Have you budgeted for structural defects in your project?

Structural defects in buildings are under the spotlight with government moves across the country, increasing liability for designers and builders.

On our eastern seaboard, more than 70% of buildings constructed since 2003 had one or more defects, research has found. Design issues accounted for more than half of defects in residential apartment buildings, about 40% of which occurred during construction. The biggest problems were with cladding, passive fire protection and waterproofing – the latter can create many other building issues, too.

The state of play in NSW

In NSW, 97% of new residential apartments had at least one defect that repeated throughout the building. That prompted the state to bring into effect the Design and Building Practitioners Act last June. The changes being rolled out include:

  • Builders having a new duty of care to landowners
  • Designers, engineers and others contracted to build must be named on a publicly available registered practitioner list
  • Design and building practitioners should declare their work complies with the National Construction Code before the building can be occupied
  • Those practitioners need compulsory insurance, and
  • Government oversight, plus authorised officers have enforcement powers to stop building work and investigate breaches of the act.

There’s been much debate over defining ‘structural defect’, but a NSW Civil and Administrative Appeals Panel decision offers clarity. NSW landowners are now able to claim whether a statutory warranty existed or has expired. A deluge of claims from apartment owners about past building defects is expected.

Mini case study: builder sued over stadium defects

Elsewhere, a case about alleged major building defects at the HBF Park Stadium in Perth is yet to hit the courts. The Western Australian Government is suing BGC Construction over the $95 million contract to revamp the stadium.

In its lawsuit filed with that state’s Supreme Court, the government has claimed the builder didn’t fix defective work in the eastern canopy, roof skylight, raking glass and glass elements. The suit alleged the BGC failed to complete the work under the contract and its negligence had led to loss and damages. Government coffers have since funded the remedial works.

The peak construction union, the CFMEU, points to the underpinning issue being a “broken tender system” resulting in contractors under-quoting and failing to deliver.

Have the right protection

There are a few core construction insurance policies you need to have on your radar:

Contract Works Insurance generally provides protection for all construction-related activities of a construction project into one packaged policy. Contract works insurance may cover aspects of construction projects, including theft of on-site materials, third party property damage, and third party injuries or other personal effects.

Professional indemnity insurance protects you against third parties’ claims and the cost of legal action that arise from acts, omissions or breaches of professional duty as you go about your business. This also covers you for your partners’, employees’ of volunteers’ misdeeds in the course of your work. Such a policy is legally compulsory in certain industries, but most companies will insist you have it to work with them. Talk to us, as your broker/adviser, to ensure you’ve got the best-fit cover to be in the running for continuing work.

Public Liability Insurance will be a must for many contracts you sign, although the amount of minimum cover stipulated can vary from $5M to $20M. Your head contractor’s insurance may not cover you. Your policy should protect your liabilities for your actions, such as negligence, which could cause property damage or personal injury to a third party.

They’re just a few insurance options you have to help you manage the risks of your construction business. They’re your foundation to build a successful business. This can be a complex area but, as your broker/ adviser, we can customise a suite of insurance policies to match your needs.

Useful links:

Building Ministers’ Meeting (formerly forum)

https://www.industry.gov.au/regulations-and-standards/building-and-construction/building-ministers-meeting

Building Confidence Report: implementation plan (roadmap for reform)

https://www.industry.gov.au/data-and-publications/building-confidence-report-implementation-plan