There are plenty of risk management and insurance solutions available to the construction industry. Many of these are well designed and, applied correctly, work very well to protect construction clients’ businesses. However, not all solutions are fit for purpose when they’re put into practice, and one of these is the HBCF – insofar as it purports to ‘cover’ defective building work, according to MECON Insurance CEO Glenn Ross.
Ross is passionate about improving this area of risk for construction clients and consumers alike, even sitting on a Government lobbying group, the Multi-Disciplinary Committee (comprised of like-minded senior professionals from across construction-related industries and chaired by former NSW Treasurer, Michael Lambert). The committee is striving to achieve best practice in construction to minimise defective building work in NSW.
The issues with builders’ warranty insurance
Ross quite openly says “the HBCF is totally useless when it comes to cover for defective building work – unless your builder is deceased or no longer trading.”
“The issue with the HBCF is that its prime focus is keeping builder’s solvent, despite themselves, in order that they can rectify their defects – without HBCF focusing on the defects themselves. There should be a serious question around the assumption that the builder who created the defect will even know how to fix it! (You need look no further than the plethora of defective building issues that pass through the NSW Civil and Administrative Tribunal [NCAT] for that answer). The more plausible logic would be to assume that the builder built to the best of their knowledge and ability the first time around and, as the issues before NCAT will attest, are none too receptive in acknowledging their defective work or to paying for defect rectification themselves.”
“Unlike the Queensland Government system, there are no consequences for NSW builders (or for the HBCF) who do not fix defects in a timely manner, properly, or indeed at all – as long as they remain alive and solvent. In QLD, the system is not utopia by any means, but their ‘three strikes and you’re out’ rule to encourage builders to remedy defects is far more proactive than the NSW’s Government’s ‘blind-eye’ to the plight of consumers who are suffering from financial hardship and sometimes health issues due to defects in their buildings.”
The HBCF is also not a very cost-effective insurance solution, especially for high-end residential builders, according to Ross.
“For homes worth around $8m and up, the HBCF premium is over $90,000 (noting that the HBCF has a discretionary +/- 30% factor on this figure), but the most the purchaser will get paid out per-dwelling is $340,000 – if the builder dies or ceases trading! (Who would ever willingly purchase such “insurance?”). At this level, the mandatory HBCF premium starts to resemble just another tax.”
What could work better than builders’ warranty insurance?
Ross logically argues that rather than flogging HBCF to unwitting/unwilling consumers (via the very builder who would initiate the consumer’s woes), the NSW Government should instead take practical steps to identify, monitor and remediate the cause of defects and introduce consequences for builders who fail to comply.
“As far as addressing building defects is concerned, the national system actually requires an overhaul. The National Construction Code (NCC) is essentially the ‘builder’s road code’. It should be user-friendly for the majority. Sadly, it’s far from that. In fact, solicitors are often required to interpret the NCC for builders and their clients! The NCC should actually be more like the ‘road code’ – at least for residential/non-commercial construction – designed to help the user easily understand how to build responsibly/compliantly and how to obtain and maintain their builder’s license – just like a driver’s license. It should perhaps also have infringement consequences and retests – similar to driver’s licenses.”
Ross has been advocating changes in how building defects should be addressed for three changes in Government and has yet to see any pragmatic or meaningful action taken. “The HBCF and the recent 2% building bond, both funded by the home owner, are akin to a band-aid for a disease. Far more science is required” says Ross.
“Despite the Government’s apparent nonchalance, this is not an issue I would willing give up on. It’s too important for our clients and for the construction and insurance industries, so I will simply persevere,” say Ross.
If you have any questions around HBCF, or the issue of defects, please don’t hesitate to contact us – we’re happy to help.