Amendments to the NSW Home Building Act that impact upon the way its Home Building Compensation Fund (HBCF) scheme operates were supposedly informed from submissions made by the various interested parties and industry stakeholders.

The reality, of course, is that the government always acts to satisfy its own agenda. The tradition of governance and bureaucratic practice means that no inquiry will ever be initiated without first establishing the desired outcome from the inquiry. The predetermined objective of the NSW government is quite obviously to extricate itself from this failed insurance scheme even if costs taxpayers $300m to do it. In politico speak they call this a ‘solid commitment.’

To the public, it’s viewed as a blatant attempt to enhance a systemic failure. “Gilding the lily” is an old fashioned phrase that would apply here. Or better still, as the former federal senator Glenn Lazarus once described an incentive by government to gain his vote to reform the higher education sector, “polishing a turd.”

Anyway, back to the actual submissions. Leading industry associations and other organisations provided around 30 submissions, whilst businesses and individuals accounted for another 43.

When opinion is sought on legislative change, it will inevitably attract commentary from interested parties that often hold different points of view. That is as it should be and you can see that being demonstrated with a quick review of the submissions on the Fair Trading Website. There is no real definitive consensus. The degree to which the various submissions are factually informed, rather than being based on opinion, is difficult to discern as the process lacked the rigour of a proper research based analysis. Hopefully, some filtering of the submissions managed to disseminate those that were made solely on the basis of a vested financial interest.

Like some other submissions, my response didn’t focus on the detailed operation of the insurance scheme itself. However, the factors I tried to examine do have definitive causal link to the need for this particular insurance scheme to exist in the first place. In general, I think the decision to ‘insure’ almost anything is best left to the party at risk of loss or damage if a situational hazard eventuates. Think comprehensive motor vehicle insurance as a reference. In this instance, the work being executed that currently requires this insurance also generally will require home owners to obtain finance to fund those works. The lending authority could decide if the proposed building works actually need to be insured against the risk of non-completion and/or defective work to be carried out by the licenced builder.

Insurance on the loan repayment is a common requirement if in the lender’s view there is inadequate security over the loan in terms of the borrower’s assets and equity. From this perspective, it really should be up to the consumer to decide whether or not they want to ‘insure’ against the risk of their builder being unable to satisfactorily execute the contracted works. Having said that, there are arguments made against what could be viewed as the libertarian concept of a freedom to choose to insure or not. In the current system, the client is compelled to pay for the insurance cover anyway as the actual cost of the insurance premium is included in the builder’s ‘Preliminaries’ budget.

Of particular interest is Part D. Item 8 of the Discussion Paper titled ‘Reforms to the licensing system’ and specifically to matters raised by questions 21 and 22, which were as follows:

21.  Could the introduction of licence classes based on the type of construction improve the quality of building in NSW?

22.  If tiered licensing was introduced, should project and financial management skills be introduced as licensing eligibility requirements for more complex building projects?

The notion of introducing higher standards of formal qualifications being linked to an incremental licensing classification based on the building work type and work category is hard to argue against. Furthermore, licensing for construction works shouldn’t be limited to the carrying out of ‘residential’ building works only as it is in NSW. The following extracts from various submissions by leading industry associations, professional organisations and businesses that would seem to share similar views on these matters are shown as follows:

The first is from the Australian Institute of Building Surveyors – (NSW Chapter) where they stated:

“Less insurance claims would improve the viability and efficiency of the HBCF. Hence proposals such as the following are supported:”

  • Creating license classes to reflect scale and risk of relevant work
  • Enhanced supervision requirements for licensees
  • Random risk-targeted inspections of licensees
  • Improving the building regulation and certification system

The next is from the Building Professionals Board, who had this to say:

“Adopting tiered licensing, to reflect the skills required for different types of development, is supported. This is similar to the approach taken by the Board in relation to accrediting building surveyors (A1, A2 and A3- category certifiers are accredited according to their experience and qualifications), which has proved effective.” “To reduce and manage risk, the recent independent statutory review of the Building Professionals Act 2005 recommended that all construction work be overseen by a site supervisor.

“The discussion paper notes that builder insolvencies are generally due to poor project and/or financial management.”

The Australian Institute of Building’s NSW Chapter also provided their opinion by stating:

“Could the introduction of licence classes based on the type of construction improve the quality of building in NSW? Yes – but only if building (as opposed to architecture and engineering qualifications) are part of the licensing requirements – alternatively, licensing for the various tiers should be the same as the requirement for the Assessors of the very qualifications which are the basis of tiered licences in every other jurisdiction (the Construction Training Package – nominates registration upon the National Building Professionals Register [NBPR])

“If tiered licensing was introduced, should project and financial management skills be introduced as licensing eligibility requirements for more complex buildings? This is unrelated to the quality of the building works – this instead should be a requirement of the insurance. The question appears to be confusing a licence to practice with a licence to contract. The completion of Construction Management qualifications or registration upon the National Building Professionals Register at the appropriate level would assist.”

The NSW Master Builders Association also contributed some thought provoking points:

“The question of reform to the building regulatory system in NSW is a crucial element for the success of not only the insurance scheme, but also the industry in general. Master Builders believes that critical reform in the licensing area is required with the aim of creating a license structure that supports improvements in building quality and practice. The current system places insufficient emphasis on technical skill, business acumen or the degree of difficulty of construction. Master Builders advocates for a tiered licensing system which considers:

  • technical ability;

  • type of construction to be undertaken;

  • business management skill;

  • financial capacity; and

  • experience.”

