, where the beneficiary cannot recover compensation because of the insolvency, death or disappearance of the supplier

Specifies certain instances of loss and damage for which a beneficiary must be indemnified Requires the insurance contract to indemnify acts and omissions by sub-contractors

55

56

56 (3)

56(4)


24

Power provided by the Act Section Scope of the proposed Regulation Clause Provides that, despite clause 56, the insurance contract may exclude liability for excessive deposits (as per section 8 of the Act) or progress payments Provides that an insurance contract must include a term preventing its cancellation or refusal of a claim on certain grounds once the insurer has accepted cover Provides that an insurance contract must contain a provision preventing the insurer from reducing liability on the basis of date of notification of a claim, where the claim is notified within certain specified periods

57

62

63

To require the retention of copies of contracts of insurance and to prescribe a place at which copies must be retained


To prescribe conditions to which Ministerial approval of a home building indemnity scheme or similar arrangement is subject


To make provision for or with respect to a scheme or arrangement approved by the Minister


To make provision for or with respect to: a) the functions of the Guarantee

Corporation in relation to the administration of a scheme or arrangement

b) the payment of contributions to the Building Insurers’ Guarantee Fund


To impose requirements for professional indemnity insurance and other similar forms of insurance, including: a) conditions relating to run-off cover b) conditions relating to renewal of cover c) the period for which cover must be

provided


To prescribe conditions to which Ministerial approval of an insurer or kind of insurance is subject


To prescribe additional matters which must be included in records kept by insurers


To prescribe the definition of a structural defect

103B(2)(a) Defines a structural defect as any defect in a structural element of a building attributable to defective design, defective or faulty workmanship or defective materials (or any combination of these) and that: a) results in, or is likely to result in, any part

of the building being required by law to be closed or prohibited from being used, or

b) prevents, or is likely to prevent, the continued practical use of the building or any part of the building, or

c) results in, or is likely to result in: i) the destruction of the building or any

part of the building, or ii) physical damage to the building or any

part of the building, or d) results in, or is likely to result in, a threat of

imminent collapse and destruction of the building or physical damage to any part of the building

71

To specify a variation to the period for which insurance cover must be provided

103B(2B) None prescribed -


25

Power provided by the Act Section Scope of the proposed Regulation Clause Provides a regulation making power which enables the Governor to make regulations for or with respect to requirements for insurance under Part 6 of the Act (Insurance), including: a) limitations on liability b) beneficiaries required or not required to

be insured c) losses indemnified d) the period within which a claim must

be made e) subrogation f) when an insurance claim is taken to

have been refused g) the manner of determining the

maximum amount of insurance cover h) when work is complete i) appeals against insurers, including time

limits for making appeals

103C Defines terms used in Part 5 of the Regulation (Insurance requirements) Provides that: § Part 5 is subject to any conditions of

approval under section 103A of the Act § Part 5 does not affect the requirements of the

Insurance Contracts Act 1984 (Cwth) Provides that an insurance contract may be entered into by a contractor, supplier or beneficiary Specifies a range of limitations on liability and cover that may be included in an insurance contract Provides a method for determining when work is taken to be complete for the purposes of the period of cover Provides that a claim is taken to have been refused if a decision has not been given within 45 days or a further period agreed between the insurer and beneficiary Provides that insurance appeals must generally be lodged within 45 days of the insurer’s decision or the date the claim is taken to have been refused under clause 64, unless the Tribunal grants leave for an appeal to be lodged out of time Provides that an insurance contract may require a beneficiary to give reasonable access to property for inspections, rectification or completion of work

51

52

53

57

61

64

65

68

Part 6A Insolvent insurers To provide for circumstances in which the State indemnity applies to a matter despite the exclusions in this sub-section

103I(2)(f) Provides that the indemnity applies in connection with matters insured by an insolvent insurer (HIH or FAI), despite the fact that no certificate of insurance was issued, if there is evidence of acceptance of risk by the insurer

67

To prescribe matters or circumstances to which the State indemnity does not apply

103I(2)(g) None prescribed -

To provide for assignment of beneficiaries’ rights to the Building Insurers’ Guarantee Corporation, including: a) nature and extent of the assignment, b) the enforcement of the assignment

103M(3) None prescribed -

To require contributions or other amounts to be paid into the Building Insurers’ Guarantee Fund in connection with an approved alternative home building indemnity scheme

103P(2)(e) None prescribed -

To require money to be paid from the Fund in connection with an approved alternative home building indemnity scheme

103P(3)(e) None prescribed -

To provide for the functions of the Guarantee Corporation in relation to home building insurance or reinsurance arrangements entered into by the State

103S(1A) None prescribed -

To provide for any provision of the Act, with modifications, to apply to dealing with or finalising claims, satisfying

103ZA(2) None prescribed -


26

Power provided by the Act Section Scope of the proposed Regulation Clause judgements or resolving disputes regarding claims Part 7 Fair Trading Administration Corporation and additional powers of Director-General To prescribe costs of administering legislation for which money from the Home Building Administration Fund may be applied

114(3)(b) None prescribed -

Part 8 General To prescribe particulars required to be kept in the Register of licences, certificates and permits issued under the Act, including the following details in relation to the holder of an authority: a) results of disciplinary decisions b) results of prosecutions c) details of penalty notices issued d) number of insurance claims paid e) instances of non-compliance with a

Tribunal order to do work or pay money

f) details of public warnings issued g) details of formal cautions issued

regarding the holder’s conduct h) cancellation or suspension of an

authority

120(1)(b) 120(3)

Prescribes the following particulars: a) Contractor licences:

i name, date of birth and business address

ii licence number and description of work authorised or kind of kit home authorised to be supplied

iii date of issue and current expiry date iv any conditions on the licence and date

of any alteration to the conditions v variations of the description of the

work authorised or kind of kit home authorised to be supplied and the date of the variations

vi whether the licence, if held by an individual, is endorsed

vii if the holder is a partnership, the names, dates of birth and addresses of the members of the partnership

viii if the holder is a corporation, the names, dates of birth and addresses of the directors

ix name, type and number of authority held by any nominated supervisor for the licence, date of the consent declaration and date of ceasing to be nominated supervisor

x the date of any order exempting the holder from nominated supervisor requirements and any revocation of the order

xi results of disciplinary determinations xii results of prosecutions under the Act xiii the number of insurance claims paid in

respect of the holder xiv penalty notices issued to the holder xv non-compliance with a Tribunal order

to do work or to pay money xvi details of public warnings issued

regarding the holder xvii formal cautions issued to the holder xviii cancellation or suspension of the

licence

b) Building consultancy licences: i name, date of birth and business

address ii licence number and description of work

authorised by the licence iii date of issue and current expiry date iv any conditions on the licence and date

of any alteration to the conditions v variations of the description of the

work authorised vi if the holder is a partnership, the

names, dates of birth and addresses of the members of the partnership

vii if the holder is a corporation, the names, dates of birth and addresses of

80


27

Power provided by the Act Section Scope of the proposed Regulation Clause the directors

viii if the holder is a partnership or corporation, the name and licence number of the nominated person

ix results of disciplinary determinations x results of prosecutions under the Act xi penalty notices issued to the holder xii non-compliance with a Tribunal order

to do work or to pay money xiii details of public warnings issued

regarding the holder xiv formal cautions issued to the holder xv cancellation or suspension of the

licence

c) Supervisor Certificates: i name, date of birth and residential

address ii certificate number and description of

work authorised by the certificate iii date of issue and current expiry date iv any conditions on the certificate and

date of any alteration to the conditions v variations of the description of the

work authorised vi name of holder and number of

contractor licence for which the holder is the nominated supervisor, date of the consent declaration and the date of ceasing to be a nominated supervisor

vii results of disciplinary determinations viii results of prosecutions under the Act ix the number of insurance claims paid in

respect of the holder x penalty notices issued to the holder xi non-compliance with a Tribunal order

to do work or to pay money xii public warnings issued xiii formal cautions issued to the holder xiv cancellation or suspension of the

licence d) Tradesperson Certificates:

i name, date of birth and residential address

ii certificate number and description of work authorised

iii date of issue and current expiry date iv any conditions on the certificate and

date of any alteration to the conditions v variations of the description of the

work authorised vi results of disciplinary determinations vii results of prosecutions under the Act viii penalty notices issued to the holder ix non-compliance with a Tribunal order

to do work or to pay money x public warnings issued xi formal cautions issued to the holder xii cancellation or suspension of the

licence

e) Owner-builder permits: i name and residential address of holder ii place where the work is to be done iii number of permit and date of issue iv description of work the permit

authorises


28

Power provided by the Act Section Scope of the proposed Regulation Clause To prescribe a fee for inspection of the Register


To declare a person as a prescribed officer of the Office of Fair Trading for the purpose of issuing certificate evidence

131 § Declares the Commissioner or any officer of the Office of Fair Trading authorised in writing by the Commissioner as a prescribed officer for the purpose of issuing certificate evidence § Prescribes a fee of $16 for the issue of a

certificate, unless waived

82

To declare a person as a prescribed officer for the purpose of laying an information alleging a person has committed an offence under specified legislation if unlawful residential building work or specialist work was involved

135 Declares the Commissioner or any officer of the Office of Fair Trading authorised in writing by the Commissioner as a prescribed officer able to commence legal proceedings

83

To prescribe: § an offence under the Act or regulations

as an offence for which a penalty notice may be issued § the amount of penalty payable for an

offence § different penalty amounts for different

offences or classes of offences

138A(6) Prescribes the offences and penalty amounts listed in Schedule 6

87 &

Schedule 6

Provides a general regulation making power which enables the Governor to make regulations, not inconsistent with the Act, for or with respect to any matter required or permitted to be prescribed or that is necessary or convenient to be prescribed for carrying out or giving effect to the Act, including: a) authorities under the Act and

regulations a1) insurance to be obtained by

applicants for or holders of contractor licences

a2) insurance to be obtained building consultancy licences

b) supervision of residential building work and specialist work

c) advertisements and signs d) agreements or arrangements relating

to residential building work, specialist work or the supply of kit homes

e) forms, records, notices and returns f) appeals and show cause proceedings g) keeping of trust accounts by holders

and former holders of contractor or building consultancy licences

h) conduct of examinations i) matters to be taken into account by

the Commissioner in determining whether special circumstances exist under a provision of the Act

j) fees payable under the Act or regulations and refund or waiver of fees

k) exemptions from requirements of the Act or regulations

l) keeping of public registers

140(2)

140(2)(k)

140(2)(k)

140(2)(k)

140(2)(k)

Exempts a person from section 4 of the Act (Unlicensed contracting) if: § the contract does not involve specialist work

and is made by an exempt corporation § the contract is made by a supplier (ie a

general contractor) and includes some non-residential specialist work § the contract is made by an electricity supply

authority for work on power lines forming part of an electrical installation

Exempts a person from section 5 of the Act (Seeking work by unlicensed person) if the representation is: § about an exempt corporation and does not

relate to specialist work § about a supplier and relates to some non-

residential specialist work § about an electricity supply authority

concerning work on power lines forming part of an electrical installation

Exempts a contractor from the requirements of section 7 (Form of contracts) if a contract is: a) subordinate to a principal contract, eg, a

contract with a licensed subcontractor b) between a licensed builder and a licensed

trade contractor for work on the builder’s own property

c) for specialist work which is not residential building work

d) for a price not exceeding $1,000 Exempts an individual from section 12 in relation to residential building work if they own the dwelling on which the work will be done, and it does not include specialist work, and an owner-builder permit is not required because: a) development consent is not required or b) the value of the work does not exceed the

monetary threshold above which an owner-builder permit is required

15

16

20


29

Power provided by the Act Section Scope of the proposed Regulation Clause 140(2)(k) Exempts an individual from section 12 of the

Act if: § they are employed by an exempt corporation

and § the work is done in the ordinary course of

their employment

21

140(2)(k) Exempts: (1) an individual who holds an appropriate

supervisor certificate from section 12 in relation to specialist work if the work is done on: a) their own dwelling or residence or b) premises owned or occupied by their

employer (2) an individual who does electrical wiring

work if the work is done: a) as an employee of an electricity supply

authority who principally does other work and

b) the work is done in the ordinary course of their duties

(3) an individual from section 13 if an owner-builder permit is not required because: a) development consent is not required or b) the value of the work does not exceed

the monetary threshold above which an owner-builder permit is required

22

140(2)(k) Exempts an individual from section 14 if: a) they are an apprentice or trainee and b) their required studies include electrical

wiring work and c) the work is supervised by a qualified

supervisor and d) the supervisor has assessed the person as

competent to work without constant supervision and

e) the work is done under the supervision and instructions of the supervisor

23

140(2)(k) Exempts a person from the requirements relating to the supply of kit homes if the kit: a) is to be erected outside NSW or b) is valued at no more than $1,000 or c) is for certain components normally part of

a dwelling but supplied separately

24

140(2)(a) Provides that: § a contractor licence or endorsed contractor

licence issued to the holder of a licence issued by the Plumbing Industry Commission of Victoria on a fee-exempt basis expires after one year or when the Victorian licence expires, whichever occurs first § a supervisor certificate issued to the holder of

a licence issued by the Plumbing Industry Commission of Victoria on a fee-exempt basis expires after three years or when the Victorian licence expires, whichever occurs first

40

140(2)(a) A holder to whom a replacement authority has been issued must surrender: § the original authority if it is recovered or § the damaged authority

41


30

Power provided by the Act Section Scope of the proposed Regulation Clause 140(2)(j) Provides that an application for the grant,

renewal or restoration, or for a duplicate of, an authority must be accompanied by the fee specified for the particular kind of application in Schedule 4. Provides that no fee is payable for an application for: § a plumbing or gasfitting contractor licence or

supervisor or tradesperson certificate if the applicant is licensed in and resides and works principally in Victoria § a building consultancy licence if the

applicant holds a general contractor licence, is a registered architect or an accredited certifier

42(1) &

Schedule 4

42(2)

140(2)(j) Permits the Commissioner to determine fees payable by candidates for examinations and re-marking conducted by or on behalf of the Commissioner

43

140(2)(j) Provides that the Commissioner may refund all of part of a fee if an application to sit an examination or for a re-mark is refused or withdrawn

44

140(2)(k) Exempts certain categories of contractor licence from the requirement to show insurance has been obtained

48

140(2)(k) Exempts a person from the requirement in section 44 of the Act to return an authority for endorsement of a variation, condition or cancellation if notified to that effect

49

140(2)(k) Exempts contracts of insurance from the requirements of sections 92B and 93B of the Act until 31 December 2005

73

140(2)(k) Exempts contractors and developers from insurance requirements for work on multi-storey buildings

74

140(2)(k) Exempts contractors from insurance requirements for work on self-contained dwellings in retirement villages

74

140(2)(k) Exempts contractors from insurance requirements for work done for the Home Modification and Maintenance Program of the Department of Aging, Disability and Home Care

76

140(2)(k) Exempts a developer from the requirement to provide a certificate of insurance where work not commenced, subject to conditions

77

140(2)(c) Declares the Commissioner and other officers authorised in writing as prescribed officers

84

140(2)(b) Prescribes requirements for signs on building sites

85

140(1) To prescribe consumer warnings for inclusion in do-it-yourself publications and public talks about hazardous work

86

Schedule 4 Savings and transitional provisions To prescribe savings or transitional provisions consequent on the enactment of certain Acts

Cl. 2 Provides for savings of matters that were in effect under the repealed Regulation immediately before its repeal

88


31

7. IMPACT ASSESSMENT OF THE PROPOSED REGULATION The proposed Regulation involves a redraft of the current Regulation with minor amendments aimed at streamlining the structure of the Regulation, deleting redundant provisions, updating references to standards, codes and other legislation, prescribing modifications for the commencement of uniform licensing procedures, increasing fees in line with the Consumer Price Index and making a number of minor amendments to improve the administration of the legislation. The key changes are summarised briefly in Table 2 below. Table 2: Differences between current and proposed Regulations

Current Provision Proposed Regulation Reason for change Clause 8 excludes work with a labour value of $200 or less from coverage by the Act

Clause 9 would: § increase the threshold to

$1,000, including labour and materials; and § exclude work involved in

dismantling and moving a house from one site to another, unless it is being done by the builder on the new site

The increase in the threshold amount below which the Act does not apply recognises increases in labour costs since the amount was last reviewed and provides consistency with the threshold for written contract requirements in clause 15. The clause would make it clear that dismantling and moving a structure is not residential building work. (See section 7.1.2.6)

Clause 14(b) enables the Commissioner to give permission to a holder or former holder to complete work in certain circumstances.

The current sub-clause (b) has been removed from the proposed clause 20.

The matter in current sub-clause 14(b) is now provided for in section 47A of the Act. (See section 7.1.3.8)

Clauses 19, 19A and 20 prevent a licence from being issued, renewed or restored if the applicant has failed to comply with a Tribunal order in the time required by the order.

Clause 25 provides a discretion for the Commissioner to grant the application where: § the applicant complied with

the order late (but not where they have not complied at all); and § there was a good reason for

the delay in complying.

The current clauses in effect provide for permanent disqualification, even though the applicant may have satisfied the Tribunal order after the required period and there may have been a good reason for the delay. The proposed clauses allow the reasons for the delay to be taken into account. (See section 7.1.4.1)

Clauses 19, 19A and 20 set out the requirements to be met by applicants for contractor licences, building consultancy licences and certificates, respectively.

Clauses 25 to 28 contain the same requirements as the current Regulation, but these have been streamlined, with the requirements common to all applicants contained in clause 25, and the additional requirements specific to each type of authority in clauses 26 to 28.

The new structure avoids the repetition which is a feature of the current regulation. The actual requirements have not changed, apart from the discretionary decision making power added to clause 25 (see above). (See section 7.1.4.1)

Clauses 22 to 28 set out the conditions that apply to licences and certificates – the conditions mainly impose requirements to notify the Commissioner of certain changes in the registered details of the holder and their associates

Clauses 30 to 36 are based on the current clauses, with a number of redundant requirements removed, such as the requirement to notify a change of name or address or registered business name.

The Licensing and Registration (Uniform Procedures) Act 2002 requires licence and certificate holders to notify certain changes of particulars. Accordingly, it is not necessary to prescribe these matters in the proposed Regulation. (See section 7.1.4.3)

Clause 34 and Schedule 2 prescribe fees for applications for authorities and other

Clause 42 and Schedule 4 prescribe the same fees, adjusted for CPI and also split each fee

It is proposed that the Licensing and Registration (Uniform Procedures) Act 2002 will apply to home building


32

Current Provision Proposed Regulation Reason for change matters. into a ‘processing component’

and a ‘fixed component’. authorities from 1 September 2004. This Act requires fees to include an identified ‘processing’ component, to enable fee discounts to be calculated for on-line applications, which are anticipated to be available in early 2005. (See section 7.1.4.7)

No current provision Clause 51 prescribes modifications to the way the Licensing and Registration (Uniform Procedures) Act 2002 will apply to home building authorities.

The proposed clause ensures that matters specific to the home building regulatory scheme are provided for. The clause provides that: § owner-builder permits cannot be

renewed or restored; § applicants can be required to have

their photograph taken for a licence; § restored authorities are back dated to

the original expiry date, to ensure consumers are protected for any work done in the interim; § persons who continue to work

without having renewed their licence can be prosecuted; and § a contractor licence can be

suspended. (See section 7.1.4.14) Clause 43 prescribes the losses required to be indemnified under a contract of insurance.

Clause 56 prescribes the same indemnities as the current Regulation, with an amendment to sub-clauses (1)(b) and (3) to remove any doubt that owner-builder work is covered for the same losses and damages as is work done under a contract.

