NT Construction Leader Slams Building Regulation Report 6

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Thursday, March 3rd, 2016
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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.

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Discussions
6
  1. Les Williams

    Subcontractors and suppliers are being financially slaughtered across the country so why would the NT be any different. Why was the review commissioned? Most of these assertions by " peak industry groups ' are the routine rubbish trotted out every time secured trusts are mooted. The recent Senate Economics Committee's report titled "we just want to be paid" highlights the problems for construction industry subcontractors and suppliers who suffer from intimidation, non payment, wrongful withholding, conjured disputes, unfair contracts and illegal phoenix trading rife in the industry . Insolvency annually amounts to between $2.6 & $3 BILLION and mainly borne by subcontractors and their suppliers. Maybe Neilia Ginnane of the NT -HIA can explain how those figures can "maintain a sustainable industry". These statistics are an indictment on the industry and also those "peak industry groups" who oppose any meaningful and ethical change but instead seek and gain watered down legislation to preference a few at the expense of many. Serious questions must be asked as to how these industry associations are properly representing their subcontractor members who undertake and bankroll over 80% of the work. Comments here regarding cash flow and liquidity only reinforce the view that these main contractors need revenue owed to subcontractors to operate and that they seek to reapportion the risk down the contractual chain. Trusts are a must as it is time for the construction industry to pay its bills.

  2. Anthony Igra

    Well there you have it… what the HIA is saying here is that many builders cannot run their business off their own revenue. They can only do it off the subcontractors revenue! This is clearly admitted above in my view and only makes the need for trust accounts even more urgent. If such a scheme were brought in there would be a period of 'creative destruction' where the unviable builders would go out of business and the slack taken up by those that can make a dollar while paying their subbies in full. That is where the industry has to get to and what legislators around the country are trying to encourage.

  3. Ian

    If your society regards you as responsible then it will remain for you to ensure that you have appropriate conttacts in place, employ appropriate operators as required and that you research and develop confidence in those you deal with. The idea of 'replacing' the MBA warranty runs contrary to this. it discourages natural association with a mechanism able to give confidence in the capabilitiy of ones intended business partner. In turn, it discurages the use of similar means of identification of your capability and the quality of your work through association. it is an attempt to reduce the industry to a single denominator and not the highest.

    If there are those attempting to force unfair contracts on people then nobody needs to, nor should accept those contracts. If underpayment of witholding of rightful funds is rife then ensure there are contracts in place which can quickly and efficiently ensure the situation is righted.

    Surely we are not going to let government get away with thinking it can effectively run every detail of our lives. We know it does not have a proven track record. It would be better providing the tools with which all can appreciate the expertise they do not have and need to acquire before they involve themselves in the process; the tools with which the qualty of contracts can be judged and the infrastructure to quickly bring criminality to task when it does appear.

    Is not government's nannyng of would-be home owners as being too ignorant to contract appropriate consultants and contractors and too dumb to take responsibility for contracts sufficient costly inhibition to our liberty and creativity? We have seen how it pans out. Being seen to do and back covering; not responsibility.

  4. David Chandler

    If the NT Government are up for it, this is the time to turn some of the housing and construction industry's shambolic practices around. The construction consumer is not getting a good deal. Addressing the issues raised in this article have nothing to do with housing affordability. The reality is that the cost of averaging the industry's poor performance across all of the players has no impact on raising standards or rewarding the best practice players. Everyone pays more than they should. Perhaps some of Cureton's recommendations are a bit naive or impractical, but they reflect the sentiment of a public that is loosing confidence in this industry and the regulators who lamely stand bye and just watch what is happening. Its time to brush aside the self serving advocacy of industry interests and make the changes needed. Why not start in the NT, Australia's front door to our largest future markets and investors. I for one would be happy to join an implementation team to get the ball rolling in the NT. These changes are long overdue, and the industry's supply chain is due for a better recognition of the investment they make. Hopefully there may be some political will to take this on.

  5. Anne Paten

    I have not read the report but it must have something of value because the HIA is opposed. And I note that we get the HIA position stated very honestly: “HIA is open to regulatory reform if there is going to be an advantage to industry,” This means an advantage for HIA to increase its business via using those in the industry. The HIA wants the industry to keep on just as it is with its voice dominant – and with biased legislation, unfair contracts, no enforcement, owners discounted, defenceless and voiceless, with no proper insurance and no accountability for any of the crooks.

  6. Mark Whitby

    There is nothing new in the provision of trusts forming part of the contract. Architect contracts have had such inclusions for over 50 years for the sake of their consumer clients.. and the builders who came through unscathed under such provisions were and are trading unaffected. Perhaps these builders could tell the remaining worried builders how they managed thge situation.

    It seems fair to me that tradesmen (along with clients), might have some mandatory protection at long last. Perhaps the HIA and MBA could explain why this measure is anything but fair. Surely it means that builders will have to have more assets, rather than be risky.