The NSW Architects Registration Board is encouraging architects to be more diligent when administering construction contracts and defining how building defects are identified, rectified and paid for, following the changes to the NSW Home Building Act that came into effect 15 January 2015.

A central change to the Act, which was introduced in 2003 to protect consumers from risks associated with building a home or undertaking a major renovation, is the definition of a ‘defective building’ and this could affect architects who are responsible for administering the construction contract for a project.

The change includes a new definition of a ‘major defect’ which could stop a building from receiving a ‘practical completion’ certification and therefore prevent the builder from receiving their ‘retention sum’.

The Board have called on architects to consider these changes carefully, particularly when defining the roles and responsibilities of parties at the construction contract stage, and how defects are defined and dealt with.

The statement below regarding changes to the Home Building Act came now in effect was posted on the NSW Architects Registration Board website:

The government sees the amendments as a way to balance the need to protect consumers from risks associated with such a big investment as building a home or undertaking major renovations, while at the same time, recognizing the contribution made by the building and construction industry to the economy of New South Wales.

The amendments include around 50 changes to the Home Building Act. This post isn’t intended to provide an explanation of those changes, which can be found here.

Rather, with a lot of interest in how defective building work is now defined in the Act, the real question is how do we ensure quality is front and centre in new apartment buildings, and how do architects, builders and trades work together to reduce the chance of defects in the first place?

Of course, it’s common for owners to deal direct with builders or trades for minor works like a new kitchen, or repairs to a bathroom, roof or plumbing. Some will work with a builder on a new house or renovations to an existing house. But it’s not always the case, and it’s rarely the case when it comes to apartment buildings.

Architects are typically engaged by owners to design a house, or by developers for an apartment building. Often this includes administering the construction contract between the owner or developer, and the builder. It’s how they do this that’s important. And often a series of extra protections come as standard. These protections matter, because the big changes to the Act are about how defects will be identified, rectified and paid for.

The first protection is found in the State Environmental Planning Policy No.65 (SEPP65). The SEPP recognises that due to their scale, permanence and complexity, the design and construction of apartment buildings is different to a single home. For this reason, SEPP65 requires that apartment buildings over 3 stories, or with four or more apartments must be designed by an architect. The thinking here is that it’s better having an experienced and skilled professional design the layout to comply with the codes, standards and laws, and to select robust materials, co-ordinate the building’s water, power and sewer, landscape and common areas. Less likely from the outset, that is, to result in defects.

It’s widely recognised that SEPP65 has lifted the quality of apartment buildings in NSW, which gives apartment owners a head start.

But there are other protections on offer too, if you know where to look. Assume that the architect not only designs the building, but is engaged by the owner or developer to control the project the whole way through.

How does this ensure a better result?

An architect does more than just draw the shape and choose the colours. Their expertise includes integrating the work of the planners and engineers, the needs of Council and the Building Code of Australia and any of the 6,000-plus Australian Standards that apply to the use of glass, access for people with a disability, fire protection and more. They do this by documenting the design in technical drawings - like ensuring a 30mm setdown in the bathroom slab that may be needed so the waterproofing, and tiling finish flush to the carpet in the bedroom (avoiding the built-in trip hazard). Or like ensuring the building’s carpark is adequately ventilated without sending exhaust fumes up to your balcony as you entertain or relax.

Truth is, a Development Application for an apartment building can run to 300 pages of reports, drawings, perspectives, material selections, noise, fire and flood mitigation and so on.

But wait, there’s more.

How do you know you’re getting what you’re paying for, and who pays when work is defective?

One of the changes to the Home Building Act acknowledges that payment claims by a builder are often the source of disputes. Builders are now required to provide a schedule of progress payments for all contracts over $20,000, and for those payments to be either specifically linked to completion of specific stages of work or for costs already incurred, (and be supported by invoices or receipts).

This brings the Act in to line with the practice of most building contracts administered by an architect, where a schedule of progress payments is agreed up front. This can help forward planning with the bank and the household budget, but more importantly for the owner, can be the comfort of knowing the payment is linked to completion of the brickwork, or pouring of the first floor concrete slab or the landscaping – tangible aspects of the building project.

But when talking defects, the most significant protection is what’s called a ‘retention sum’. This is a small portion of each progress payment held in reserve until it reaches a maximum of, say, 5% of the total contract sum (that’s $12,500 on a $250,000 home extension). It’s designed as a consumer protection in case the builder defaults, or building defects go unfixed at the end of the job. Generally the retention sum is banked in an account held in the names of both the owner and the builder. Each payment claim from the builder is assessed by the architect and, if appropriate, certified for payment by the owner. This allows payment to be made, with 10% held back (until the maximum of 5% of the contract is reached).

The really good thing about the contracts commonly used by architects is that they are endorsed by both the Australian Institute of Architects, and the Master Builders Association. So both the architect and builder have the comfort of knowing they’re fair, equitable and balanced. The retention sum is an agreed way of building in protection for the owner. It’s a kitty to fund the fixing of any defective work.

So what are defects?

Defects are where the quality or execution varies from what was agreed in the contract, or fall short of the minimum Australian Standard. For example, it may be that ‘weepholes' (openings) required in brickwork to let moisture escape were overlooked, or that the plasterboard is wonky, or that a kitchen bench was installed too high. It may also be that brickwork was started before a slab had time to properly cure - meaning that cracking in the bricks or mortar shows through the paint and render over time. Some defects are easily fixed after the event, but in extreme cases, it can be best to demolish the wall during construction and start again. This is where the construction contract defining the roles and responsibilities becomes important. It also helps having an architect on hand to identify what's defective. Because the best defect is one you never have to live with.

Who decides what is defective? If an architect is involved, defects are generally identified throughout construction. The builder is given the opportunity to rectify these defects at any time - generally up to a period of around 12 months after completion. A regular schedule is agreed; starting with the most serious through to the scratches, dents and scuffs. If a defect is really serious – what the Act now calls a ‘major defect’ - it can prevent what’s called ‘practical completion’ from being certified - preventing owners from moving in, but also preventing the builder from accessing some of the money being retained as security to ensure those defects are fixed.

If defects are still present 12 months later, the retention sum can be used to fix them. Even if it means paying someone else to do so.

The system isn’t perfect, and some defects only show themselves after the building has had the chance to go through a baking summer, and a wet, cold winter. Others can reveal themselves years later. In these cases, there’s decades of case law to establish who’s responsible (a new train line built nearby that causes shaking isn’t the builders fault, whereas loose tiles or door handles may be).

Buildings are complex, and it’s a rare thing for a new building to be defect free. Amendments coming in to effect today make it even more important to be clear upfront on how defects are identified, rectified and paid for. Because the best defect is one you never have to live with.

Nathan Johnson

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