Owner-builders are required to obtain insurance for work valued over $12,000 if the property on which the work was done is sold within 6 years. The proposed amendment makes it clear that purchasers of property on which owner-builder work have the same protection as purchasers of residential building work or kit homes. (See section 7.1.5.4)

Clause 57AA provides a method to calculate the amount of insurance cover required for work on the common property of a residential flat building

Clause 69 is the same, but also applies the same method of calculating cover to flat buildings owned entirely by one owner (i.e., where there is no ‘common property’)

The current clause ensures that excessive insurance cover is not required for relatively minor work on common property. It is appropriate that excessive cover similarly not be required in buildings where there is no legal concept of ‘common property’, that is, where one owner owns the building. (See section 7.1.5.17)

Clause 57BB exempts insurance contracts from the requirements of sections 92B and 93B of the Act until 31 December 2004.

Clause 73 exempts insurance contracts from the requirements of sections 92B and 93B of the Act until 31 December 2005.

The amendment ensures that the exemption remains in effect until appropriate amendments can be made to the Act. (See section 7.1.5.21)

No current provision Clauses 75 and 76 insert new exemptions from insurance requirements for work on retirement villages and work funded by the Home Modification and Maintenance Program.

Currently exemptions from insurance requirements for this work are granted administratively on an individual basis. The clause aims to reduce government administrative costs in providing exemptions individually as well as costs and delays for applicants. (See section 7.1.5.23 – 24)

Clause 57J prescribes the wording for a warning notice that must be included in Consumer, Trader and

Clause 79 simplifies the wording of the prescribed warning notice.

There is a high level of non-compliance by licensees with the requirement to notify Fair Trading that an order has been complied with. As


33

Current Provision Proposed Regulation Reason for change Tenancy Tribunal orders. this may in part be due to a lack of

clarity in the current warning, the wording is simplified. (See section 7.1.6.2)

7.1 IMPACT OF INDIVIDUAL CLAUSES OF THE PROPOSED REGULATION This section of the Regulatory Impact Statement: • briefly describes each provision of the proposed Home Building Regulation 2004; • raises possible alternatives to the provisions, including the alternative of doing nothing;

and • assesses the impact of the provision and alternative options in terms of the costs and

benefits to consumers, industry, insurers, government and the community.

To gain a full understanding of the impact of the proposals, it is necessary to refer to the Regulation in reading this section. A copy of the proposed Regulation is at Appendix A and is also available at http://www.fairtrading.nsw.gov.au

7.1.1 PART 1 PRELIMINARY (CLAUSES 1 TO 3) Provision Part 1 – Preliminary – (clauses 1, 2 and 3) cites the title of the proposed Regulation, specifies the proposed commencement date and defines certain terms and phrases used in the proposed Regulation.

Assessment of costs and benefits The provisions are of a machinery nature and no costs arise from them.

7.1.2 PART 2 PRESCRIPTIONS FOR THE PURPOSES OF DEFINITIONS IN THE Act (CLAUSES 4 TO 11)

7.1.2.1 Work excluded from definition of ‘building consultancy work’ (clause 4)

Objective To protect home owners from unsafe, faulty or incomplete building work.

Provision Building consultancy work, as defined in section 3(1) of the Act, means work, carried out for a fee or reward, involved in doing, co-ordinating or supervising inspections of dwellings or specialist work and providing a report, but does not include any work that is declared by the regulations to be excluded from the definition.

The proposed clause 4 would declares all work other than pre-purchase visual inspections of a dwelling or any part of a dwelling as excluded from the definition.

The proposed clause is the same as clause 4A of the current Regulation.

Comment Consumers most commonly engage building consultants to carry out pre-purchase inspections of a dwelling they are considering purchasing.


34

Building consultants are also used by consumers who are having building work done on their behalf or who are involved in a dispute about building work done for them. In these cases, consumers generally engage a qualified architect or engineer to provide building consultancy services. These professionals are generally accredited under other statutory or non-regulatory professional schemes and are subject to continuing professional development, complaints handling and dispute resolution requirements under those schemes.

Most building reports done for the purposes of an insurance claim or litigation, after a consumer has suffered a loss, do not expose the client to the same level of risk as a pre-purchase report. Where reports are prepared for insurance claims or litigation they are usually subject to scrutiny by insurance assessors, other building experts, lawyers and members of the Consumer, Trader and Tenancy Tribunal.

Alternative options Alternative options would be to: § not declare any work as excluded from the definition; or § declare a more limited range of work as excluded from the definition.

Assessment of costs and benefits of proposed clause 4 and alternative options The proposed clause would impose licensing costs on building consultants involved in pre-purchase inspections of dwellings, and these costs may in turn be passed on to consumers. This cost is balanced by the benefit to the industry and consumers of regulating and licensing persons who perform such work – effective regulation reduces the risk of loss due to unsatisfactory work.

To not declare any work as excluded would mean that any work involved in inspecting and reporting on dwellings and specialist work would be regulated by the Act and could only be performed, coordinated or supervised by a licensed building consultant. While this would extend the benefits of building consultancy licensing to a wider range work, it would also impose duplicate licensing costs on building industry professionals who are already accredited under alternative schemes, and on government in administering unnecessary licences.

The second alternative option would propose limiting the range of work excluded from the definition, so that a building consultancy licence would be required in respect of a wider range of work, for example, pest inspections. This option would also duplicate other regulatory schemes, such as those administered by WorkCover, and introduce significant legal complications and increase the likelihood of litigation. Table 7.1.2.1 Assessment of proposed clause 4 and alternative options

Options Compliance with Assessment Criteria Consumer protection

Industry viability Cost to consumers,

industry & government/public

Overall efficiency

1. Proposed clause 4 High High § consumers protected from higher risk work

§ unnecessary government regulatory costs avoided

§ less cost of duplicate licensing

High

2. No work excluded High Low § higher cost of duplicate licensing and regulation

Medium

3. Pest inspections not excluded

High Medium § higher legal costs § cost of duplicate

regulation

Medium


35

7.1.2.2 Definition of ‘dwelling’ – certain structures and improvements included (clause 5)

Objective To protect home owners from faulty or incomplete building work.

Provision The definition of ‘dwelling’ in section 3(1) of the Act includes a detached or semi-detached house, transportable house, terrace or town house, duplex, villa-home, strata or company title home unit or residential flat. It also includes a swimming pool or spa constructed for use in conjunction with a dwelling and such additional structures and improvements declared by the regulations to form part of a dwelling.

The purpose of the proposed clause 5 is to declare a range of structures and improvements as forming part of a dwelling when constructed for use in conjunction with a dwelling.

The proposed clause is the same as clause 5 of the current Regulation.

Alternative options Alternative options include not declaring any structures or improvements as included in a ‘dwelling’, or declaring fewer or additional structures and improvements as included.

Assessment of costs and benefits of proposed clause 5 and alternative options The proposed clause benefits consumers by ensuring that virtually all building work done on their home is covered by the Act, giving them the protection of statutory warranties, contractual rights and by requiring the work to be done by appropriately qualified and licensed persons. The clause also provides clarification as to what is included in a ‘dwelling’, thereby benefiting parties to legal proceedings which involve an interpretation of the application of the Act, for example, building disputes being heard in the Consumer, Trader and Tenancy Tribunal.

In terms of costs, the proposed clause maintains the current wide range of structures and improvements as part of a ‘dwelling’, and thereby limits work on such structures to licence holders. As with any licensing scheme, there are costs involved in obtaining the necessary qualifications, paying licence fees and complying with the Act.

Declaring no structures or improvements as included in a ‘dwelling’ would disadvantage consumers by excluding a large number of residential building jobs from the protection of the Act. There would be increased uncertainty in interpreting what is included in a ‘dwelling’, which in turn could increase the cost of resolving disputes and lead to more legal appeals being lodged. It may be necessary to amend the Act to provide for the proposed inclusions.

Declaring fewer structures or improvements as included in a ‘dwelling’ would reduce the benefits provided by the proposed clause and increase legal uncertainty in the interpretation of what is included in a ‘dwelling’, but to a lesser extent than not declaring any structures or improvements as included.

The Office of Fair Trading has not identified any additional structures or improvements which could appropriately be declared as forming part of a ‘dwelling’ for the purposes of the Act.


36

Table 7.1.2.2 Assessment of proposed clause 5 and alternative options Options Compliance with Assessment Criteria

Consumer protection Industry viability Cost to consumers, industry &

government/public

Overall efficiency

1. Proposed clause 5 High High § restricts wide range of domestic building jobs to licence holders

High

2. Do not declare any structures or improvements as included in a ‘dwelling’

Low Low § consumers unprotected for many building jobs

§ increased legal disputes § cost to government of

amending the Act

Low

3. Declare fewer structures or improvements as included

Medium Medium § consumers unprotected for many building jobs

§ increased legal disputes

Medium

4. Declare additional structures or improvements as included

High Low § further restricts range of building jobs able to be performed by non-licensed persons

Medium

7.1.2.3 Definition of ‘dwelling’ – certain residential buildings and other structures excluded (clause 6)


Provision The definition of a ‘dwelling’ in section 3(1) of the Act enables the regulations to declare buildings or portions of buildings as excluded from the definition. The proposed clause 6 declares certain buildings that are essentially commercial as excluded from the definition of a ‘dwelling’.


Alternative options Alternative options would be to not declare any buildings and structures as excluded, or to declare fewer or additional buildings and structures as excluded from the definition.

Assessment of costs and benefits of proposed clause 6 and alternative options The proposed clause would benefit persons who undertake commercial building work by not imposing the cost of licensing or compliance with the Act. It would also mean that the government and community do not bear the costs of enforcing the Act and resolving legal disputes in relation to commercial building work. Commercial building owners are considered able to protect their own interests in their contracts with builders.

In the absence of any declared exclusions, considerable government funds would need to be expended in regulating the commercial building industry, particularly in the resolution of legal disputes. This would divert public resources from areas of greater need. Licensing and compliance costs for this sector of the industry would increase. It may be necessary to amend the Act to provide for the proposed exclusions Table 7.1.2.3 Assessment of proposed clause 6 and alternative options

Options Compliance with Assessment Criteria Consumer protection Industry viability Cost to consumers,


Overall efficiency

1. Proposed clause 6 High High § reduced costs of regulation and dispute resolution

High

2. Do not declare any buildings and structures as excluded

Medium Low § high costs in regulating commercial building work and resolving legal

Low


37



Overall efficiency

disputes § cost to government of

amending the Act 3. Declare fewer buildings

and structures as excluded

Medium Medium § higher costs in regulating commercial building work and resolving legal disputes

Medium

4. Declare additional buildings and structures as excluded

Low Low § no additional commercial structures have been identified for exclusion

Low

7.1.2.4 Definition of ‘relevant law’ (clause 7)


Provision The Act requires persons who do specialist work, including electrical wiring, plumbing and gasfitting work, to hold a licence. Electrical wiring work is defined in section 3(1) of the Act as having the same meaning as it has in the Electricity Safety Act 1945. Gasfitting work is defined in the Act as having the same meaning as it has in the Gas Supply Act 1996. Plumbing work is defined as plumbing or drainage work that, because of a “relevant law”, can only be done by a licensee or other authorised person. A relevant law is defined as being legislation declared by the regulations to be an Act or statutory instrument that regulates the specialist work concerned. The proposed clause 7 declares the relevant laws relating to plumbing and gasfitting work.

Other than references to other legislation, which have been updated to reflect changes, the proposed clause is the same as clause 9 of the current Regulation.

Alternative options An alternative option would be to not declare any legislation as a relevant law.

Assessment of costs and benefits of proposed clause 7 and alternative options The proposed clause enables the licensing system under the Home Building Act to cover plumbing and gasfitting work and enable the scope of plumbing and gasfitting work to be determined. The proposed clause contributes to consumer protection by limiting specialised, potentially dangerous work to appropriately qualified persons. The licensing requirement imposes fees and compliance costs on plumbers and gasfitters, but it is considered that these are outweighed by the health and safety and consumer protection benefits. In the absence of the proposed clause, the meaning of ‘relevant law’ would be open to interpretation, increasing uncertainty and potential legal costs. Table 7.1.2.4 Assessment of proposed clause 7 and alternative options


industry & government Overall

efficiency 1. Proposed clause 7 High High § public protected from

dangerous work § cost of regulation

High

2. Do not declare any ‘relevant laws’

Low Low § public not protected from dangerous work

§ cost of increased disputes

§ higher uncertainty & legal costs

Low


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7.1.2.5 Definition of ‘residential building work’ – installation of certain fixtures and apparatus included (clause 8)


Provision The definition of ‘residential building work’ in section 3(1) of the Act includes work on the installation, alteration or repair of any prescribed fixture or apparatus in a dwelling. The purpose of the proposed clause 8 is to prescribe relevant fixtures and apparatus.


Alternative options Alternative options would be to not prescribe any fixtures and apparatus, or to prescribe fewer or additional fixtures and apparatus, as included.

Assessment of costs and benefits of proposed clause 8 and alternative options The proposed clause includes fixtures commonly installed in domestic dwellings, such as cooking, heating and cooling appliances, swimming pool equipment, garage doors and lifts and similar. These fixtures, when installed in a dwelling, form part of the dwelling and their installation, alteration or repair is within the scope of work done in the building and specialist trades.

The proposed clause benefits home owners by ensuring that building related work done on appliances in their home is covered by the Act, giving them the protection of statutory warranties, contractual rights and by requiring the work to be done by appropriately qualified and licensed persons. The clause also provides clarification as to what is included in the definition of ‘residential building work’, thereby benefiting parties to legal proceedings which involve an interpretation of the application of the Act, for example, building disputes being heard in the Consumer, Trader and Tenancy Tribunal.

In terms of costs, the proposed clause limits work on such structures to licence holders. As with any licensing scheme, there are costs involved in obtaining the necessary qualifications, paying licence fees and complying with the legislation.

Prescribing no fixtures or apparatus as included in ‘residential building work’ would disadvantage home owners by excluding this work from the protection of the Act. There would be increased uncertainty in legal interpretation of what is ‘residential building work’, which in turn could increase the cost of resolving disputes and lead to more legal appeals being lodged. It may be necessary to amend the Act to provide for the proposed inclusions.

Prescribing fewer fixtures and apparatus as included in ‘residential building work’ would reduce the benefits provided by the proposed clause and increase legal uncertainty in the interpretation, but to a lesser extent than not declaring any fixtures and apparatus as included. The Office of Fair Trading has not identified any additional fixtures or apparatus which could appropriately be prescribed. Table 7.1.2.5 Assessment of proposed clause 8 and alternative options



efficiency 1. Proposed clause 8 High High § restricts the prescribed

work to licence holders High

2. Do not prescribe any fixtures or apparatus as included in the

Low Low § consumers unprotected for many building jobs


Low


39



efficiency definition § cost to government of

amending the Act 3. Prescribe fewer fixtures

or apparatus as included in the definition

Medium Medium § consumers unprotected for many building jobs


Medium

7.1.2.6 ‘Residential building work’ – certain work excluded (clause 9)


Provision The definition of ‘residential building work’ in section 3(1) of the Act enables the regulations to declare work as excluded from the definition. The proposed clause 9 declares minor work (valued at $1,000 or less) and work which is regulated by other legislation as excluded from the definition of a ‘dwelling’.

The proposed clause is based on clause 8 of the current Regulation, with two changes: • the threshold for what is deemed ‘minor work’ is raised from $200 (as currently

prescribed) to $1,000 and includes the value of materials as well as labour; • work, other than specialist work, involved in removing and transporting a house from a

site for the purpose of re-siting it somewhere else is excluded (unless it is being done by the contractor who will be carrying out the residential building work at the new site, whether or not under a separate contract).

Alternative options Alternative options would be to not declare any work as excluded, or to declare fewer or additional types of work as excluded from the definition. The value of what is deemed ‘minor work’ could be set at a higher or lower amount than the proposed level of $1,000.

Assessment of costs and benefits of proposed clause 9 and alternative options Excluding ‘minor work’ from the Act’s coverage would benefit home owners and builders by reducing compliance costs and, thereby, the cost of the work. While home owners would not receive the protection of the Act for such work, in practice this is rarely needed for such minor jobs, and they would have access to the consumer claims division of the Consumer, Trader and Tenancy Tribunal in the event of a dispute. Overall, the exclusion is considered to provide a net benefit by removing regulatory compliance costs in respect of work for which the protection of the Act would rarely be needed. Removing the proposed ‘minor work’ exclusion would remove these benefits.

The proposed increase in the threshold amount to $1,000 extends the benefits of the current clause to exclude a wider range of work, but may also increase the risk to consumers of defective work on slightly larger building jobs. In effect, the difference is minimised by the fact that the current $200 threshold includes the value of labour only, while the proposed $1,000 threshold would include both labour and materials. Another benefit of the proposed $1,000 threshold is that it brings consistency with clause 15, which is prescribes $1,000 (including labour and materials) as the value below which a written contract is not required. Increased consistency facilitates compliance with the legislation and reduces costs for the industry.

Work involved in dismantling a transporting a dwelling is generally not considered to be residential building work, as it is more in the nature of removal and transport work. The proposed clause would benefit persons carrying out this kind of work (where the person is


40

not also doing the building work at the new site) by not requiring them to hold a builder’s licence.

The proposed clause would benefit persons who undertake building work covered by other legislation by not imposing a duplicate regulatory regime. Without the proposed exclusions, licensing and compliance costs for this sector of the industry would increase, as would regulatory costs for government. It may be necessary to amend the Act to provide for the proposed exclusions. The Office of Fair Trading has not identified any additional types of work which could appropriately be excluded. Table 7.1.2.6 Assessment of proposed clause 9 and alternative options

Options Compliance with Assessment Criteria Consumer Protection Cost to consumers,


efficiency 1. Proposed clause 9 High High § lower licence costs for

persons whose work is regulated under other legislation

§ lower government licensing administration costs

High

2. Do not declare any work as excluded

Low Low § duplicate licence fees § persons transporting

homes from site to site would be subject to irrelevant licensing requirements

§ cost to government of amending the Act

Low

3. Declare less work as excluded

Medium Medium § higher licensing, compliance and administration costs

Medium

7.1.2.7 ‘Roof plumbing work’ defined (clause 10)


Provision Section 3(1) of the Act defines plumbing work as including any work declared by the regulations to be roof plumbing work. The Act’s definitions of residential building work and specialist work also provide for the regulations to define roof plumbing work. The proposed clause 10 sets out a detailed definition of ‘roof plumbing work’. The definition applies equally to residential, commercial and industrial buildings.


Comment The definition of specialist work in the Act excludes work defined as ‘roof plumbing work’ from being specialist work. This means that the work can be carried out by the holder of a contractor licence rather than a specialist licence.

Alternative options An alternative option would be to not declare any work as ‘roof plumbing work’.

Assessment of costs and benefits of proposed clause 10 and alternative options The proposed clause benefits consumers by ensuring that roof plumbing work is covered by the Act, giving them the protection of statutory warranties, contractual rights, access to legal remedies and by requiring the work to be done by appropriately qualified and licensed persons.


41

In terms of costs, the proposed clause limits the defined work to licence holders. As with any licensing scheme, there are costs involved in obtaining the necessary qualifications, paying licence fees and complying with the Act. Declaring no work as ‘roof plumbing work’ would be result in uncertainty in interpreting what is included in ‘plumbing work’, which in turn could increase the cost of resolving disputes and lead to more legal appeals being lodged. It may be necessary to amend the Act to provide for the proposed definition. Table 7.1.2.7 Assessment of proposed clause 10 and alternative options



Overall efficiency

1. Proposed clause 10 High High § lower incidence of defective work and related costs § licensing costs

High

2. Do not declare any work as roof plumbing work

Low Low § higher incidence of defective work and costs § higher legal costs § cost to government of

amending the Act

Low

7.1.2.8 ‘Air-conditioning work’ and ‘refrigeration work’ defined (clause 11)


Provision Specialist work is defined in section 3(1) of the Act as including any work declared by the regulations to be refrigeration work or air-conditioning work. The proposed clause 11 sets out detailed definitions of refrigeration work and air-conditioning work. The definitions apply equally to residential, commercial and industrial projects.