To ultimately reduce risks for the scheme, Master Builders supports:

  • an improved licensing framework (tiered framework)
  • providing a foundation which improves overall industry standards
  • providing defined business career paths that allow new builder entrants time to hone their technical, management and costing skills, understand the industry and learn to appropriately assess the risks associated with a project.

And lastly, for an insurance provider perspective, Master Builders Insurance Services had this to say:

“By developing a tiered licensing system that matches levels of experience, training, risk management and financial capacity/literacy to the complexity and volume of work done by a builder, we will have a considerably better performing scheme that rewards long term thinking.”

It would seem fair to say that significant changes to increase the validity and authenticity of the training and qualifications for the purposes of builder licensing is viewed as being an important and influential factor to these highly regarded industry sector and professional organisations. Yet it would appear that the NSW government has chosen to selectively ignore their advice. Why would they do that?

Here are some of the alternative views that were expressed in submissions from some other industry stakeholders.

First up is the Housing Industry Association. Here’s a little of their commentary concerning the question of proposed reforms to the current licensing system in respect of the HBCF scheme:

“It is HIA’s view that a cautious approach should be taken when considering licensing within the framework of Warranty Insurance; licensing has a specific purpose and, to attempt to expand that role tocarry out functions that sit outside of this purpose is ill-advised; licensing is not a panacea for all of the alleged ills of the residential construction industry. A further three observations can be made in relation to these proposals:

Firstly, there is no evidence that any of the proposed licensing reform options would have any impact on the viability and long term sustainability of the Warranty Insurance scheme – a fundamental consideration during this review. Secondly, any change to the licensing system will simply add cost; that is cost to the industry, cost to NSW Government and ultimately cost to the consumer. Notably the NSW Government has just reviewed the current licensing framework which culminated in the passage of the Bill. In addition, NSW Fair Trading has made a number of administration changes to the license application eligibility requirements. Thirdly, it is also concerning that none of these reform options were put to, considered or discussed by the BIWG, as such there is simply no solid basis for proposing changes to the licensing system as legitimate options for reform.

“Could the introduction of license classes based on the type of construction improve the quality of building in NSW? No. This option signals a significant upheaval to the current licensing framework, as such, it is HIA’s view that for this option to be adopted a significant case for change would need to be made.

There is also the potential to complicate already complex cross-border license incompatibilities and mutual recognition arrangements. There is also no evidence from QLD or the ACT that this type of licensing framework has any impact on the viability of the Warranty Insurance scheme – the central consideration of this review.

If tiered licensing was introduced, should project and financial management skills be introduced as licensing eligibility requirements for more complex building projects? No.”

The HIA has clearly expressed what it thinks about any proposal that might require builders to achieve a higher standard of project management and financial management training skills in order to obtain their building licence in NSW. Basically, the answer is no!

Finally, the Law Society of NSW summarised their view on a proposed tiered builder licensing system with the following statement:

“The Law Society is concerned that the introduction of licence classes places greater burdens on builders and consumers to correctly identify the appropriate licence class, and a failure to do so correctly might then jeopardise the level of protection afforded.” “The Law Society does not support tiered licensing.”

I disagree with both the HIA and Law Society opinions on these matters. They are tacitly supporting a system when that system has clearly failed and will likely fail into the future.

My submission is derived from a direct involvement and exposure in the training of people who wish to acquire the educational qualifications to become a licenced builder. Unfortunately, the national training package course content used for the purposes of accrediting builder licensing is wholly inadequate for the NSW ‘one size fits all licence’ system. It fails to address the higher order skills set that is necessary to successfully carry out the complex business of managing construction projects on so many of our contemporary building designs and the increasing contractual complexities involved.

Whilst there is clear support for changes to the ways in which builders are licensed and the extent of works they are considered to be competent to perform under a single licence, it seems NSW will continue to ignore this major factor and stick with its antiquated ‘one size fits all’ system.

This means anyone who ‘works’ or has ‘worked’ in industry – whatever that may mean – can do one of the quick online ‘Certificate III & IV’ level qualifications offered by private RTOs based solely on a ‘recognition’ of their alleged ‘prior learning.’ They are then in a position to be issued with a licence to enable them to build our next new apartment block.

With all due respect to the many good carpenter and bricklayer tradespeople operating out there, in most cases there is simply no correlation that exists between the primary structural and construction methodologies used and the project administration complexities associated with managing a modern apartment building construction project and those of the basic trade skills that they may have been taught for the purposes of performing simple ‘cottage’ construction works.

It is extremely disconcerting that as the organisation charged with the responsibility of issuing builder licences, Fair Trading completely fails to acknowledge the obvious existence of these major skills gaps and the risks that they present to NSW building consumers.

The likelihood of having many more incomplete construction projects due to a lack of training and expertise within the areas of complex cost control, job planning, construction programming and contract administration skills or building projects that manage to reach ‘completion’ stage but are subsequently of such poor build quality that they are riddled with an ongoing list of building defects seems to be the inevitable outcome for many NSW building consumers.

Make no mistake, this was a process that presented an opportunity for NSW builder licencing regulations to be dragged kicking and screaming to meet the needs of the 21st century and to lead the way in best practice for both the building construction industry and for consumers.

Instead, the government focused on an approach to do nothing more than bail out the HBCF scheme’s deficit and hand it all back over to the private insurers as a solution.

I don’t know what sort of ‘change’ that actually represents but it most certainly isn’t the meaningful type of substantive reform that is so desperately needed to fix a broken system. As former senator Lazarus suggested, no amount of ‘polishing’ can make this stinking insurance scheme and licensing system anything more than what we all know it to be.