A leader in the Northern Territory’s construction sector has slammed a report into building regulation within the territory, describing the report as a ‘desktop exercise’ and arguing that recommendations regarding trust accounts would increase the risk of builder insolvency if adopted.
In an interview, Housing Industry Association Regional Executive Director – Northern Territory Neilia Ginnnane told Sourceable that the process of a review conducted by building disputes and major projects lawyer Cris Cureton was lacking in terms of genuine consultation with builders and contained a number of recommendations which were poorly considered.
“HIA is open to regulatory reform if there is going to be an advantage to industry,” Ginnane said. “Obviously if we can improve licensing or affordability and so forth, we are open to that.”
“However, with the Cureton review, we consider it as being simply a desktop exercise. I guess the research that was conducted in getting together the information for the report was quite minimal. It does look at interstate and overseas options for regulatory change but it doesn’t really consider what will work on the ground here in the Northern Territory for our industry.”
“Our sentiments are that the government should consider it for what it is as a desktop exercise and a subjective review.”
Released last November, the report made 35 recommendations, including that:
- An existing residential warranty scheme currently run by Master Builders be replaced by a new scheme, which would apply to all residential building including high rise and would provide a limited form of first-resort cover in addition to last resort cover for the death, disappearance or insolvency of the builder.
- All builders and trade contractors be required to be registered except for civil contractors and handymen below a $12,000 threshold.
- As security for the due completion of work and attendance to defects, builders be required to contribute five percent of the contract price on any given project toward a new statutory retention trust for residential building works. Half of this amount would be repaid to the builder upon practical completion whilst the second half would be repaid one year later.
- In order to protect payments to subcontractors, builders whose payments to subcontractors and suppliers exceed $500,000 in any given registration year also be required to open and run a separate subcontractor trust account into which progress payments made by the principle must be paid – contractors could only draw money out of the account once subcontractors had been first paid in any payment cycle.
In its response, HIA said the report suffered from a number of flaws, which in addition to its ‘desktop nature’ and lack of consultation include appearing to be based upon incorrect assumptions and containing flawed recommendations.
In terms of incorrect assumptions, HIA says the report appears to suggest that non-payment to subcontractors is rife but offers little in the way of evidence to support this.
In terms of flawed recommendations, Ginnane says the retention trusts for residential building works and the trusts for subcontractor payments would severely impact builders in terms of cash flow and liquidity.
“Essentially, the effect of having those trust funds if they were to be implemented would be that the working capital of the builder would be tied up essentially for the entire period of build,” Ginnane says.
“You would have a builder who then has to carry the entire cost and the entire risk of a build right up until the end of the contract. That poses a risk of insolvency among smaller builders and is quite a concern for HIA members.”
Builders Collective of Australia President Phil Dwyer said the report had gone too far in a number of areas where he hoped the suggested reforms would now be watered down by the government – especially the statutory trusts for residential building works and the subcontractor trusts.
Still, he said there were a number of welcome recommendations, with mandatory dispute resolution giving added protection for consumers and the strengthened registration system helping to deliver better industry management.