Other than references to relevant Australian/New Zealand Standards and other legislation, which have been updated, the proposed clause is the same as clause 11 of the current Regulation.

Alternative options An alternative option would be to not declare any work as ‘refrigeration work’ or ‘air-conditioning work’.

Assessment of costs and benefits of proposed clause 11 and alternative options The proposed clause ensures that consumers and building owners receive the protection of the Home Building Act in respect of air-conditioning and refrigeration work and enables the scope of such work to be clearly determined in legal proceedings. The proposed clause also benefits the community in general by limiting highly specialised work which has public safety implications to appropriately qualified persons. The licensing requirement imposes fees and compliance costs on persons who carry out air-conditioning and refrigeration work, but it is considered that these are outweighed by the health and safety and consumer protection benefits. Without the proposed clause, it may be necessary to amend the Act to provide for the proposed definitions. Table 7.1.2.8 Assessment of proposed clause 11 and alternative options



Overall efficiency

1. Proposed clause 11 High High § restricts potentially dangerous work to qualified persons

High


42



Overall efficiency

2. Do not declare any work as air-conditioning or refrigeration work

Low Low § cost of obtaining qualifications and licence

§ cost to government of amending the Act

Low

7.1.3 PART 3 REGULATION OF RESIDENTIAL BUILDING WORK, SPECIALIST WORK, BUILDING CONSULTANCY WORK AND THE SUPPLY OF KIT HOMES (CLAUSES 12 TO 19)

Division 1 Contracting for work

7.1.3.1 Conditions to be included in certain contracts (clause 12) and Requirements for contracts for residential building work (clause 13)

Objective To minimise contractual disputes and related legal costs.

Provision Section 7 of the Act requires a contract for residential building work to be in writing and to comply with other requirements relating to its form. Section 16 makes similar provision in relation to contracts for the supply of kit homes. Sections 7E and 16DE provide powers to make regulations to provide for: • matters that must be included in a contract; and • matter that must not be included in a contract.

A contract that contains a term that is inconsistent with any such clause is unenforceable to the extent of the inconsistency.

The proposed clause 12 would require a residential building work contract to include the conditions set out in Part 1 of Schedule 2 of the proposed Regulation and a contract for the supply of a kit home to include the conditions set out in Part 2 of Schedule 2.

The proposed clause 13 would require a residential building work contract to include a checklist in the form set out in Schedule 3. The checklist requires the home owner to check that certain important matters have been appropriately dealt with in the contract, that their contractual rights and obligations are understood, insurance has been obtained (if required) and the contractor holds the appropriate licence for the work.

The proposed requirements are based on clauses 59 and 68 and Schedules 3A and 5 of the current Regulation.

Comment The Building Legislation Amendment (Quality of Construction) Act 2002 made changes to consumers’ contractual rights, by requiring that certain conditions must be included in contracts. The conditions relate to: • provision for all variations to a contract to be in writing; • ensuring related plans and specifications are taken to form part of the contract; and • compliance with the Building Code of Australia, any other relevant codes and standards

and the conditions of a development approval.


43

These requirements, along with others aimed at reducing the likelihood of contractual disputes between consumers and builders, are prescribed in the proposed provisions of the Regulation.

Alternative options Alternative options would be to not require contracts to include a checklist or prescribed conditions, or to prescribe fewer or additional conditions. These matters would be left to the industry to determine.

Assessment of costs and benefits of proposed clauses 12 and 13 and alternative options The proposed clauses would benefit consumers by ensuring they have clear information about their rights under a proposed contract, including their right to a 5 day cooling-off period and requirements for insurance. The prescribed contract terms and checklist encourage consumers to check their contractor’s licence status, to not pay excessive deposits, to ensure variations are in writing and signed and to ensure that they have received the Fair Trading information materials required to be given to them by the contractor. The Office of Fair Trading has not identified any additional contract conditions which could appropriately be required to be included in the regulations. Consumers, industry, insurers and government would benefit from the reduction in contractual disputes and the related legal costs. Table 7.1.3.1 Assessment of proposed clauses 12 and 13 and alternative options



Overall efficiency

1. Proposed clauses 12 & 13

High High § reduction in contractual disputes and unlicensed work and related costs

High

2. Do not prescribe conditions

Low Low § higher costs of contractual disputes

Low

3. Do not prescribe checklist

Low Low § higher costs of contractual disputes

Low

7.1.3.2 Exemptions relating to contracting and advertising (clause 14)

Objective To remove unnecessary compliance costs.

Provision The Act provides that a person who contracts for or advertises to do residential building work or specialist work must hold a licence (sections 4 and 5). Section 140(2)(k) of the Act enables the regulations to provide for exemptions from the requirements of the Act or regulations. The proposed clause 14, read in conjunction with the definition of ‘exempt corporation’ in clause 3, exempts councils and statutory corporations (for example, electricity supply authorities) from licensing requirements in respect of entering into contracts or advertising for work in certain circumstances.

References to other legislation have been updated, otherwise, the proposed clause is the same as clause 12 of the current Regulation.

Alternative options An alternative option would be to not provide for the proposed exemptions from licensing requirements.


44

Assessment of costs and benefits of proposed clause 14 and alternative options The main aim of the Act is to protect consumers against faulty or incomplete residential building work or specialist work. It is not intended to extend to work carried out by a councils or government instrumentalities. By excluding these bodies from the operation of the Act, unnecessary regulation is avoided and costs for consumers and the industry are thereby minimised. There may be a ‘cost’ to owners of buildings upon which an exempted entity has performed work, in that they do not receive the benefit of the Act’s protection and its dispute resolution processes. However, the activities of councils and statutory corporations is also regulated by their applicable governing legislation. Table 7.1.3.2 Assessment of proposed clause 14 and alternative options



Overall efficiency

1. Proposed clause 14 High High § cost of unnecessary regulation

High

2. No exemptions for exempt corporations

High Low § councils and statutory authorities would bear cost of licensing and compliance with Act

Medium

7.1.3.3 Exemptions from requirements for contracts with holders of contractor licences (clause 15)


Provision Section 7 of the Act requires a contract for residential building work to be in writing and to comply with other requirements relating to its form. Section 140(2)(k) enables regulations to be made to provide for exemptions from the requirements of the Act or regulations.

The proposed clause 15 would exempt contracts: • between a builder and sub-contractor; • between a licensed builder and trade contractor for work on the builder’s own property; • for specialist work that is not residential building work; and • for a contract value (including labour and materials) not exceeding $1,000.

The proposed exemptions are the same as those provided for in clause 13 of the current Regulation.

Alternative options An alternative option would be to not provide for exemptions from contract requirements.

Assessment of costs and benefits of proposed clause 15 and alternative options The requirements relating to the form of contracts were introduced to improve consumer protection and reduce disputes between consumers and contractors. The benefit of exempting non-residential contracts and contracts between contractors would be that unnecessary costs for the parties are removed. Another benefit is the avoidance of inappropriate contractual terms – the parties to such contracts are normally experienced in the industry and in contracting for building and specialist work. Legal costs may be higher in the event of a dispute over the terms of an unwritten contract, however it is considered that the parties to such commercial arrangements are able to protect their own interests.

Excluding contracts for ‘minor work’ (not over $1,000) from the formal contract requirements would benefit home owners and builders by reducing compliance costs and,


45

thereby, the cost of the work. Overall, the exclusion is considered to provide a net benefit by removing regulatory compliance costs in respect of small jobs for which the protection of a written contract would rarely be needed. The option of not providing the proposed ‘minor work’ exemption would remove these benefits. Table 7.1.3.3 Assessment of proposed clause 15 and alternative options



Overall efficiency

1. Proposed clause 15 High High § lower contract costs High

2. Do not prescribe exemptions from contract requirements

High Low § unnecessary contract costs

Medium

7.1.3.4 Exemptions relating to provision of consumer information (clause 16)


Provision Section 7AA of the Act requires a contractor to give Office of Fair Trading information materials to the other party before entering into a contract with them. The requirement does not apply to contracts of a class prescribed by the regulations.

The proposed clause 16 would exempt contracts: • between a builder and sub-contractor; • between a licensed builder and trade contractor for work on the builder’s own property; • for specialist work that is not residential building work; • for a contract value (including labour and materials) not exceeding $1,000; • between a contractor and a developer; and • for urgent work.

The proposed clause is the same as clause 13C of the current Regulation.

Alternative options An alternative option would be to not provide for exemptions from the requirement to provide consumer information material.

Assessment of costs and benefits of proposed clause 16 and alternative options The requirements relating to the provision of consumer information were introduced to improve consumer protection and reduce disputes between consumers and contractors. The benefit of exempting non-residential contracts and contracts between contractors is a reduction in administrative costs for the contractor. The consumer information material is not relevant to commercial property owners. Another benefit is the avoidance of unnecessary costs for the industry – the parties to the kinds of contracts that are proposed to be excluded are normally experienced in the industry and in contracting for building and specialist work and providing consumer information materials would be of no benefit.

Excluding contracts for ‘minor work’ (not over $1,000) from the requirements would benefit home owners and builders by reducing compliance costs and, thereby, the cost of the work. Overall, the exclusion is considered to provide a net benefit by removing regulatory compliance costs in respect of small jobs for which the consumer information material is largely irrelevant. The option of not providing the proposed ‘minor work’ exemption would remove these benefits.


46



government/public

Overall efficiency

1. Proposed clause 16 High High § reduced government costs of providing information materials

§ consumers who need information still receive it

§ reduced compliance costs for industry

High

2. No prescribed exemptions from providing consumer information material

High Low § higher compliance costs and higher cost of providing information materials

Medium

7.1.3.5 Exemptions relating to cooling-off periods in contracts (clause 17)


Provision Section 7BA of the Act provides a 5 day cooling-off period enabling a person to rescind a contract for residential building work. The provision does not apply to a contract of a class specified in the regulations.

The proposed clause 17 would exempt contracts: • between a builder and sub-contractor; • between a licensed builder and trade contractor for work on the builder’s own property; • between a contractor and a developer; • for emergency work; • supplied and prepared by or on behalf of the person contracting with the builder; or • where the contract price (or value of labour and materials) does not exceed $12,000.

The proposed clause is the same as clause 13D of the current Regulation.

Alternative options An alternative option would be to not provide for exemptions from the cooling-off period requirements.

Assessment of costs and benefits of proposed clause 17 and alternative options The requirement in the Act to include a 5 day cooling-off period in residential building work contracts was introduced to provide consumers with sufficient time to thoroughly read their contract, seek advice if necessary and rescind the contract if they are not happy with its terms. The aim of these provisions of the Act is to reduce building and insurance claims arising from contract disputes or misunderstandings. The main benefit of the proposed exemptions from the cooling-off requirement is a reduction in administrative costs for the contractor in respect of contracts where a cooling-off period is not appropriate – that is, where it would unnecessarily or dangerously delay commencement of work, where an insurance contract is not involved or where the consumer or their representative has prepared the contract.

Excluding the proposed contracts from the requirements would also benefit home owners by reducing compliance costs and, thereby, the cost of the work. Overall, the proposed exemptions are considered to provide a net benefit by removing regulatory compliance costs in respect of jobs for which the cooling-off period is not necessary for consumer


47

protection. The option of not providing the proposed exemptions would remove these benefits. Table 7.1.3.5 Assessment of proposed clause 17 and alternative options



Overall efficiency

1. Proposed clause 17 Medium-High High § removes unnecessary delays in commencing work

High

2. Do not prescribe exemptions from cooling-off periods

High Low § delays commencement of work under sub-contracts and commercial contracts

§ higher contract costs

Medium

7.1.3.6 Exemptions from requirements for contracts with holders of building consultancy licences (clause 18)


Provision Sections 18K–18R of the Act provide for a range of matters relating to contracts entered into by licensed building consultants, including requirements regarding the form of contracts and the provision of information and a copy of the contract to consumers, as well as clarifying certain legal rights of the parties. Section 18J provides that certain of these provisions do not apply to contracts for emergency work or in circumstances prescribed by the regulations.

The proposed clause 18 would prescribe the following as circumstances in which sections 18K, 18M, 18N, 18O an 18R do not apply: • where the contract is subordinate to a principal contract to carry out building

consultancy work; • where the contract is between a licensed building consultant and a contractor; • where the contract provides for the building consultancy work to be done within 2 days;

and • where the contract is entered into by a solicitor or conveyancer on behalf of another

party.


Alternative options An alternative option would be to not provide for exemptions from building consultancy contract requirements.

Assessment of costs and benefits of proposed clause 18 and alternative options The requirements relating to the form of contracts were introduced to improve consumer protection and reduce disputes between consumers and building consultants. The benefit of exempting non-residential contracts and contracts between licence holders is a reduction in contract preparation costs for the parties. On the other hand, legal costs may be higher in the event of a dispute over the terms of an unwritten contract, however it is considered that the parties to such commercial arrangements are able to protect their own interests.

Excluding contracts for ‘urgent work’ (ie, work required to be done within 2 days) from the formal contract requirements would benefit home owners and building consultants by


48

enabling the inspection to proceed without the delay caused by the need to prepare a contract. The option of not providing the proposed ‘urgent work’ exemption would remove this benefit and could cause purchasers to miss out on purchasing a property if the sale has to be finalised urgently. Table 7.1.3.6 Assessment of proposed clause 18 and alternative options



Overall efficiency

1. Proposed clause 18 High High reduced contract costs High

2. No prescribed exemptions for building consultancy contracts

High Low unnecessary contract costs Low

7.1.3.7 Exemptions relating to provision of information by holders of building consultancy licences (clause 19)


Provision Section 18L of the Act requires a licensed building consultant to give Office of Fair Trading information material to the other party to a proposed contract before entering into the contract. The requirement does not apply to contracts of a class prescribed by the regulations.

The proposed clause 19 would exempt contracts that are: • subordinate to a principal contract to carry out building consultancy work; • between a licensed building consultant and a contractor; • for building consultancy work to be done within 2 days of the contract date; and • entered into by a solicitor or conveyancer on behalf of the other party. Comment The proposed clause is the same as clause 13B of the current Regulation. Alternative options An alternative option would be to not provide the proposed exemptions. Assessment of costs and benefits of proposed clause 19 and alternative options The purpose of the requirement in the Act is to ensure consumers receive information about their contractual rights and avenues to resolve disputes with a licensed building consultant with whom they contract. Without the proposed exemption, this requirement would impose unnecessary compliance costs on the industry where the contract is entered into with a building or legal professional rather than directly with a consumer, and would provide no benefits to consumers. The proposed exemption removes these costs. The parties to the kinds of contracts that are proposed to be excluded are normally experienced in the industry and in contracting for building and specialist work and providing consumer information materials in these circumstances would be of no benefit. The option of not prescribing the proposed exemptions would impose unnecessary requirements on industry without benefiting consumers. Government resources would be expended on information materials which would not be received by consumers.


49



government/public

Overall efficiency

1. Proposed clause 19 No effect High § reduced costs to government by not providing information materials

§ reduced compliance costs for industry

High

2. Do not prescribe exemptions

No effect Low § unnecessary cost to government and industry of providing information to persons who do not need it

Low

Division 2 Restrictions on who may do certain work

7.1.3.8 Exemption relating to the doing of residential building work (clause 20) and Exemption relating to employees of certain corporations (clause 21)

Objective To remove unnecessary restrictions.

Provision Under section 12 (Unlicensed work) of the Act, it is an offence for an individual to do residential building work or specialist work unless they: • hold a contractor licence (or are a member of a firm that holds a contractor licence), or • hold an owner-builder permit, or • are an employee of one of the above.

Section 13 (Unqualified residential building work) prohibits a person from doing residential building work except as a holder of an appropriate licence, certificate or owner-builder permit or under the supervision of the holder of an appropriate licence or certificate.

Under the general power given in section 140(2)(k) to prescribe exemptions under the Act, the proposed clause 20 would exempt a person from the requirements of section 12 (Unlicensed work) in relation to residential building work if they are doing the work on their own property, no specialist work is involved and an owner-builder permit is not required.

The proposed exemption in clause 20 is based on clause 14 of the current Regulation. A redundant sub-clause has been removed - the matter set out in sub-clause 14(b) of the current Regulation (permission for work to be completed by a former licence holder) is now provided for in section 47A of the Act. Section 47A allows the Commissioner to appoint a person to coordinate and supervise the completion of work that had been commenced by a person whose licence or certificate has since suspended, cancelled or surrendered.

The proposed clause 21 is a new provision which makes it clear that employees of ‘exempt corporations’ (that is, councils and statutory corporations) are not required to be licensed to do residential building work in the course of their duties. (Refer to discussion of proposed clause 14 in paragraph 7.1.3.2 above). Alternative options An alternative option would be to not prescribe the proposed exemption.


50

Assessment of costs and benefits of proposed clauses 20 and 21 and alternative options The proposed clause 20 would benefit home owners by enabling them to do minor work and other work on their own property which does not require development consent without first having to obtain a licence. Consumers save on costs by not having to engage contractors. On the other hand, persons buying homes on which such work has been done do not have the protection of the statutory warranties under the Act that they would have if the work was performed by a licence holder. However, the potential costs to purchasers of defective work can be minimised by having a building inspection carried out prior to purchase. Most prudent buyers already do so before buying a home. The risk is also limited by the fact that the exemption only applies to minor work, that is, where a development consent and owner-builder permit are not required.

By excluding employees of ‘exempt corporations’ from the licensing requirements in respect of work done in the course of their duties, unnecessary regulation is avoided and costs minimised. There may be a ‘cost’ to owners of buildings upon which an exempted entity has performed work in that they do not receive the benefit of the Act’s protection and its dispute resolution processes. The employer would remain responsible for the quality of work done by employees. Table 7.1.3.8 Assessment of proposed clauses 20 & 21 and alternative options



Overall efficiency

1. Proposed clauses 21 & 22

Medium-High High § lower costs for minor do-it-yourself work

§ slight risk to consumers of purchasing homes with defective work

High

2. Do not prescribe any exemptions

High Low § cost to home owners of hiring contractors for minor work

Medium

7.1.3.9 Exemption relating to the doing of specialist work (clause 22)

Objective To remove unnecessary restrictions.

Provision Under section 12 of the Act, it is an offence for an individual to do residential building work or specialist work unless they: • hold a contractor licence (or are a member of a firm that holds a contractor licence), or • hold an owner-builder permit, or • are an employee of one of the above.

Section 14 of the Act prohibits a person from doing electrical wiring work unless as the holder of an endorsed contractor licence or supervisor certificate, or as the holder of a tradesperson certificate authorising its holder to do that work under supervision.

Under the general power given in section 140(2)(k) to prescribe exemptions under the Act, the proposed clause 22 would exempt: • an individual who does specialist work (including electrical wiring work) from section

12 if they hold a supervisor certificate and the work is done on their own home or the home of their employer; and

• an individual who does electrical wiring work from sections 12 (Unlicensed work) and 14 (Unqualified electrical wiring work), if they are employed by an electricity supply authority and the electrical wiring work is done in the course of their duties.


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Alternative options An alternative option would be to not provide for the proposed exemptions.

Assessment of costs and benefits of proposed clause 22 and alternative options The benefit of the proposed clause would be that appropriately qualified persons can do work on their own or their employer’s premises without the need to obtain an owner-builder permit or contractor licence. Employees of electricity supply authorities would be able to do work in the course of their employment without the need for a licence. The proposed exemptions remove the cost of obtaining a licence unnecessarily.

Persons buying homes on which exempted work has been done would not have the protection of the statutory warranties under the Act that they would have if the work was performed by a licence holder. However, the potential costs to purchasers are minimised by the fact that the person performing the work must hold a supervisor certificate. Table 7.1.3.9 Assessment of proposed clause 22 and alternative options



Overall efficiency

1. Proposed clause 22 High High § consumers may purchase homes with work done which is not covered by the Act

High

2. No prescribed exemptions

High Low § cost to electricity suppliers of hiring licensed persons

Medium

7.1.3.10 Exemption relating to the doing of electrical wiring work by apprentices and trainees (clause 23)


Provision Section 14 of the Act enables a person who does not hold an endorsed contractor licence or supervisor certificate or tradesperson certificate to do electrical wiring work in the presence of a qualified supervisor.

The proposed clause 23 would exempt apprentices and trainees from the requirement for immediate supervision, if they are undertaking relevant studies and do the work under the general supervision and direction of a qualified supervisor.

The proposed clause is the same as clause 16 of the current Regulation. Alternative options An alternative option would be to not prescribe the proposed exemption. Assessment of costs and benefits of proposed clause 23 and alternative options The benefit of this proposal is that apprentices and trainees can receive on-the-job training and gain practical experience in carrying out electrical wiring work before obtaining a licence. The cost of obtaining an unnecessary tradesperson certificate is avoided. There are no costs to consumers, as the work must still be done under qualified supervision.


52



government/public

Overall efficiency

1. Proposed clause 23 High High § lower licensing or supervision costs

High

2. No prescribed exemption

High Low § higher licensing or supervision costs

Medium

Division 3 Supply of kit homes

7.1.3.11 Exemptions relating to the supply of kit homes (clause 24)


Provision Part 2A of the Act requires a person who supplies kit homes to hold a contractor licence and sets out a range of requirements relating to contracts, deposits and information to be given to consumers. Section 140(2)(k) of the Act enables the regulations to prescribe exemptions from the requirements of the Act or Regulation.

The proposed clause 24 would exempt a person from the requirements of the Act relating to kit homes where: • the kit is to be erected outside New South Wales; or • the contract price for the kit is $1,000 or less; or • the kit is for a minor structure or improvement, such as a deck, pergola, cabana,

cupboards and the like.


Alternative options An alternative option would be to not prescribe the proposed exemptions.

Assessment of costs and benefits of proposed clause 24 and alternative options The proposed exemption means that kits to be erected outside New South Wales and kits for minor structures do not need to be supplied by a licence holder. The exemption would reduce costs for suppliers by removing the costs of obtaining a licence and complying with the requirements of the Act. Purchasers of kits costing $1,000 or less or for minor structures and improvements do not receive the protection of the Act, however the risk of loss is likely to be low. Table 7.1.3.11 Assessment of proposed clause 24 and alternative option



Overall efficiency

1. Proposed clause 24 Medium High § lower government administration costs

§ slight risk to purchasers of kits

Medium-High

2. No prescribed kit home exemptions

Medium Low § unnecessary licensing costs to government and kit home suppliers

Low-Medium


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7.1.4 PART 4 CONTRACTOR LICENCES, BUILDING CONSULTANCY LICENCES, CERTIFICATES AND OWNER-BUILDER PERMITS (CLAUSES 25 TO 50)

Division 1 Requirements to obtain contractor licences, building consultancy licences and certificates

7.1.4.1 Requirements for obtaining licences and certificates under the Act (clauses 25 to 28)

Objective To ensure the effective operation of the licensing system in order to protect consumers and support the ongoing viability of the industry.

Provision The Act enables the regulations to fix, or to provide for the Commissioner to determine, standards or other requirements for the issue of: • contractor licences (section 20 of the Act); • building consultancy licences (section 32B); and • tradesperson and qualified supervisor certificates (section 25).

The requirements set out in the proposed clause 25 would apply to all applicants. Additional requirements are also proposed for applicants for: • contractor licences (clause 26); • building consultancy licences (clause 27); and • tradesperson and qualified supervisor certificates (clause 28).

The proposed clauses are based on clauses 19, 19A and 20 of the current Regulation.

The structure of the clauses in the proposed Regulation has been streamlined so that requirements common to all authorities are listed only once, in the proposed clause 25, thereby removing the duplication featured in the current Regulation. Additional requirements exclusive to each type of authority are then listed separately, in the proposed clauses 26, 27, and 28.

No changes are proposed to the substance of the current requirements. However, it is proposed to introduce a discretion enabling the Commissioner to issue an authority where the applicant has failed to satisfy an order of the Tribunal within the time required by the Tribunal. It is intended that the discretion will only be available in limited circumstances, that is, where the applicant: • has satisfied the order after the required period; and • had a reasonable excuse for failing to comply within the required period.

Comment The current Regulation requires that, before an authority is issued, the Commissioner must be satisfied that the applicant is not the subject of a Tribunal order that was not satisfied within the time period stipulated in the order. It has been noted that this clause could potentially operate unfairly. For example, a person who has complied with a Tribunal order, albeit outside the set time limit, is in effect permanently disqualified from obtaining a licence, even though there may have been legitimate reasons for the late compliance - for example, a delay in obtaining materials, adverse weather or difficulties in gaining access to the site. The proposed clause would provide the Commissioner with the discretion to issue a licence where a Tribunal order has been complied with outside the set time limit, if the


54

applicant took reasonable steps to attempt to comply within the set period. It is proposed that an applicant would continue to be ineligible to be issued with an authority where they have failed to comply with an order.

The requirements set out in the proposed clauses aim to ensure that persons who obtain licences and certificates have appropriate qualifications and experience and that they are otherwise fit and proper persons to hold an authority under the Act. Applicants for contractor licences are additionally required to demonstrate that they will have appropriate supervision arrangements in place over work for which they will be responsible.

The approach taken in these provisions is in line with section 106 of the Act, which requires the Commissioner to set, assess and maintain standards of competence of persons doing residential building work or specialist work.

Alternative options Alternative options include: • for the regulations to provide for the Commissioner to determine standards or other

requirements for the issue of authorities; or • not to prescribe any requirements or provide for the Commissioner to do so.

Under these options, the requirements for the issue of a licence or certificate would instead be set out in Office of Fair Trading administrative guidelines.

Another option would be to leave it up to the industry to set appropriate requirements.

Assessment of costs and benefits of proposed clauses 25 to 28 and alternative options Prescribing the proposed requirements in the regulations, rather than in administrative guidelines, ensures that the matters to be considered by the Commissioner are transparent and certain. As with any licensing system, the proposed requirements create a barrier to entry to the industry, however the requirements are considered fair and reasonable and they contribute to the legislative objective of protecting consumers from defective building work. The option of leaving it to industry to determine appropriate requirements is not considered viable, due to the size and diversity of the industry and because no industry organisation represents the industry as a whole.

The proposal to enable the Commissioner to issue a licence to a person who has complied with a Tribunal order out-of-time ensures procedural fairness where the delay in complying was genuinely outside of the applicant’s control. Table 7.1.4.1 Assessment of proposed clauses 25 to 28 and alternative options



Overall efficiency

1. Proposed clauses 25 to 28

High High § administrative cost of checking that applicants meet the requirements

§ provides transparency and certainty of requirements for applicants and their advisers

High

2. Provide for Commissioner to fix standards

Medium Low § requirements would be less transparent

§ potential increase in legal appeals

Low-Medium

3. No prescribed requirements (standards would be set administratively)

Medium Low § requirements would be less transparent


Low-Medium


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Overall efficiency

4. Rely on industry to self-regulate

Low Low § due to size and diversity of industry, standards would be difficult to implement

Low

7.1.4.2 Provisional authorities (clause 29)


Provision Section 38 of the Act enables the Commissioner to issue a provisional authority to an applicant who has not satisfied the requirements of the Act, if special circumstances exist. Clause 29 of the proposed Regulation sets out a number of matters that must be taken into account in determining whether special circumstances exist.

The proposed clause is the same as clause 21 of the current Regulation. Alternative options An alternative option would be to not prescribe matters to be taken into account. These matters would either be determined administratively by the Office of Fair Trading or left to the industry to determine.

Assessment of costs and benefits of proposed clause 29 and alternative options Prescribing the proposed matters in the regulations, rather than administratively, ensures that the matters to be considered by the Commissioner are transparent and certain, thereby reducing uncertainty for potential applicants. Clear and transparent guidelines for the making of licensing decisions reduces the likelihood of costly legal appeals. The option of leaving these matters to the industry to determine is not considered viable, due to the size and diversity of the industry and because no industry organisation represents the industry as a whole. Table 7.1.4.2 Assessment of proposed clause 29 and alternative option



Overall efficiency

1. Proposed clause 29 High High § administrative cost of checking that applicants meet the requirements § provides transparency

and certainty of requirements for applicants and their advisers

High

2. Do not prescribe matters to be considered in relation to provision authorities

High Medium § requirements would be less transparent


Medium

3. Rely on industry to self-regulate

Low Low § due to size and diversity of industry, standards would be difficult to implement

Low


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Division 2 Conditions of contractor licences, building consultancy licences and certificates

7.1.4.3 Conditions of contractor licences, building consultancy licences and certificates (clauses 30 to 38)


Provision Section 36 of the Act provides that an authority issued under the Act, that is, a licence or certificate, is subject to any conditions prescribed in the regulations. Division 2 of Part 4 of the proposed Regulation sets conditions applicable to: • authorities generally (clause 30); • contractor licences generally (clause 31); • individual contractor licences (clause 32); • partnership contractor licences (clause 33); • corporation contractor licences (clause 34); • building consultancy licences (clause 35); and • qualified supervisor certificates (clause 36).

The proposed conditions listed above are based on clauses 22 to 28 of the current Regulation, and would require holders of authorities to notify the Commissioner of details relating to: • changes relating to nominated supervisors; and • changes in partners or corporation directors.

In addition, the proposed clause 37 would require the holder of an authority to provide further details of the above changes if requested by the Commissioner, and clause 38 requires notification to be given to the Commissioner within 7 days if an authority is lost, stolen, defaced or destroyed.

A number of conditions prescribed in the current regulations have been removed from the proposed Regulation, as they are duplicated by amendments to the Act contained in the Licensing and Registration (Uniform Procedures) Act 2002. These amendments to the Home Building Act are proposed to commence on 1 September 2004. The amendments will require that holders of authorities notify certain events to the Commissioner, such as a change of name or address. It is accordingly no longer necessary to prescribe these requirements in the Regulation.

Alternative options An alternative option would be to not prescribe any conditions for authorities.

Assessment of costs and benefits of proposed conditions of authorities and alternative options The requirements impose compliance costs on holders of authorities, that is, the cost of notifying the Commissioner of changes, providing documentation and providing further details, if required. There are also administrative costs for government, in processing notifications, making changes to the licensing database and taking any follow-up action which may be necessary.


57

The main benefit of the proposed requirements is that they would support Fair Trading’s administration of the licensing scheme. Consumers and legal advisers would also able to obtain the most current details of holders. Table 7.1.4.3 Assessment of proposed clauses 30 to 38 and alternative options



Overall efficiency

1. Proposed clauses 30 to 38

High High § supports government administration of the licensing scheme

§ cost of processing and acting on notifications

§ allows access to most current details of a holder

High

2. No prescribed conditions on licences and certificates

Low Low § incorrect details on licensing database would undermine licensing and consumer protection

§ increased risk of defective work, e.g., if inappropriate changes made to nominated supervisor arrangements

Low

Division 3 Cancellation

7.1.4.4 Cancellation of contractor licence not compulsory in certain cases (clause 39)


Provision Section 22(1)(c) of the Act requires the Commissioner, subject to the regulations, to cancel a contractor licence (for residential building or specialist work) if the licence holder, or a member of the licensed partnership if applicable, becomes bankrupt or otherwise insolvent.

The proposed clause 39 would provide an alternative option, enabling the licence to continue in force subject to certain conditions. The conditions would limit the work the contractor is able to do or contract for to areas of low consumer risk, that is, trade work for which home warranty insurance is not required. In addition, the Commissioner would need to be satisfied that there is no evident risk to the public that the licence holder will be unable to complete any current or future contracts for the kind of work authorised by the limited licence.


Alternative options An alternative option would be to not provide for the option of allowing the contractor to continue to work under a restricted licence. This would mean that a licence would be required to be cancelled if the holder or partner becomes bankrupt or insolvent.

Assessment of costs and benefits of proposed clause 39 and alternative options The benefit of the proposed clause is that it would add flexibility to the licensing scheme and support the ongoing viability of the industry by enabling insolvent contractors to continue to working under a restricted licence. The licence holder would be precluded from


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contracting for the higher risk areas of general building work, swimming pool building and structural landscaping, but would be permitted to contract for all other types of trade work listed under clause 46 of the proposed Regulation. The proposed clause would not impose any costs on the industry.

Costs for consumers may include a slightly increased risk of non-completion of contracts, however this risk is required to be assessed by the Commissioner before the restricted licence can be issued, thereby minimising potential risks to consumers and insurers. A benefit to consumers would be that an insolvent contractor issued with a limited licence would be able to continue working on a part-completed contract, subject to the licence conditions. Table 7.1.4.4 Assessment of proposed clause 39 and alternative options



Overall efficiency

1. Proposed clauses 39 Medium-High High § slight risk of incomplete contracts

Medium-High

2. No discretion – licence must be cancelled

High Low § inappropriately restricts insolvent builders from performing low risk trade work

Low-Medium

Division 4 Renewals, restorations and replacements

7.1.4.5 Renewal and restoration of certain contractor licences and supervisor certificates (clause 40)

Objective To ensure the effective operation of the licensing system in order to protect consumers and support the ongoing viability of the industry. Provision Section 42 of the Act provides that an authority (other than an owner-builder permit) continues in force for the term specified in it, which must not exceed three years.

The proposed clause 40 would prescribe a variation to section 42 in relation to plumbing and gasfitting licences and certificates issued to persons who hold an authority issued by the Plumbing Industry Commission of Victoria, whose business is principally carried on in Victoria (or, in the case of a tradesperson, who is resident in Victoria) and who have taken advantage of the fee exemption provided for in the proposed clause 43(2). The proposed clause would provide that such authorities would expire one year after issue, in the case of a contractor licence, or 3 years after issue, in the case of a supervisor certificate, or on the expiry of the authority issued by the Commission, whichever occurs first.

The proposed clause is based on sub-clauses 31(4) and (5) of the current Regulation, with references to the former Plumbing Industry Board of Victoria updated. Comment Without the proposed clause, authorities would expire one year after issue in the case of a licence and 3 years after issue in the case of a certificate – these are the usual periods for licences and certificates under the Act. However, this is not considered appropriate where the applicant has taken advantage of the exemption from the requirement to pay an application fee.


59

Alternative options An alternative option would be to not prescribe the terms and expiry of plumbing and gasfitting authorities issued to persons who hold equivalent authorities in Victoria. Such authorities would instead be subject to section 42 of the Act.

Assessment of costs and benefits of proposed clause 40 and alternative options The proposed provision would reduce loss of revenue to the government – where an authority is granted on a fee-exempt basis to the holder of an equivalent Victorian licence, it is considered appropriate that the authority expires upon the expiry of the interstate licence. Should the holder wish to continue to work in New South Wales, they would be required to lodge an application, along with the prescribed fee, for the appropriate authority. Table 7.1.4.5 Assessment of proposed clause 40 and alternative options



Overall efficiency

1. Proposed clauses 40 No effect High § reduces cost of duplicate licensing to builders operating in border areas

High

2. No prescribed expiry date

No effect Low § loss of revenue to government

Low

7.1.4.6 Replacement authorities (clause 41)


Provision The Licensing and Registration (Uniform Procedures) Act 2002 enables an application to be made to the Commissioner for the replacement of an authority that has been lost, damaged or destroyed.

The proposed clause 41 would provide that the original authority must be returned to the Commissioner if it is recovered. This provision is the same as clause 32(4) of the current Regulation. In addition, the proposed clause would require a damaged authority that is replaced to be returned to the Commissioner.

The proposed clause is the same as clause 32 of the current Regulation, but with the former subclauses (1)-(3) removed, as the matters are covered in section 11 of the Licensing and Registration (Uniform Procedures) Act. A requirement that a damaged authority be surrendered, if possible, has been added.

Alternative options An alternative option would be to not prescribe any requirement for replaced authorities to be returned.

Assessment of costs and benefits of proposed clause 41 and alternative options The requirement to return a recovered lost authority that has been replaced would benefit consumers by reducing the risk of misuse of the authority, for example, by its being lent to an unlicensed person. Holders of authorities would incur an insignificant cost in returning recovered or damaged authorities. Government also incurs a cost in processing returned authorities.


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government/public

Overall efficiency

1. Proposed clause 41 High High § cost of returning replaced authority

High

2. No requirement to return replaced authorities

Low Low § increased risk of licence lending and identity fraud

Low

Division 5 Fees

7.1.4.7 Application fees (clause 42 and Schedule 4)


Provision The Licensing and Registration (Uniform Procedures) Act 2002 provides that an application for an authority must be accompanied by any application fee required by or under the relevant licensing legislation, in this case, the Home Building Act.

The proposed clause 42 would prescribe the application fees payable by applicants for the various types of authorities that can be issued under the Act and provide exemptions from the fee requirement for: • applicants for plumbing and gasfitting licences and certificates who hold an authority

issued by the Plumbing Industry Commission of Victoria and whose business is principally carried on in Victoria or, in the case of a tradesperson, who is resident in Victoria; and

• applicants for the grant of a supervisor certificate for electrical wiring work who held an equivalent authority under the Electricity Act 1945 immediately prior to 21 March 1990.

Comment The Office of Fair Trading imposes fees to contribute to the costs of administering its consumer protection legislation. The Office assesses fees charged for all of its regulatory schemes annually and makes adjustments to reflect current and future costs of administering the legislation. The fees set out in Schedule 4 of the proposed Regulation include a small increase on the fees charged under the current Regulation to adjust for changes in the Consumer Price Index (CPI) since the last increase took effect on 1 July 2003.

It is intended that the Licensing and Registration (Uniform Procedures) Act 2002 will be proclaimed apply to applications for home building authorities from 1 September 2004. This Act requires that each prescribed licence fee include an identified ‘processing fee’ component. The ‘processing fee’ is intended to represent the cost to the Office of Fair Trading of processing an application. The remainder of the fee is an annual ‘licence fee’ component which contributes to the annual cost of administering the licence regime (e.g., the cost maintaining licences on the system and compliance, information and community education costs).

The ‘processing fee’ has two purposes: 1. It allows for the calculation of a fee discount (rebate) for on-line applications. This

rebate is intended to encourage applicants to use the on-line service when it becomes available and also recognises the reduced cost to agencies of processing on-line


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transactions. The rebate is 10% of the processing fee component or $5, whichever is the greater amount.

2. Where the Office of Fair Trading refuses an application, it has already incurred the cost of processing that application. The Licensing and Registration (Uniform Procedures) Act allows the Office to keep the processing fee to cover some of its costs and refund the balance of the total fee when an application is refused.

The fee rebate will not apply until applications under the Home Building Act become available on-line, which is anticipated for 2005-2006. However, the ability to retain the processing fee where an application is refused applies whether or not the application was made on-line. This means that from 1 September 2004, the Office of Fair Trading will be able to retain the processing fee where an application is refused.

The proposed Schedule 4 of the Regulation provides for a processing fee component for each of the listed application fees. Higher processing fees are proposed for applications for the initial grant of a licence than for the renewal, in recognition of the higher cost of processing a new application (e.g., third party checks for criminal record, bankruptcy, educational qualifications etc). Fees for applications for restorations are higher than renewal fees. This built-in ‘late fee’ is intended as an incentive to holders to renew their authorities on time.

Alternative options Alternative options include: • not prescribing application fees; or • prescribing application fees but no exemptions.

Assessment of costs and benefits of proposed clause 42 and alternative options Fees impose a direct cost to applicants for licences, certificates and permits. The fees paid by applicants contribute to the costs of administering the Act. It is considered appropriate that the costs of industry regulation be borne by those benefiting from it, that is, building industry members (on the basis that the regulatory regime promotes quality building work and the reputation of the industry) rather than by taxpayers in general.

The benefit of prescribing fees would be that it enables the Office of Fair Trading to partially recoup the cost of administering the licensing scheme. If application fees were not charged, the entire cost of regulating the home building industry would be borne by New South Wales taxpayers, Fair Trading’s funding may be reduced and its ability to administer the consumer protection scheme diminished. The proposed exemptions would benefit industry members who hold or have held equivalent authorities under other regulatory regimes by not requiring them to pay duplicated fees. The exemptions would impose a minor cost, in the form of lost revenue, on government. Table 7.1.4.7 Assessment of proposed clause 42 and alternative options



Overall efficiency

1. Proposed clause 42 High High § fair and reasonable level of costs for industry, passed on in prices charged to customers

High

2. No prescribed fees Low Low § no costs for industry § high costs borne by

taxpayers

Low

3. No fee exemptions No effect Medium § applicants who hold equivalent licences would pay duplicate fees

Medium


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7.1.4.8 Examination fees (clause 43)


Provision The Act permits the Commissioner to conduct examinations of candidates for a supervisor or tradesperson certificate (section 25) and of applicants for renewal or restoration of an authority (section 40).

The proposed clause 43 would enable the Commissioner to determine fees payable by examination candidates and by applicants for the re-marking of such examinations.


Alternative options An alternative option would be to not provide for the setting of fees for the conduct of or re-marking of examinations.

Assessment of costs and benefits of proposed clause 43 and alternative options The benefit of the proposed clause would be that the cost of conducting and re-marking examinations would be at least partly met by applicants rather than from government funds. The fee imposes a direct cost on applicants, however the fees imposed are considered fair and reasonable. Imposition of a fee is also a deterrent to frivolous applications, thereby saving government administration costs. Table 7.1.4.8 Assessment of proposed clause 43 and alternative options



Overall efficiency

1. Proposed clauses 43 No effect High § encourages applications only by serious candidates

§ cost borne by those who directly benefit from the availability of examinations

High

2. No ability to set examination fees

No effect Medium § government and wider industry would incur full cost of conducting and re-marking examinations

§ no deterrent to frivolous applications

Medium

7.1.4.9 Refund of fees (clause 44)


Provision The Act permits the Commissioner to conduct examinations of candidates for a supervisor or tradesperson certificate (section 25) and of applicants for renewal or restoration of an authority (section 40). The proposed clause 42 (see above) would enable the Commissioner


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to determine fees payable by examination candidates and by applicants for the re-marking of such examinations.

The proposed clause 44 would enable the Commissioner to refund the whole or part of an application fee paid for an examination or for a re-mark of an examination where the application is refused or the application is withdrawn or the applicant fails to attend the examination.

Alternative options An alternative option would be to not prescribe an ability to refund fees.

Assessment of costs and benefits of proposed clause 44 and alternative options The Office of Fair Trading may incur administrative costs in processing a refund. Where a refund is given, in whole or part, the cost of the work performed may be higher than the amount of fee retained by government.

However, the proposed clause benefits applicants who are unable to attend an examination or whose application is rejected by enabling them to seek a refund of all or part of the fee paid. Extenuating circumstances and the applicant’s financial position are able to be taken into account where appropriate. Table 7.1.4.9 Assessment of proposed clause 44 and alternative options



Overall efficiency

1. Proposed clauses 44 High High § administrative cost of processing application

§ foregone revenue § allows the applicant’s

means and circumstances to be considered

High

2. No power to refund fees Low Low § cost to applicants of lost fees

Low

Division 6 Miscellaneous

7.1.4.10 Owner-builder permits (clause 45)

Objective To restrict the performance of residential building work by unqualified persons.

Provision Section 29 of the Act defines owner-builder work for the purposes of determining whether proposed residential building work should be subject to an owner-builder permit. The provision enables the regulations to prescribe a threshold amount for work (including labour and materials) below which the requirements do not apply. The regulations may also prescribe an interest in land which enables the person who holds the interest to be deemed an ‘owner’ for the purposes of the requirements.

The proposed clause 45 would prescribe: • a threshold amount of $5,000 below which an owner-builder permit is not required for

the work; and • a freehold interest or long-term leasehold interest in the land as enabling a person to

apply for an owner-builder permit. The freehold owner’s permission may be required to enable a leaseholder to carry out work on the property.



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Alternative options Alternative options include: • not prescribing interests in land as permitting an application for an owner-builder permit

to be made; • increasing the threshold below which an owner-builder permit is not required to

$12,000, in line with the home warranty insurance threshold; • not prescribing a threshold – thereby requiring an owner-builder permit to be taken out

for all work by a person on their own home.

Assessment of costs and benefits of proposed clause 45 and alternative options Persons wishing to manage their own residential building project on their home valued at over $5,000 are required to bear the cost of obtaining an owner-builder permit if the work requires development consent under the Environmental Planning and Assessment Act 1979 or is complying development within the meaning of that Act. They must also ensure they comply with the requirements of the Home Building Act, which includes obtaining home warranty insurance where the work is valued over $12,000 if the property is sold within six years. Owners co-ordinating work valued at under $5,000 or that does not require development consent or is not a complying development do not bear such costs.

Prescribing a threshold amount in the regulations provides the benefit of transparency and certainty in determining to whom the owner-builder requirements apply. Prescribing relevant interests in land provides similar benefits and does not impose any costs. The option of not prescribing the proposed interests would potentially increase legal costs by reducing transparency and certainty as to the circumstances in which an application for an owner-builder permit can be made.

The threshold amount of $5,000 (including labour and materials), which was set in 2001, is a comparatively low figure in today’s terms, given the high cost of building materials. Increasing the threshold to $12,000 would bring benefits in the form of aligning the threshold with the threshold for home warranty insurance, thereby providing greater regulatory consistency. The threshold for home warranty insurance was formerly set at $5,000 and was increased to $12,000 in April 2002. Increasing the owner-builder permit threshold may however increase risk to future purchasers of homes on which such work has been done, as a broader range of work would be excluded from the owner-builder permit requirements. Table 7.1.4.10 Assessment of proposed clause 45 and alternative options



Overall efficiency

1. Proposed clauses 45 High High § reduced costs for home owners for minor work

High

2. No prescribed threshold or alternative forms of ‘ownership’

Low Low § higher costs for home owners for minor work

§ cost of reduced transparency and legal certainty

Low

3. Prescribe a higher threshold, e.g., $12,000

Medium-High Medium-High § reduced costs for home owners for work which does not require home warranty insurance if sold within 6 years

§ increased risk for purchasers

Medium


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7.1.4.11 Categories of residential building work or specialist work (clauses 46, 47 and 50 and Schedule 5)

Objective To ensure the effective operation of the licensing system in order to protect consumers and support the ongoing viability of the industry. Provision Sections 21 and 27 of the Act provide that licences and certificates issued under the Act authorise their holders to contract to do and/or perform work described in the authority, being work of a category or categories prescribed by the regulations. Section 32C makes similar provision in respect of building consultancy licences. The proposed clause 46 would prescribe a range of categories of residential building work and specialist work. The proposed clause 47 would prescribe pre-purchase inspections of dwellings as a category of building consultancy work. The proposed clause 50 would prescribe extended descriptions of certain categories of work that holders of authorities are authorised to do or to contract to do. The proposed descriptions are set out in Schedule 5 and primarily relate to specialist work. The proposed clauses are the same as clauses 36A, 36B and 38 of the current Regulation. The proposed Schedule 5 is the same as Schedule 3 of the current Regulation, with references to other legislation, standards and codes updated as necessary. Alternative options An alternative option would be to not prescribe any work categories or extended descriptions. Assessment of costs and benefits of proposed clauses 46, 47 and 50 and Schedule 5 and alternative options The government incurs some costs in reviewing and amending the categories from time to time in response to changes in the industry. The benefit of the provision would be that the work categories are clearly and transparently prescribed, providing certainty to consumers and industry and enabling authorities to clearly indicate the type of work the holder is authorised to do. The option of not prescribing the categories would remove these benefits. The proposed clause 48 may impose indirect costs on home owners using the services of building consultants performing work other than pre-purchase inspections, as the consultant is not required to be licensed to perform other kinds of building consultancy work. In practice, these risks are almost negated by the fact that most building consultants are qualified professionals (such as architects or engineers) who are accredited under other regulatory or non-regulatory professional accreditation schemes. The benefit of prescribing the proposed extended descriptions of work categories in Schedule 5 would be increased transparency and certainty in the administration of the licensing scheme and for compliance activities, thereby reducing costs. Prescribing the extended descriptions limits those who can do such work to holders of the appropriate category of licence, thereby increasing entry costs to the industry. The benefits of strengthened consumer protection and clarity for the industry are considered to outweigh these costs.


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Table 7.1.4.11 Assessment of proposed clauses 46, 48 and 50 and Schedule 5 and alternative options Options Compliance with Assessment Criteria


government/public

Overall efficiency

1. Proposed clauses 46, 48 and 49 and Schedule 5

High High § administration and compliance costs

§ barrier to entry to industry

High

2. No prescribed categories or extended work descriptions

Low Low § legal costs arising from reduced certainty about the work permitted to be done by a holder

§ higher administration and compliance costs

Low

7.1.4.12 Exemption from requirement to show insurance has been obtained (clause 48)

Objective To ensure the effective operation of the licensing system in order to protect consumers and support the ongoing viability of the industry. Provision Sections 20(3)(c), 22A and 40(2A) of the Act provide respectively that the Commissioner must reject an application for a contractor licence, suspend a contractor licence or reject an application for renewal or restoration of a contractor licence unless satisfied that the applicant or holder has complied or is able to comply with the home warranty insurance requirements. The proposed clause 47 would exempt an applicant or holder from these provisions in respect of types of work other than those listed in the proposed clause. The exemption would also apply where the licence restricts the holder to contracting for contracts valued at or under $12,000 (the threshold below which the home warranty insurance provisions do not apply). The proposed clause is the same as clause 38 of the current Regulation. Alternative options An alternative option would be to not prescribe any exemptions. Assessment of costs and benefits of proposed clause 47 and alternative options The proposed clause would introduce a low level of risk to consumers having work done to which the exemption applies, in that their contractor may not have demonstrated to the Commissioner that they are eligible for home warranty insurance cover. Although the contractor must take out insurance before commencing work under a contract valued over $12,000, there is a risk to the home owner that, after entering into a contract, their contractor is unable to perform the work because home warranty insurance cover cannot be obtained. As the exemption applies only to low-risk areas of work, these consumer risks are considered minimal, and are considered to be outweighed by the benefits of a more streamlined licensing process and viable building industry. The option of not prescribing any exemptions would mean that contractors working in low-risk areas or who are unable to obtain home warranty insurance would be prevented from holding or retaining a contractor licence.


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Table 7.1.4.12 Assessment of proposed clause 47 and alternative option Options Compliance with Assessment Criteria


government/public

Overall efficiency

1. Proposed clause 47 High High § risk that contractor may not be able to obtain insurance for proposed work after contract signed

High

2. No exemptions from insurance eligibility for licence holders and applicants

High Low § cost to economy of skilled contractors leaving the industry

§ higher costs for minor, low-risk work

Medium

7.1.4.13 Exemption from requirement to return authority when conditions are imposed (clause 49)

Objective To ensure the effective operation of the licensing system in order to protect consumers and support the ongoing viability of the industry. Provision Section 44 of the Act requires that, where an authority is cancelled or has a condition imposed on it, it must be lodged with the Office of Fair Trading so that a replacement noting the variations can be issued. The proposed clause 49 would enable the Commissioner, by written notice, to exempt a person from the requirement to return the authority. The proposed clause is the same as clause 37 of the current Regulation. Alternative options An alternative option would be to not allow for the Commissioner to give exemptions. Assessment of costs and benefits of proposed clause 49 and alternative options Where the exemption is given, the authority may not show all the conditions to which it is subject. Consumers may accordingly incur a slight inconvenience in checking the Register to verify the current conditions attached to an authority. In practice, an exemption is not given where it would be important for consumers to be aware of conditions. In addition, consumers are encouraged to check the Register in any case, to ensure the licence is valid. The proposed clause reduces costs to holders of returning authorities and administrative costs to Fair Trading. In practice, some conditions are too lengthy to print on authorities. Table 7.1.4.13 Assessment of proposed clause 49 and alternative options



Overall efficiency

1. Proposed clause 49 High High § reduced compliance and administration costs

High

2. No ability to exempt from the requirement to return an authority for variation to be recorded

High Low § unnecessary compliance and administration costs incurred

Medium


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7.1.4.14 Modification of Part 2 of the Licensing and Registration (Uniform Procedures) Act 2002 (clause 51)


Provision From 1 September 2004, it is proposed that the remaining uncommenced amendments to the Home Building Act contained in the Licensing and Registration (Uniform Procedures) Act 2002 (the ‘Uniform Procedures Act’) will come into effect. The current sections 19, 24, 30 and 32A of the Act will be repealed and replaced by new provisions. A number of other sections will be repealed and not replaced, such as section 41. The new provisions apply Part 2 of the Uniform Procedures Act to authorities issued under the Home Building Act. The new provisions also allow for the regulations to prescribe modifications and limitations about the way the Uniform Procedures Act will apply to applications for home building authorities and to make other prescriptions necessary for the administration of the licensing system.

The proposed clause 51 would prescribe the following modifications (section numbers refer to the Uniform Procedures Act): • sections 9 and 10 (renewal and restoration) would not apply to owner-builder permits, as

these cannot be renewed or restored; • section 14 would be modified so as to enable an applicant to be required to provide a

photograph in a specified form or to have a photograph taken; • section 21 would provide for a restored authority to be deemed to have come into force

on the day following its expiry, other than in respect of proceedings for unlicensed work (replacing the repealed section 41(2) of the Home Building Act);

• section 21(4) would enable a contractor licence to be suspended.

The proposed clause 51 is a new provision.

Alternative options An alternative option would be to not prescribe any modifications to the application of the Uniform Procedures Act.

Assessment of costs and benefits of proposed clause 51 and alternative options The proposed modifications would not appear to impose any costs. The costs of not prescribing the proposed modifications would include: • potential confusion about whether an owner-builder permit can be renewed or restored; • applicants would provide their own photograph, which Fair Trading may not be able to

verify as being that of the applicant, thereby increasing consumer protection risks – there would also be increased administrative costs of scanning photos into the licensing system rather than accessing them digitally from computerised photo database proposed to be established for the on-line licensing service;

• if restored authorities are not ‘back-dated’, consumers may not be protected by the provisions of the Act or their insurance policy if the holder continued to do work during the period in which their authority was non-current;

• a contractor licence could not be suspended.

The benefits of the proposed modifications are their support for an effectively administered licensing system.


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government/public

Overall efficiency

1. Proposed clause 51 High High § lower administrative costs

§ applicant will not bear cost of providing photo

High

2. No prescribed modifications to licensing application procedures

Low Low § higher administrative costs

§ licences may be issued with unverified photographs, which facilitates licence lending, fraud and defective work

Low

7.1.5 PART 5 INSURANCE REQUIREMENTS (CLAUSES 52 TO 77) Division 1 Preliminary

7.1.5.1 Definitions (clause 52) and Application (clause 53)

Objective To support the viability of the home warranty insurance scheme. Provision Part 6 of the Act provides for the establishment of an insurance scheme under which contractors are required to take out a policy of insurance from an approved private insurance provider which covers the home owner for incomplete or defective work which cannot be rectified because of the contractor’s death, disappearance or insolvency. The proposed clause 52 would prescribe definitions for various terms that are used in Part 5 of the proposed Regulation. The proposed clause 53 would make it clear that Part 5 is subject to the conditions of any approval given by the Minister under section 103A of the Act and that the requirements of the Insurance Contracts Act 1984 (Commonwealth) are not affected. The proposed clause 52 is based on clause 39 of the current Regulation, with some minor changes. The definition of ‘contractor’ is amended to reflect amendments made to section 92 of the Act since the current Regulation was drafted. The definition of ‘insolvent’ has been moved from clause 3 of the current Regulation. A definition of ‘principal certifying authority’ has been included to reflect recent amendments to the Environmental Planning and Assessment Act 1979. The definition of ‘run-off cover’ has been deleted, as it is no longer used in the Regulation. The proposed clause 53 is the same as clause 40 of the current Regulation. Alternative options An alternative option would be to not make the proposed clauses. Assessment of costs and benefits of proposed clauses 52 and 53 and alternative options The provisions are of a machinery nature and no costs or benefits arise from them.


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Division 2 Insurance contracts generally

7.1.5.2 Persons who may arrange insurance contracts (clause 54)

Objective To provide for flexibility in arrangements for insurance.

Provision Part 6 of the Act provides for the establishment of an insurance scheme under which contractors are required to take out a policy of insurance from an approved private insurance provider which covers the home owner for incomplete or defective work which cannot be rectified because of the contractor’s death, disappearance or insolvency. The scheme also covers contracts for the supply of kit homes.

Insurance is usually arranged by the contractor or kit home supplier. However, the proposed clause 54 would enable the beneficiary to arrange insurance.


Alternative options An alternative option would be to not enable beneficiaries to arrange insurance contracts.

Assessment of costs and benefits of proposed clause 54 and alternative options As the cost of home warranty insurance arranged by a licence holder is normally passed on to the consumer, the proposed clause benefits consumers by enabling them to arrange for the cheapest available policy. The clause would not impose any additional costs on licence holders as they are not obliged to use the insurance arranged by the consumer. Table 7.1.5.2 Assessment of proposed clause 54 and alternative options

Options Compliance with Assessment Criteria Consumer Protection Industry viability Cost to consumers,


efficiency 1. Proposed clause 54 No effect No effect § potentially lower

insurance cost to consumer

High

2. Do not enable beneficiary to arrange insurance

No effect No effect § fewer options to consumers

Medium

7.1.5.3 Beneficiaries (clause 55)

Objective To ensure fair and reasonable protection for consumers and to support the viability of the home warranty insurance scheme. Provision Section 102 of the Act sets out the general requirements for contracts of insurance and, in sub-section (5), provides that a contract must additionally comply with any other requirements of the regulations. The proposed clause 55 would require an insurance contract to provide for certain persons to be beneficiaries of insurance. The clause would also list certain persons who are not required to be beneficiaries. The proposed clause is the same as clause 42 of the current Regulation.


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Alternative options An alternative option would be to not prescribe the requirements for beneficiaries under insurance contracts.

Assessment of costs and benefits of proposed clause 55 and alternative options The proposed clause would benefit consumers, purchasers and successors in title by ensuring they are able to make a claim under an insurance policy for work done on their behalf or which they have purchased. Clearly defining the persons required to be covered by the insurance scheme would also benefit insurers and the industry by supporting the viability of the insurance scheme. Other benefits include clear grounds on which claims may be made and a reduction in disputes between consumers and insurers. Table 7.1.5.3 Assessment of proposed clause 55 and alternative options



efficiency 1. Proposed clause 55 High High § ensures appropriate

persons are covered by insurance contracts

High

2. Do not prescribe persons who must be or who may not be beneficiaries

Low Low § reduced viability of the insurance scheme

§ higher cost of legal disputes

Low

7.1.5.4 Losses indemnified (clause 56)

Objective To ensure fair and reasonable protection for consumers and to support the viability of the home warranty insurance scheme.

Provision Section 102 of the Act sets out the general requirements for contracts of insurance and, in sub-section (5), provides that a contract must additionally comply with any other requirements of the regulations.

The proposed clause 56 would set out in detail the losses required to be indemnified under a contract of insurance for residential building work, owner-builder work or the supply of a kit home.

The proposed clause is based on clause 43 of the current Regulation, with an amendment to sub-clauses (1)(b) and (3) to clarify that the losses required to be indemnified also apply in respect of owner-builder work.

Alternative options An alternative option would be to not prescribe the losses that must be indemnified under a contract of insurance.

Assessment of costs and benefits of proposed clause 56 and alternative options Clearly prescribing losses that must be indemnified would ensure consumers’ rights under the insurance scheme. While claimants may incur costs in respect of losses not prescribed by the proposed clause, clearly defining the risks to be covered by the insurance providers brings greater benefit by supporting the viability of the insurance scheme. Other benefits include clear grounds on which claims may be made and a reduction in disputes between consumers and insurers.

Owner-builders are required to obtain insurance for work valued over $12,000 if the property on which the work was done is to be sold within 6 years. The proposed


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amendment to sub-clause (4) would benefit home purchasers and insurers by making it clear that the indemnities required to be provided under the scheme apply to owner-builder work. Table 7.1.5.4 Assessment of proposed clause 56 and alternative options



efficiency 1. Proposed clause 56 High High § cost to consumers of

losses not covered § lower costs of legal and

insurance disputes

High

2. Do not prescribe losses that must be indemnified

Low Low § reduced viability of the insurance scheme

§ higher cost of increased legal and insurance disputes

Low

7.1.5.5 Exclusion of amounts of deposit or progress payment (clause 57)

Objective To ensure fair and reasonable protection for consumers and to support the viability of the home warranty insurance scheme. Provision Section 102 of the Act sets out the general requirements for contracts of insurance and, in sub-section (5), provides that a contract must additionally comply with any other requirements of the regulations.

The proposed clause 57 would provide that, despite the losses required to be indemnified by clause 56, an insurance contract may exclude liability for an excessive deposit or progress payment made by the home owner.

The proposed clause is the same as clause 44 of the current Regulation. Comment Section 8 of the Act limits the amount of the deposit that may be received by a contractor before work commences. The amount is limited to 5% of the contract price for a contract price of more than $20,000, and 10% where the contract price is $20,000 or less. The amounts and timing of progress payments are provided for in building contracts. Alternative options An alternative option would be to not provide for the exclusion of liability for excessive deposits and progress payments. Assessment of costs and benefits of proposed clause 57 and alternative options The proposed clause would benefit insurance providers and support the viability of the insurance scheme by excluding claims for excessive amounts paid to the contractor, in the event of a claim for non-completion of work. While consumers in this situation would incur a loss, it is considered that the scheme should not cover payments made beyond the requirements of the Act or the building contract. Consumers are required to be provided with information material when entering into a contract, which includes information about deposits and progress payments, as does the contract checklist provided for in the proposed Schedule 3 (refer to discussion of clause 13 above).


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Consumer Protection Industry viability Cost to consumers, industry & government

Overall efficiency

1. Proposed clause 57 High High § cost to consumer if excessive payments cannot be claimed

High

2. Do not provide for exclusions

Medium Low § cost to insurers of covering excessive claims

Low

7.1.5.6 Limitations on liability and cover (clause 58)


Provision Section 103C of the Act enables regulations to be made regarding requirements for insurance contracts, including limitations on liability.

The proposed clause 58 would allow insurance contracts to exclude cover for matters not falling within the scope of the scheme.


Comment The purpose of the insurance scheme is to protect consumers against defective and incomplete work performed under a building contract. It is not designed to cover defects or due to other causes or liquidated damages. It is also not intended to cover purchasers against defects in owner-builder work which would have been apparent at the time of purchase.

Alternative options An alternative option would be to not prescribe any limitations on liability and cover that may be provided for in a contract of insurance.

Assessment of costs and benefits of proposed clause 58 and alternative options The proposed clause imposes costs on consumers who incur losses of the kind prescribed. However, the proposed limitations are considered reasonable taking into account the purposes of the insurance scheme (see comment above). Without the proposed clause, it would be up to insurers to determine which limitations on liability and cover to include in insurance contracts. In the event of an appeal, lack of certainty as to the legality of any included limitations may lead to higher legal costs for consumers and insurers. The benefit of the proposed clause is that it supports the viability of the scheme by limiting it to covering losses within the scope of the legislation and thereby contributing to stability in the cost of insurance policies. Table 7.1.5.6 Assessment of proposed clause 58 and alternative options



efficiency 1. Proposed clause 58 High High § losses may be incurred

for which claim cannot be made

High

2. No prescribed limitations on liability

Low Low § higher legal costs § less viable insurance

scheme

Low


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7.1.5.7 Amount of cover where one or more dwellings (clause 59)


Provision Section 102 of the Act sets out the general requirements for contracts of insurance and, in sub-section (3), provides that a contract must provide for cover of not less than $200,000 in relation to each dwelling to which the insurance relates, or such other amount as may be prescribed by the regulations.

In respect of multi-dwelling buildings or complexes, the proposed clause 59 would enable an insurance contract to provide for cover to be distributed between individual dwellings and common property areas.

The proposed clause is the same as clause 46 of the current Regulation, but the word ‘maximum’ has been changed to ‘minimum’, in line with the provision of the Act.

Alternative options An alternative option would be to not provide for insurance contracts to distribute risk between dwellings and common property areas in multi-dwelling developments.

Assessment of costs and benefits of proposed clause 59 and alternative options The proposed clause would facilitate the management of insurance risks, thereby supporting the viability of the scheme and the industry. Table 7.1.5.7 Assessment of proposed clause 59 and alternative options



efficiency 1. Proposed clause 59 High High § none identified High 2. Do not provide for

distribution of risk for common property

High Low § higher costs of managing insurance risks

Medium

7.1.5.8 Manner of determining minimum cover (clause 60)


Provision Section 102 of the Act sets out the general requirements for contracts of insurance and, in sub-section (3), provides that a contract must provide for cover of not less than $200,000 in relation to each dwelling to which the insurance relates, or such other amount as may be prescribed by the regulations.

The proposed clause 60 would provide for the Minister, by notice published in the NSW Government Gazette, to increase the minimum amount of cover that must be provided. The proposed clause would limit any such increases to an amount not greater than the percentage increase in Producer Price Indexes Australia published by the Australian Bureau of Statistics.

The proposed clause is the same as clause 47 of the current Regulation, with the word ‘maximum’ in the current clause changed to ‘minimum’, in line with the provision of the Act.


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Alternative options An alternative option would be to not provide for increases in minimum cover requirements.

Assessment of costs and benefits of proposed clause 60 and alternative options The proposed clause would benefit consumers by enabling the level of cover provided to keep pace with increases in the cost of building materials. By potentially allowing for increases in cover, the clause could impose costs on insurers of providing greater cover, however this is considered reasonable. Table 7.1.5.8 Assessment of proposed clause 60 and alternative options



efficiency 1. Proposed clause 60 High High § potential increased

cover to be provided by insurers

High

2. No provision for increases

Low Low § level of cover for consumers may be too low

Low

7.1.5.9 Period of cover (clause 61)

Objective To ensure certainty in the determination of the period of cover.

Provision Section 103C of the Act enables regulations to be made regarding requirements for insurance contracts, including regulations with respect to when work is deemed complete.

The proposed clause 61 would enable the date work is deemed to have been completed to be determined, for the purposes of calculating the period of cover.

The proposed clause is the same as clause 48 of the current Regulation, but references to final inspections will now refer to ‘principal certifying authority’ instead of ‘council’, in line with amendments to the Environmental Planning and Assessment Act 1979.

Alternative options An alternative option would be to not prescribe any manner of determining when work is deemed to be complete for the purpose of calculating the period of cover under an insurance contract.

Assessment of costs and benefits of proposed clause 61 and alternative options The proposed clause would benefit consumers, contractors and insurers by enabling the date of deemed completion of work and, thereby, the period of cover to be clearly determined. The proposal would support the viability of the insurance scheme by reducing disputed claims and appeals and legal costs. Table 7.1.5.9 Assessment of proposed clause 61 and alternative options



efficiency 1. Proposed clause 61 High High § less disputes and lower

legal costs High

2. No prescribed means of determining when work is complete

Low Low § more disputes and higher legal costs

Low


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7.1.5.10 Misrepresentation or non-disclosure (clause 62)

Objective To protect consumers against fraud and misrepresentation by a contractor when obtaining insurance.


The proposed clause 62 would prevent insurers refusing to pay a claim or cancelling a contract on the ground of misrepresentation or non-disclosure by the contractor when arranging the insurance contract.


Alternative options An alternative option would be to not make the proposed clause.

Assessment of costs and benefits of proposed clause 62 and alternative options The proposed clause would benefit consumers by preventing insurers denying cover because of misrepresentation or non-disclosure by the contractor when arranging the insurance contract. There may be a cost to insurer if the misrepresentation or non-disclosure causes difficulty in recovering payment from the contractor, however, insurers would have risk management procedures in place to minimise such losses. Table 7.1.5.10 Assessment of proposed clause 62 and alternative options



efficiency 1. Proposed clause 62 High High § costs to insurers of

providing cover in respect of undisclosed risks

High

2. Do not make the proposed clause

Low Low § costs to consumers of being denied cover

Low

Division 3 Miscellaneous

7.1.5.11 Time limits for notice of loss or damage (clause 63)



The proposed clause 63 would prevent an insurer from reducing its liability if a claim is notified within certain prescribed time limits. In the case of defective work, a claim would be required to be notified within 6 months of either the beneficiary becoming aware of the matter, or of a time when they ought reasonably have become aware of the matter. In the case of incomplete work, the claim would be required to be lodged within 12 months of certain events.


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Alternative options An alternative option would be to not prescribe any requirements about time limits for notice of loss or damage to an insurer.

Assessment of costs and benefits of proposed clause 63 and alternative options The proposed clause would benefit insurers by encouraging claims to be made within a reasonable time, thereby facilitating the management of insured risks. Costs may be incurred by consumers who fail to notify a claim within the prescribed period. The time limits proposed are considered to allow sufficient time for notification. Consumers would be benefited because an insurer would not be able to arbitrarily reduce the amount payable if the claim is notified within the prescribed period. Uncertainty about the required time for notifying a claim would also be reduced. Table 7.1.5.11 Assessment of proposed clause 63 and alternative options



efficiency 1. Proposed clause 63 High High § reduced costs to insurers

in managing risks § consumer protected

from reduced payment if claim notified in time

§ costs to consumers who do not notify claims in time

High

2. No prescribed requirements

Low Low § higher costs to insurers § consumer uncertainty

about time limits for notification

Medium

7.1.5.12 Refusal of insurance claims (clause 64)

Objective To ensure that claims are dealt with in a reasonable time.

Provision Section 103C of the Act enables regulations to be made regarding requirements for insurance contracts, including regulations with respect to when an insurance claim is taken to have been refused.

The proposed clause 64 would provide that an insurance claim is taken to have been refused if the insurer has not notified its decision within 45 days of the claim being lodged, or a further time agreed between the insurer and beneficiary.

The proposed clause is the same as clause 54 of the current Regulation, with a redundant transitional provision removed.

Alternative options An alternative option would be to not prescribe a time period within which an insurance claim is taken to have been refused.

Assessment of costs and benefits of proposed clause 64 and alternative options The proposed clause would benefit consumers by encouraging insurers to deal with claims in a timely manner. Consumes are also benefited by being able to lodge an appeal against the insurer’s decision without unnecessary delay, for example where the insurer fails to notify a decision within a reasonable period. The clause may impose costs on insurers by


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setting a period for claims handling, however the proposed period is considered fair and reasonable. Not prescribing the proposed clause would cause increased costs to consumers of delays in having a claim determined, for example, costs of alternative accommodation and family disruption. Table 7.1.5.12 Assessment of proposed clause 64 and alternative options



efficiency 1. Proposed clause 64 High High § possible higher claims

handling costs for insurers

High

2. No prescribed time limit within which claim deemed to be refused

Low Low § higher costs to consumers while waiting for decision

Low

7.1.5.13 Insurance appeals (clause 65)

Objective To enable consumers to appeal against an insurer’s decision within a reasonable time and to allow the Tribunal to extend the period in special circumstances.

Provision Section 103C of the Act enables regulations to be made regarding requirements for insurance contracts, including regulations with respect to the making of appeals against decisions of insurers, including the time within which appeals may be made.

The proposed clause 65 would provide that an appeal must be made within 45 days of the insurer’s written notice of decision being given to the beneficiary. The time limit would not apply where the insurer has not notified a decision. The proposed clause would also enable a court or Tribunal to allow an appeal to be lodged late, in special circumstances.


Alternative options Alternative options would include not prescribing a time limit for lodging appeals or not enabling a court or Tribunal to allow an appeal to be lodged late.

Assessment of costs and benefits of proposed clause 65 and alternative options The proposed clause would benefit consumers by ensuring they have sufficient time to lodge an insurance appeal and by allowing the time to be extended by a court or Tribunal if the consumer can demonstrate that special circumstances warrant it. Consumers who are unable to lodge an appeal within the time period or obtain an extension would incur costs. Insurers would be benefited by the certainty of the appeal period, thereby facilitating their risk management. The proposed clause would benefit consumers and the industry in general by supporting the viability of the insurance scheme. Table 7.1.5.13 Assessment of proposed clause 65 and alternative options



efficiency 1. Proposed clause 65 High High § costs to consumers who

do not lodge appeal in time

High

2. No prescribed time limit for appeals

High Low § costs to insurers of uncertainty of risks

Medium

3. No ability to extend period for lodging appeal

Low Low § costs to consumers who do not lodge appeal in time

Low


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7.1.5.14 Certificates evidencing insurance (clause 66 and Schedule 1)

Objective To clarify what work is covered by insurance.

Provision Sections 92, 93, 95 and 96 of the Act require evidence of home warranty insurance in the form of a certificate of insurance to be given to a home owner or purchaser either before residential work is done or a kit home is supplied or when sale contracts are exchanged. The certificate of insurance must be in a form prescribed by the regulations.

The proposed clause 66 would provide that the prescribed forms are Forms 1 to 3 in Schedule 1.

The proposed provisions are the same as clause 56 and Schedule 1 of the current Regulation.

Alternative options Alternative options would include not prescribing forms for certificates of insurance.

Assessment of costs and benefits of proposed clause 66 and alternative options Without the prescribed forms, compliance with the relevant requirements would be impossible unless the Act were amended to remove the requirement to use a prescribed form. The prescribed forms may restrict insurers’ flexibility in determining an appropriate form for insurance certificates. On the other hand, prescribed forms ensure clarity, consistency and facilitate the processing of development applications by councils. Table 7.1.5.14 Assessment of proposed clause 66 and alternative options



efficiency 1. Proposed clause 66 High High § lower costs for

consumers and councils § costs to insurers of non-

flexibility of format of forms

High

2. No prescribed forms Low Low § higher risk of inconsistency and confusion

§ higher costs to councils, builders and consumers of determining development applications

Low

7.1.5.15 Evidence of acceptance of risk (clause 67)

Objective To ensure consumers are protected where the insolvent insurer accepted risk.

Provision Section 103I of the Act provides for the government to indemnify persons who are entitled to recover an amount under a contract of insurance that was issued by an insolvent insurer, subject to certain conditions. Sub-section 103I(2)(f) provides that, unless the regulations otherwise provide, the indemnity does not apply to policies issued by HIH Casualty and General Insurance Limited or FAI General Insurance Company Limited if the certificate of insurance was issued after certain specified dates.

The proposed clause 67 would provide that the indemnity applies in connection with matters insured by one of the insolvent insurers, despite the fact that no certificate of


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insurance was issued, if the beneficiary can demonstrate that the insurer accepted the risk before the specified dates.

The purpose of these provisions is to ensure that home owners covered by policies issued by insolvent insurers are able to make a claim where the insurer had not issued the certificate of insurance at the time of its collapse. The proposed clause is the same as clause 56A of the current Regulation.

Alternative options An alternative option would be to not make the proposed clause. Assessment of costs and benefits of proposed clause 67 and alternative options The proposed clause would benefit consumers by enabling them to make a claim under the government rescue scheme where an insurer failed to issue a certificate evidencing insurance before going out of business, if they can establish that the insurer had accepted the risk. The clause would impose costs on government, by broadening the scope of claims able to be made, however the benefit to consumers is considered to outweigh this cost. Table 7.1.5.15 Assessment of proposed clause 67 and alternative options



efficiency 1. Proposed clause 67 High High § cost to government of

paying claims High

2. Do not enable claim against insolvent insurer where no certificate was issued

Low Low § costs to home owners unable to claim for loss

Low

7.1.5.16 Access for work (clause 68)

Objective To provide flexibility in the arrangements for the rectification or completion of work. Provision Section 102 of the Act sets out the general requirements for contracts of insurance and, in sub-section (5), provides that a contract must additionally comply with any other requirements of the regulations. The proposed clause 68 would enable an insurance contract to require a beneficiary to give access to their property to a contractor or kit home supplier for the purpose of inspection, rectification or completion of work or supply of a kit home, subject to the beneficiary’s reasonable right to refuse access on reasonable grounds. The proposed clause is the same as clause 57 of the current Regulation. Alternative options Alternative options would include not making the proposed clause. Assessment of costs and benefits of proposed clause 68 and alternative options The proposed clause would benefit contractors and suppliers by facilitating access to fix or complete their work/supply. The benefit of including the requirement in insurance contracts is legal clarity in the event of a dispute.


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Overall efficiency

1. Proposed clause 68 High High § less insurance claims § lower legal costs

High

2. Do not prescribe requirements for access to property

Low Low § higher legal costs § higher insurance costs

Low

7.1.5.17 General requirements for insurance (clause 69)

Objective To reduce insurance costs for work on multi-dwelling buildings and to support the viability of the home warranty insurance scheme. Provision Section 102 of the Act sets out the general requirements for contracts of insurance and, in sub-section (3), provides that a contract must provide for cover of not less than $200,000 in relation to each dwelling to which the insurance relates, or such other amount as may be prescribed by the regulations. The proposed clause 69 would recognise that, where insurable work is to be done on the common property of a block of flats, requiring cover for an amount of $200,000 multiplied by the number of dwellings in the building may be excessive if the work is relatively minor. For example, work valued at $50,000 on common property of a building containing 10 dwellings would require insurance cover of $2 million to be taken out. Accordingly, the proposed clause would provide that, where the value of the work divided by the number of dwellings is less than $12,000 (i.e., each unit owner’s share of the cost is less than $12,000) cover of $200,000 only is needed. Where the calculation produces a result higher than $12,000 (i.e., each unit owner’s share of the cost is more than $12,000), then the insurance contract must provide cover in the amount of $200,000 times the number of dwellings in the building. The same calculations would apply to a block of flats owned by one owner in respect of work on any part of the building, that is, the dwellings as well as ‘common areas’. The proposed clause is based on clause 57AA of the current Regulation, with a new sub-clause (1) inserted to cover a situation where work is being done on a building owned by one owner and there is accordingly no ‘common property’. Alternative options An alternative option would be to not prescribe an alternative means of calculating insurance cover for work on flat buildings. Assessment of costs and benefits of proposed clause 69 and alternative options The proposed clause would benefit home owners and builders by reducing the amount of premium payable for smaller jobs on blocks of flats. It would also benefit insurers by removing the potential for multi-million dollar claims following minor work done on a residential flat building. No costs have been identified as being imposed by the proposed clause.


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Overall efficiency

1. Proposed clause 69 High High § reduced costs to consumers, builders and insurers

High

2. No alternative means for calculating insurance cover on multi-dwelling buildings

Low Low § higher premium costs for consumers and builders

§ higher level of risk for insurers

Low

7.1.5.18 Insurance thresholds (clause 70)


Provision Sections 92, 93, 95 and 96 of the Act require home warranty insurance to be taken out where the contract price or the value of the work is more than $5,000 or another amount prescribed by the regulations. The proposed clause 70 would prescribe an alternative amount of $12,000.

The proposed clause is the same as clause 57AB of the current Regulation.

Alternative options Alternative options would include not prescribing an alternative threshold amount in respect of work or kit homes covered by the insurance scheme. This would mean that the threshold would revert to being $5,000, the amount initially set for the scheme in 1997.

Assessment of costs and benefits of proposed clause 70 and alternative options Requiring insurance on jobs under $12,000 would impose considerable extra cost by way of premiums and administrative costs for contractors. Consumers may bear the additional costs in the form of higher charges for work. These direct and indirect costs outweigh the potential benefits of requiring insurance for work valued under the proposed threshold amount.

The proposed clause would also support the viability of the insurance scheme by aligning it with the scheme operating in Victoria. If the threshold reverted to $5,000, the insurers may find operation in the scheme unviable. Table 7.1.5.18 Assessment of proposed clause 70 and alternative options



efficiency 1. Proposed clause 70 High High § lower insurance costs

for consumers and builders

High

2. No prescribed insurance thresholds

Low Low § higher insurance costs to consumers and builders for minor work

Low

7.1.5.19 Meaning of ‘structural defect’ (clause 71)



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Provision Section 103B of the Act requires insurance cover for loss arising from a ‘structural defect’ within the meaning of the regulations for a period of 6 years. The proposed clause 71 would define a structural defect for the purposes of the insurance scheme.

The proposed clause is the same as clause 57AC of the current Regulation.

Alternative options An alternative option would be to not prescribe a definition.

Assessment of costs and benefits of proposed clause 71 and alternative options The proposed clause would benefit consumers, builders and insurers by providing transparency and certainty as to the work covered by an insurance contract, thereby reducing potential disputes and legal costs. Table 7.1.5.19 Assessment of proposed clause 71 and alternative option



efficiency 1. Proposed clause 71 High High § lower legal costs High 2. No prescribed definition

of structural work Low Low § higher legal costs Low

7.1.5.20 Persons entitled to apply for exemptions from insurance requirements (clause 72)

Objective To clarify who may apply for an exemption from insurance requirements.

Provision Section 97(1A) of the Act enables a person to apply to the Commissioner to be exempted from the home warranty insurance requirements if the person is, or is a member of a class of persons who are, prescribed as entitled to apply for the exemption.

The proposed clause 72 would prescribe developers required to comply with section 96A of the Act and contractors doing residential building work or supplying kit homes as able to apply for an exemption.

The proposed clause combines clauses 57B and 66A of the current Regulation, with a redundant savings provision removed.

Alternative options Alternative options would include not prescribing any classes of persons as able to apply for exemption.

Assessment of costs and benefits of proposed clause 72 and alternative options The proposed clause would benefit consumers and contractors by clarifying who may apply for an exemption from home warranty insurance requirements in exceptional circumstances, thus saving the cost of an insurance premium and enabling contractors who do not have insurance eligibility to continue to work. Typically, an exemption may be considered where work is funded under a government program and the funding agency indemnifies the work, or in cases where the beneficiary of the work would not legally be entitled to make a claim. Costs may include risk to future purchasers of purchasing defective work, however such risks are minimised by the ability to impose conditions when giving exemptions, such as requiring notice of the exemption in any sale contract entered into.


84



Overall efficiency

1. Proposed clause 72 High High § reduces unnecessary insurance costs for consumers and builders

High

2. No classes of persons prescribed as able to apply for an insurance exemption

Low Low § unnecessary insurance costs for consumers and builders

Low

7.1.5.21 Temporary exemption from section 92B and 93B requirements (clause 73)

Objective To support the viability of the home warranty insurance scheme.

Provision Sections 92B of the Act provides that, where the name of the contractor on a home building contract is different to the contractor name on the insurance contract ostensibly taken out for the work, then the work is covered. Section 93B makes the same provision for insurance contracts covering the supply of kit homes.

The proposed clause 73 would exempt an insurance contract from the requirements of sections 92B and 93B until 31 December 2005.

The proposed clause is the same as clause 57BB of the current Regulation, with the exemption period extended from 31 December 2004 to 31 December 2005.

Alternative options An alternative option would be to not prescribe the exemption.

Assessment of costs and benefits of proposed clause 73 and alternative options The proposed clause would support the viability of the insurance scheme, thereby benefiting the industry, consumers, government and insurers. The provisions in their current form impose unacceptable risks on insurers in that they may not know the identity of the person whose work they have insured and may not have assessed the person’s eligibility for insurance. The proposed exemption will remove this risk until appropriate amendments are made to the Act. Table 7.1.5.21 Assessment of proposed clause 73 and alternative option



efficiency 1. Proposed clause 73 High High § viable insurance scheme High 2. No exemption from

sections 92B & 93B Low Low § unacceptable insurance

risks Low

7.1.5.22 Exemptions from insurance for multi-storey buildings (clause 74)

Objective To support the viability of the home warranty insurance scheme.

Provision Part 6 of the Act provides for the establishment of an insurance scheme under which contractors are required to take out a policy of insurance from an approved private insurance provider which covers the home owner for incomplete or defective work which cannot be rectified because of the contractor’s death, disappearance or insolvency.


85

The proposed clause 74 would exempt residential building work on multi-storey buildings from home warranty insurance requirements.

The proposed clause is the same as clause 57BC of the current Regulation.

Comment The New South Wales Home Warranty Inquiry noted in its report of 30 September 2003 that high-rise construction projects are fundamentally different to stand-alone houses. High-rise projects are commercial projects, generally undertaken by a consortium. The Inquiry found that the consumer faced minimal risk during the construction period. The key consumer risk in high-rise projects was seen as a construction quality post-completion. To help minimise post-completion consumer risk, the Inquiry recommended that independent certification be undertaken at key construction stages. Amendments to the Environmental Planning and Assessment legislation providing for mandatory inspections for high-rise are now in force.

Alternative options An alternative option would be to not exempt work on multi-storey buildings from home warranty insurance requirements.

Assessment of costs and benefits of proposed clause 74 and alternative options The proposed clause would support the viability of the insurance scheme, thereby benefiting the industry, consumers, government and insurers. In the current global insurance climate, reinsurance is not generally available for work on multi-storey buildings and accordingly the insurance providers operating in the scheme are unable to provide cover.

The proposed clause would increase consumer risk of uninsured loss, however as the exemption is transparently prescribed in the regulations, consumers are seek legal advice and take contractual measures to protect their interests. Mandatory inspections at critical stages of construction by independent certifiers minimises these risks. The proposed exclusion of multi-storey buildings from home warranty insurance requirements provides for national consistency and recognises the reinsurers’ low appetite for this area of risk. If the insurers were to be required to cover multi-storey buildings, they may not be able to continue to operate viably. Table 7.1.5.22 Assessment of proposed clause 74 and alternative options



efficiency 1. Proposed clause 74 Medium High § viable insurance scheme Medium-

High 2. No exemption from

insurance requirements for multi-storey buildings

Low Low § unacceptable insurance risks

Low

7.1.5.23 Exemption from insurance in relation to retirement villages (clause 75)

Objective To remove inappropriate insurance requirements.

Provision Section 92 of the Act requires a contractor to take out insurance cover over residential building work before commencing the work.


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The proposed clause 75 would exempt residential building work relating to the construction of a retirement village for a developer from the home warranty insurance requirements.

The proposed clause is a new provision. Alternative options An alternative option would be to not prescribe the exemption. Exemptions would instead need to be granted administratively on an individual basis, under section 97(1A) of the Act. Assessment of costs and benefits of proposed clause 75 and alternative options The proposed clause would benefit consumers, developers and contractors by relieving them of unnecessary insurance costs. Under the insurance scheme, a retirement village developer is excluded from being a beneficiary of an insurance contract. In the majority of retirement villages, residents do not own their dwellings, but occupy them under a lease or licence arrangement. Only owners of the building work can be beneficiaries under the scheme. To require insurance cover to be taken out would provide a windfall to the insurers, as there is no possibility of a claim being made. Costs may include a risk to future buyers of dwellings on which uninsured defective work has been done. However, the potential costs can be minimised by having a building inspection carried out prior to purchase. Most prudent buyers already do so. Prescribing the exemption in the regulations reduces industry and government administration costs by not requiring each exemption to be applied for and granted individually. Table 7.1.5.23 Assessment of proposed clause 75 and alternative options



efficiency 1. Proposed clause 75 Medium High § potential cost of

defective work Medium-

High 2. No insurance exemption

from insurance for work on retirement villages

Medium Low § higher government administration costs in granting individual exemptions

§ higher costs to consumers and builders of applying for an exemption and waiting for approval

Low-Medium

7.1.5.24 Exemption from insurance for Home Modification and Maintenance Program of Department of Aging, Disability and Home Care (clause 76)

Objective To remove inappropriate insurance requirements.

Provision Section 92 of the Act requires a contractor to take out insurance cover over residential building work before commencing the work.

The proposed clause 76 would exempt residential building work funded by the Home Modification and Maintenance Program administered by the Department of Aging, Disability and Home Care.

The proposed clause is a new provision.



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Assessment of costs and benefits of proposed clause 76 and alternative options The proposed clause would benefit consumers, government and contractors by relieving them of unnecessary insurance costs. Work funded under the Home Modification and Maintenance Program is subject to strict monitoring and quality-assurance procedures. In the event of defective work which the contractor is unable to rectify, the funding agency has arrangements to indemnify the cost of rectification. Costs may include a risk to future buyers of dwellings on which uninsured defective work has been done. However, the potential costs can be minimised by having a building inspection carried out prior to purchase. Most prudent buyers already do so. Prescribing the exemption in the regulations reduces government administration costs by not requiring each exemption to be applied for and granted individually. Table 7.1.5.24 Assessment of proposed clause 76 and alternative options



efficiency 1. Proposed clause 76 High High § potential cost of

defective work High

2. No exemption for work funded by Home Modification & Maintenance Program

High Low § higher government administration costs in granting individual exemptions

§ higher costs to consumers and builders of applying for an exemption and waiting for approval

Medium

7.1.5.25 Exemption from certificate requirement where work not commenced (clause 77)

Objective To allow off-the-plan sales to proceed prior to insurance being arranged.

Provision Section 96A of the Act requires a developer selling residential building work to attach to the sale contract a certificate evidencing the insurance taken out by the contractor who did the work.

The proposed clause 77 would exempt developers from this requirement in relation to ‘off the plan’ sales where the work has not commenced at the time sale contracts are exchanged. Under section 92 of the Act, a contractor must not commence work unless insurance has been taken out. In an ‘off the plan’ development, dwellings may be sold before building work starts or even before a builder has been contracted. In these circumstances, the contract of insurance may not have been taken out at the time the sale contract is exchanged, and the developer is unable to comply with section 96A. The proposed exemption would enable the developer to give the buyer a copy of the insurance certificate within 14 days of the contract of insurance being taken out.

The proposed clause is the same as clause 66 of the current Regulation, with a redundant transitional provision removed.


Assessment of costs and benefits of proposed clause 77 and alternative options The proposed clause would benefit buyers and developers by enabling contracts to be exchanged before building work is commenced.


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Table 7.1.5.25 Assessment of proposed clause 77 and alternative option



efficiency 1. Proposed clause 77 High High § reduced costs for buyers

and developers High

2. No exemption for developers from providing insurance certificate where work not commenced

Low Low § higher costs for buyers and developers

Low

7.1.6 PART 6 RESOLUTION OF BUILDING DISPUTES AND BUILDING CLAIMS (CLAUSES 78 TO 79)

7.1.6.1 Transfer of proceedings to or from other courts or tribunals (clause 78)

Objective To minimise legal costs in relation to disputes.

Provision Section 48L(2) of the Act provides for regulations to be made prescribing the manner in which proceedings must be transferred between courts and tribunals.

The proposed clause 78 would set out the administrative procedures for transferring matters between courts and tribunals.

The proposed clause is the same as clause 57I of the current Regulation.

Alternative options An alternative option would be to not prescribe any procedures for the transfer of proceedings.

Assessment of costs and benefits of proposed clause 78 and alternative options The proposed clause would benefit respondents in disputes by facilitating the transfer of matters from the courts to the less formal and costly avenue for dispute resolution provided by the Consumer, Trader and Tenancy Tribunal. The clause would also reduce administrative costs for courts and tribunals by providing clear, straightforward procedures for the transfer of proceedings. Table 7.1.6.1 Assessment of proposed clause 78 and alternative options



efficiency 1. Proposed clause 78 High High § lower legal costs for

respondents § lower administrative

costs for government

High

2. No prescribed procedures for transfer of proceedings between courts and tribunals

Low Low § higher legal costs § higher government

administrative costs

Low

7.1.6.2 Warning notice for Tribunal orders (clause 79)

Objective To promote compliance with Tribunal orders and to alert consumers about contractors who fail to comply with orders.


89

Provision Section 48R of the Act requires that a Tribunal order made under Part 3A of the Act must include a warning in the form prescribed by the regulations. The warning must be to the effect that, if the person against whom the order is made fails to comply with the order, the failure to comply will be recorded on the public Register.

The proposed clause 79 would prescribe the wording of the warning notice.

The proposed clause is based on clause 57J of the current Regulation, with the wording simplified.

Alternative options An alternative option would be to not prescribe the wording of the warning notice. Assessment of the costs and benefits of the proposed clause 79 and alternatives The proposed clause would benefit consumers by ensuring that the public Register contains accurate information about builders who have failed to comply with Tribunal orders made against them. Access to accurate information assists consumers in assessing the potential risks of contracting with a particular builder. The proposed warning notice would also benefit builders, by ensuring they are aware of the requirement to notify Fair Trading that they have complied with the order. Table 7.1.6.2 Assessment of proposed clause 79 and alternative options



efficiency 1. Proposed clause 79 High High § reduced risk of defective

work High

2. No prescribed wording for warning notice

Low Low § higher risk of defective work

Low

7.1.7 PART 7 GENERAL (CLAUSES 80 TO 88)

7.1.7.1 The Register (clause 80)


Provision Section 120 of the Act requires the Commissioner to maintain a public Register containing particulars of licences, certificates and permits issued other particulars prescribed by the regulations.

The proposed clause 80 would prescribe certain particulars relating to contractor licences, building consultancy licences, supervisor certificates, tradesperson certificates and owner-builder permits.

The proposed clause is based on clause 58 of the current Regulation, with a number redundant particulars removed. Alternative options An alternative option would be to not prescribe particulars of licences, certificates and permits for inclusion in the public Register.


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Assessment of the costs and benefits of the proposed clause 80 and alternative options The proposed clause would benefit consumers by enabling them to check the particulars of a person with whom they are proposing to contract, to ensure they hold the appropriate type of licence or certificate to do the work to and to check their disciplinary and insurance status. Consumers choosing contractors, and contractors choosing sub-contractors, can use the information on the Register to avoid dealing with persons who have a history of insurance claims, adverse disciplinary findings and outstanding Tribunal orders, thereby enabling them to minimise risks of defective work and disputes.

Government would incur the administrative cost of maintaining the accuracy of the Register. Persons about whom adverse information is displayed may incur costs in the form of lost work. These costs are considered reasonable and are balanced by the benefit of the increased incentives for builders to comply with legislation and Tribunal orders. Table 7.1.7.1 Assessment of proposed clause 80 and alternative options



efficiency 1. Proposed clause 80 High High § less risk of defective

work and disputes § cost of lost work for

builders about whom adverse information is shown

High

2. No prescribed particulars for inclusion on Register

Low Low § higher risk to consumers of defective work and disputes

Low

7.1.7.2 Review by Administrative Decisions Tribunal (clause 81)

Objective To ensure the effective operation of the licensing system and administrative fairness.

Provision Section 83B(3)(b) of the Act enables a person to appeal against a licensing or disciplinary decision, or any other prescribed decision by the Commissioner.

The proposed clause 81 would prescribe a range of decisions, such as decisions to cancel or suspend an authority, impose conditions, or disqualify a person from holding an authority or being involved in a licensed partnership or corporation.


Alternative options An alternative option would be to not prescribe any additional decisions against which an appeal may be lodged.

Assessment of the costs and benefits of the proposed clause 81 and alternative options The proposed clause would benefit holders of and applicants for licences and certificates and their associates by ensuing procedural fairness in licensing and disciplinary decisions. Government would incur administrative costs in operating the Tribunal, and in providing internal reviews of decisions. Government would also incur legal costs in responding to appeals where the applicant remains dissatisfied after the internal review by Fair Trading.

These costs are considered to be outweighed by the benefits to licence and certificate holders which enable independent review by the Tribunal of decisions which could affect their livelihood. Risks to consumers may be slightly increased, in situations where the Tribunal upholds an appeal but Fair Trading believes the person is not fit to hold an


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authority. These risks are minimised by the Tribunal’s expertise in evaluating a person’s fitness to be licensed. Table 7.1.7.2 Assessment of proposed clause 81 and alternative options



efficiency 1. Proposed clause 81 Medium-High High § cost to government of

reviewing decisions and responding to appeals

§ slightly increased risk of unfit persons holding authorities

High

2. No prescribed decisions High Low § cost to industry of unfair licensing and disciplinary decisions

Medium

7.1.7.3 Certificate evidence (clause 82)

Objective To provide administrative detail to support the operation of the Act.

Provision Section 131 of the Act enables the regulations to declare a person as a prescribed officer of the Office of Fair Trading for the purpose of issuing certificate evidence. The proposed clause 82 would: • declare the Commissioner or any officer authorised in writing by the Commissioner as a

prescribed officer; and • would prescribe a fee of $16 for the issue of a certificate, unless waived.


Alternative options Alternative options would include not declaring any prescribed officers and not prescribing a fee for issue of a certificate.

Assessment of the costs and benefits of the proposed clause 82 and alternative options The proposed clause would benefit government by enabling officers other than the Commissioner to sign certificates, thereby reducing administrative costs and delays in providing certificates. Charging fees for certificates is a direct cost to persons who request certificates, however this approach has the benefit of ensuring the cost is borne directly by the person who benefits from being issued with the certificate. Table 7.1.7.3 Assessment of clause 82 and alternative options



efficiency 1. Proposed clause 82 High High § lower government

administrative costs High

2. No prescribed officers Low Low § higher government administrative costs

§ delays in issuing certificates

Low

3. No fees for certificates Low Low § cost borne by general community

Low

7.1.7.4 Proceedings for offences under any other Acts (clause 83)

Objective To provide administrative detail to support the operation of the Act.


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Provision Section 135 of the Act enables a prescribed officer to lay information with a court to commence proceedings for breaches of legislation associated with specialist work.

The proposed clause 83 would declare the Commissioner or any officer authorised in writing by the Commissioner as a prescribed officer for the purpose of section 135.


Alternative options An alternative option be to not declare prescribed officers.

Assessment of the costs and benefits of the proposed clause 83 and alternative options The proposed clause would benefit government by enabling officers other than the Commissioner to commence court proceedings for an offence under other legislation related to specialist work. It would also facilitate disciplinary proceedings by reducing delay in the issue of informations for breaches. Table 7.1.7.4 Assessment of proposed clause 83 and alternative options




administrative costs High

2. No prescribed officers Low Low § higher government administrative costs

§ delays in commencing proceedings

Low

7.1.7.5 Display of signs (clause 84)

Objective To ensure the effective operation of the licensing system in order to protect consumers.

Provision The general regulation making power in section 140(2)(c) of the Act enables regulations to be made with respect to advertisements and the display of signs relating to residential building work, building consultancy work, specialist work or the supply of kit homes.

The proposed clause 84 would require a contractor who does work involving the construction of, or major renovations to, a dwelling, detached garage, carport or inground swimming pool to: • display a sign showing their name and licence number; and • indicating that the person is a licensed contractor.


Alternative options An alternative option would be to not prescribe requirements for the display of signs.

Assessment of the costs and benefits of the proposed clause 84 and alternative options The proposed clause would benefit government in its compliance activities, by making it easier to identify persons doing residential building work. It would also assist local councils to know who is undertaking work in the local government area. There are no identified costs for consumers. Licensees would incur the cost of erecting signs, however many contractors erect signs as a matter of business practice, and including the required


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details would not significantly increase costs. Costs may be minimised by using low-cost materials to produce signs or by re-using signs on different sites. Table 7.1.7.5 Assessment of clause 84 and alternative options




administrative and compliance costs

High

2. No prescribed requirements for signs

Low Low § higher government administrative and compliance costs

Low

7.1.7.6 Advertising (clause 85)

Objective To ensure the effective operation of the licensing system in order to protect consumers. Provision The general regulation making power in section 140(2)(c) of the Act enables regulations to be made with respect to advertisements and the display of signs relating to residential building work, building consultancy work, specialist work or the supply of kit homes.

The proposed clause 85 would require advertisements relating to work regulated under the Act to include the licensee’s name and licence number. The proposed clause is the same as clause 63 of the current Regulation. Alternative options An alternative option would be to not prescribe requirements for advertising.

Assessment of the costs and benefits of the proposed clause 85 and alternatives Consumers would benefit by knowing the name and licence number of a person advertising to do work, as it would make searching the public Register quicker and easier. The clause would also benefit government by reducing non-compliance with the licensing scheme. Licensees would benefit by the reduction in unfair competition from unlicensed operators. Table 7.1.7.6 Assessment of clause 85 and alternative options



efficiency 1. Proposed clause 85 High High § less risk to consumers of

defective work § lower government

compliance costs

High

2. No prescribed requirements for advertising

Low Low § higher government compliance costs

§ higher cost of unfair competition

Low

7.1.7.7 Hazardous specialist work: do-it-yourself publications and public addresses (clause 86)

Objective To reduce the risk of personal injury and financial loss to consumers resulting from unsafe work.


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Provision Section 140(1) of the Act (1) enables the making of regulations with respect to any matter necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The proposed clause 86 would require do-it-yourself publications and public addresses about how to do hazardous specialist work to include a warning that it is illegal for unauthorised persons to do such work and the penalties that apply. In this clause, ‘hazardous specialist work means electrical wiring, gasfitting and hot water plumbing.


Alternative options An alternative option would be to not prescribe the requirement for a warning.

Assessment of the costs and benefits of the proposed clause 86 and alternatives The proposed clause would ensure home owners are informed of the dangers of do-it-yourself specialist work, thereby reducing the risk of injury or damage to property. Table 7.1.7.7 Assessment of proposed clause 86 and alternative option



efficiency 1. Proposed clause 86 High High § less risk of injury or

property damage High

2. No prescribed warning Low Low § higher risk of injury or property damage

Low

7.1.7.8 Penalty notice offences (clause 87)

Objective To ensure the effective operation of the licensing system in order to protect consumers.

Provision Section 138A of the Act provides that an authorised government officer may serve penalty notices on a person for prescribed offences against the Act or Regulation.

The proposed clause 87 would prescribe the offences listed in Schedule 6 as penalty notice offences. The proposed Schedule 6 also lists the penalty amounts for each offence.

The proposed clause is the same as clause 67 and Schedule 4 of the current Regulation.

Comment The Act allows a penalty notice, or ‘fine’, to be given to a person if there is evidence that they have committed one of the prescribed offences. If the person does not wish to have the matter decided in court, they may pay the amount of the penalty within the time specified to finalise the matter. Payment of the penalty is not regarded as an admission of liability, and precludes further action from being taken for the alleged offence, but does not affect any civil claim arising from the matter.

The objective of penalty notice schemes is to encourage changes in conduct to achieve compliance with the laws and to provide for appropriate punishment for minor, one-off or technical offences. The fines imposed by penalty notices are significantly lower than the maximum penalty that could be imposed by a court. This is designed to act as an incentive to the person to accept the notice, and recognises the cost savings that will be made if the offender accepts the notice.


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The Office of Fair Trading has established guidelines for the use of penalty notices to ensure the integrity of the penalty notice scheme is maintained and that it is used consistently and only for appropriate offences. Circumstances where stronger disciplinary action would be warranted might include repeat or deliberate offences or behaviour that has caused serious detriment to consumers. The use of penalty notices is only one part of Fair Trading’s overall compliance strategy. A range of strategies are used to deal with unsatisfactory conduct, including education programs, formal warnings, prosecutions, injunctions, civil remedies, disciplinary action and public warnings.

Alternative options Alternative options would include not prescribing penalty notice offences or prescribing higher or lower penalty amounts.

Assessment of the costs and benefits of the proposed clause 87 and alternative options The proposed penalty notice scheme would benefit government, industry and the courts by reducing the costs and time associated with prosecuting offences. It would ensure that offenders who commit minor breaches are penalised. Having no prescribed penalty notice offences would mean that all offences would need to be subject to court proceedings. The administrative benefits and cost savings associated with penalty notices would be lost. Due to the high cost of prosecution, little or no action may be taken on minor breaches, thereby undermining the level of industry compliance and increasing risk to consumers.

Significantly increasing the penalty amounts would lessen the incentive for offenders to accept penalty notices and may result in their taking the chance of getting a lower penalty through the courts. Reducing the amount of penalties would undermine the deterrent value of the penalty notice scheme. Table 7.1.7.8 Assessment of proposed clause 87 and alternative options



efficiency 1. Proposed clause 87 High High § less risk to consumers of

non-compliance § lower government

compliance costs

High

2. No prescribed penalty notice offences

Low Low § higher risks of non-compliance

§ higher government compliance costs

Low

3. Prescribe higher penalty amounts

Medium Medium § higher legal costs if more matters go to court

Medium

4. Prescribe lower penalty amounts

Medium Medium § higher risk of non-compliance

Medium

7.2 OVERALL IMPACT OF OPTION 3: THE PROPOSED REGULATION

The proposed Home Building Regulation 2004 has been developed to replace the current Home Building Regulation 1997, which will be repealed automatically on 1 September 2004. The proposed Regulation would provide the administrative detail required to support the operation of the Act by prescribing requirements for: • conditions that must be included in contracts; • exemptions from certain requirements; • requirements for the issue of authorities under the Act; • categories of licences and certificates; • application fees for licences and certificates and other matters; • conditions on licences and certificates;


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• the operation of the home warranty insurance scheme; • resolution of certain building disputes and building claims; • the particulars to be recorded in the public Register; and • a penalty notice scheme for dealing with non-compliance.

Impact on consumers The proposed Regulation benefits consumers by: • requiring contracts to include clear information about important issues which need to be

considered by the consumer before signing; • prescribing measures designed to reduce the likelihood of contractual and insurance

disputes, and related legal costs; • supporting the effectiveness of the licensing scheme, which aims to reduce the

likelihood of unsafe, defective or incomplete work; • prescribing matters which ensure fair and reasonable protection for consumers while

supporting the ongoing viability of the home warranty insurance scheme, which protects consumers from incomplete and defective work where the responsible contractor has died, disappeared or become insolvent; and

• providing access to information on the Register to help in selecting a suitably licensed and qualified builder.

The measures provided for in the proposed Regulation also provide intangible benefits because effective regulation increases consumer confidence in dealing with the building industry.

Costs imposed on builders by the proposed Regulation, such as licensing fees and the cost of complying with prescribed requirements, may be passed on to consumers in the form of higher prices for work. However, the proposed Regulation would also, through a series of exemptions, remove or minimise unnecessary compliance costs for the industry (see discussion below under Impact on the building industry). The costs that are imposed are considered fair and necessary for the effective operation of the consumer protection regime provided by the Act and Regulation. Impact on the building industry The proposed Regulation would impose medium level compliance costs on the industry by: • prescribing in detail certain matters that must be included in contracts; • limiting who may obtain an authority to do work covered by the Act, by imposing

requirements for the issue of licences, certificates and permits; • charging application fees; • placing conditions on authorities, such as requiring certain events to be notified to the

Commissioner; and • providing for adverse information about holders of authorities to be recorded on the

public Register.

The prescriptive nature of certain requirements, such as the checklist and conditions to be included in contracts, removes flexibility by not allowing builders to develop their own, possibly cheaper, form of contracts. Balanced against this cost are the benefits of having clearly prescribed requirements that apply consistently across the industry and provide for a high level of consumer protection in the known problem area of unfair contracts. The proposed Regulation contains a number of provisions which would reduce industry’s costs of complying with the legislation, by relaxing requirements where appropriate, including:


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• providing exemptions from contract requirements, cooling-off clauses and the requirement to provide consumer information in relation to contracts between builders and other building industry members;

• providing for exemptions from insurance requirements in exceptional circumstances; • providing for discretionary licensing decisions, so that relevant circumstances about an

applicant’s financial position or reasons for a delay in complying with a Tribunal order can be taken into account; and

• prescribing penalty notice offences, which avoids the need for more costly and lengthy legal proceedings for minor or technical breaches.

Industry members are benefited by proposed provisions which: would: • aim to reduce the likelihood of contractual and insurance disputes and related legal

costs; • support the ongoing viability of the home warranty insurance scheme, which in turn

underpins the viability of the home building industry; and • support the effectiveness of the licensing scheme, which aims to reduce the likelihood of

unsafe, defective or incomplete work, thereby supporting a strong and viable industry. Impact on insurers The proposed Regulation would support the ongoing viability of the insurance scheme by: • supporting the effectiveness of the licensing scheme, which aims to reduce the insurance

risks related to unsafe, defective or incomplete work; • prescribing matters which aim to reduce the likelihood of contractual and insurance

disputes; • limiting the liability and risks faced by insurers; and • aligning the New South Wales insurance scheme with that operating in Victoria, which

reduces administrative and compliance costs for insurers operating in both States. Impact on government Government would incur costs in administering the Regulation. Staffing and other resources are required to administer the licensing procedures, make recommendations in relation to discretionary decision making powers and process the changes of detail required to be notified by licence and certificate holders to maintain the accuracy of the public Register. These costs are minimised in the Regulation wherever possible. For example, exempting certain types of work from home warranty insurance requirements eliminates the need to consider each exemption request individually. Costs are saved by allowing for prescribed officers to issue evidentiary certificates and commence legal proceedings. Other government costs would be reduced by the proposed clauses exempting councils and statutory corporations and their employees from certain licensing and contractual requirements. Provisions which aim to reduce the incidence of legal disputes reduce the cost of administering courts and tribunals. Overall, it is considered that the cost of government supervision of the home building industry is justified in terms of the protection it affords consumers and its underpinning of a strong and viable home building industry. Fees set by the proposed Regulation would contribute to government’s administration costs.


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Table 7.2 Overall impact of Option 3 – the proposed Regulation Compliance with Assessment Criteria

Interested Parties Benefit Cost Consumer protection

Industry viability Overall efficiency

1. Consumers

Protection from financial loss7 High Low High High High Intangible benefits High Low

2. Home building industry Compliance costs High Medium High High High Intangible impact High Medium

3. Insurers Operational costs & risks High Medium High High High

4. Government Administration and compliance costs

High Medium High High High

OVERALL

High

Medium

High

High

High

Conclusion Option 3 - the proposed Regulation: • meets the regulatory objectives; • provides high financial and intangible benefits to consumers, industry, insurers and

government; • low costs to consumers; and • medium level costs to the industry, insurers and government.

8. IMPACT ANALYSIS OF THE ALTERNATIVES TO THE REGULATION

8.1 OPTION 1: DO NOTHING The “Do Nothing” option would result in the existing, Home Building Regulation 1997 being repealed on 1 September 2004, with no replacement Regulation being made.

While the Act would still exist, a number of provisions would be unworkable and the objectives of the Act could not be achieved. It would not be possible to give effect to the intention of the legislation without some further action by the Government, such as amending the Act. Enshrining the proposed requirements of the Regulation in the Act would reduce the capacity to amend the requirements quickly to respond to problems which may arise for consumers, insurers or the industry or to address changes in industry practices.

A study of the background to the creation of the Home Building Act and its various reforms shows the difficulty the government and the community face in ensuring an acceptable quality of building work and related services.

While the Act itself provides significant controls over the industry, many of the matters contained in the proposed Regulation supply essential administrative support to the Act necessary to maximise its effectiveness.

Impact on consumers Without the proposed Regulation, consumers would be more likely to suffer financial and intangible loss due to unsafe, defective or incomplete work. They may face an increase in contractual and insurance disputes and related legal costs. Intangible loss includes family

7 Based on the impact to an individual who has suffered a financial loss as a result of unsatisfactory service provided by an agent or misappropriation of funds lodged with an agent.


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disruption and distress. Financial loss could include costs which cannot be claimed under the insurance scheme or recovered from the builder.

Impact on the building industry Without the proposed Regulation, there would be no prescribed exemptions from contract or insurance requirements, which would add to industry’s costs of complying with the Act. Entry to the industry would be further limited without discretionary decision making powers in relation to the issue of licences and certificates. A result of this might be that the number of available builders is reduced, thereby limiting competition and increasing prices.

Builders may face an increase in contractual and insurance disputes and related legal costs. Without the proposed penalty notice scheme, court proceedings would need to be taken for all breaches, foregoing the costs savings associated with the use of penalty notices. The increased risks that would be faced by consumers, builders and insurers in the absence of the proposed insurance provisions may render the insurance scheme unviable. In the current global financial climate, an industry which is unable to insure against risk would find it difficult or impossible to remain viable. An intangible impact would be the loss of consumer confidence in the building industry.

Impact on insurers Without the proposed clauses which establish many important principles of the insurance scheme, such as aligning it with the Victorian scheme, and the clauses which would limit the risks faced by insurers, the scheme may become financially unviable. As a result, one or more insurers may be compelled to withdraw from the scheme. This in turn would increase insurance costs and processing delays, reduce consumer protection and undermine support for a strong building industry.

Impact on government Without the proposed Regulation, government would not receive income from application fees. The cost of regulating the home building industry would be borne by taxpayers in general. The Act would need to be amended to provide for many of the matters contained in the proposed Regulation, for example, to allow authorised officers to carry out certain compliance and prosecution work. Matters for which exemptions from insurance requirements are proposed to be prescribed would instead need to be considered individually, adding to the staffing resources required to administer the legislation. Compliance and dispute resolution costs incurred by government would be expected to increase.

Table 8.1 Overall Impact of Option 1 – Do Nothing Compliance with Assessment Criteria

Interested Parties Benefit Cost Consumer protection


1. Consumers

Protection from financial loss Low High Low Low Low Intangible impact Low High

2. Home building industry Compliance costs Low High Low Low Low Intangible impact Low High

3. Insurers Operational costs & risks Low High Low Low Low

4. Government Administration and compliance costs

Low High

Low Low Low

OVERALL

Low

High

Low

Low

Low


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Conclusion This option would result in a regulatory structure which would not be properly administered. In many respects, the intent of the Act would not be achieved, and this would be likely to result in financial loss to consumers, the industry, insurers and government.

Option 1 – Do Nothing: • fails to meet the regulatory objectives; and • involves a high financial and intangible overall cost to consumers, industry, government

and the community generally.

8.2 OPTION 2: RELY ON THE INDUSTRY TO SELF-REGULATE This option would involve relying on the industry to develop and monitor a system for limiting the performance of building and specialist work to qualified persons, promoting fair contract arrangements, establishing an alternative insurance scheme, raising sufficient revenue to regulate the industry and undertaking community education about building-related consumer issues.

There is no evidence available to indicate that the industry could effectively self-regulate or that this would be acceptable to the community. The industry is quite large and contractors normally operate in specialised areas. No one industry association represents the industry as a whole and many contractors do not belong to any association. Due to the size and diversity of industry, self-regulation is not seen as a viable option.

The impact of this option is essentially the same as Option 1 – Do nothing. The impacts on consumers, suppliers and Government would be the same as those listed in Table 8.1. Conclusion Option 2 – Rely on industry to self-regulate: • fails to adequately meet the regulatory objectives; and • involves high financial and intangible costs to consumers, industry, insurers, government

and the community generally.

9. CONCLUSIONS Table 9 provides a summary of the overall assessment of the options, as drawn from the discussions in the previous sections. Table 9 Summary of overall assessment of the options

Compliance with Assessment Criteria

Options Benefit Cost Consumer protection


1. Do Nothing Low High Low Low Low 2. Rely on industry to self-regulate Low High Low Low Low 3. Proposed regulation High Medium High High High

Conclusion Option 1, to do nothing, would generally result in a greater financial and intangible cost to the community. Without the proposed Regulation, the Act could not operate effectively. Many of the consumer protection provisions of the Act could not be adequately enforced. This option: • fails to meet the regulatory objectives; and


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• involves a high financial and intangible cost to consumers, the industry, government and the community generally.

Option 1 is not supported. Option 2, reliance on the industry to establish self-regulatory arrangements, does not address the identified problems which gave rise to the Act and proposed Regulation. This option, as with option 1: • fails to meet the regulatory objectives; and • involves high financial and intangible costs to consumers, the industry, government and

the community generally.

Option 2 is not supported. Option 3, the proposed Regulation, enables the consumer protection objectives of the Home Building Act 1989 to be efficiently achieved. It supports a viable and competitive home building industry, reduces the risk of financial and intangible loss to consumers, ensures building and specialist work is performed by appropriately qualified persons and assists in enabling consumers to confidently use the services of the home building industry. The proposed Regulation: • meets the regulatory objectives; • incurs high financial and intangible benefits; and • imposes an acceptable level of costs on consumers, the industry, insurers, government

and the community generally in relation to the benefits obtained.

Option 3 provides the greatest net benefit to the community and is the preferred option.

10. CONSULTATION Individuals and organisations are being invited to comment on the proposed Regulation in the following ways: § Advertisement in the press; § Publication of a notice in the NSW Government Gazette; § Invitations to comment on the proposed regulation will be forwarded to a range of

organisations, including the following: ú Administrative Decisions Tribunal ú Consumer, Trader and Tenancy Tribunal ú The Law Society ú The Department of Aging, Disability and Home Care ú Department of Information, Planning and Natural Resources ú Vero Insurance Limited ú Reward Insurance ú CGU Insurance Limited ú Australian International Insurance Limited ú Insurance Council of Australia Limited ú Strategic claims Solutions Pty Ltd ú Insurance Australia Group Limited ú Housing Industry Association ú Master Builders Association ú Swimming Pool & Spa Association of NSW Ltd ú Landscape Contractors Association of NSW


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ú Master Painters Australia NSW Association Inc ú Furnishing Industry Association of Australia ú National Wood Flooring Association of Australia ú Building Action Review Group ú Australian Consumers’ Association ú Royal Australian Institute of Architects (NSW Chapter) ú Engineers Australia, Sydney Division ú Air Conditioning & Mechanical Contractors Association of NSW ú Association of Consulting Structural Engineers of NSW ú Association of Wall & Ceiling Contractors of NSW ú Building Industry Specialist Contractors Organisation of NSW ú Cement & Concrete Association of Australia ú Master Plumbers & Mechanical Contractors Association of NSW ú Master Tilers, Slaters & Shinglers Association of NSW Inc ú Metal Roofing & Cladding Association of Australia Ltd ú National Electrical Communication Association (NECA) of NSW ú Plasterers and Renderers Association ú Refrigeration & Air Conditioning Contractors Association of Australia ú Australian Institute of Building ú Building and Construction Council ú Construction Industry and Training Board ú Archicentre ú Australian Institute of Building ú Australian Institute of Building Surveyors ú Electrical Trades Union of Australia (NSW Branch) ú Civil Contractors Federation (NSW Branch) ú Aged Services Association of NSW and ACT

Documents

Home Building Regulation 2004 - NSW Fair Trading · 7.1.4.14 Modification of Part 2 of the Licensing and Registration (Un iform Procedures) Act 2002 ... (regulations) after they have