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14 May 2020

NSW parliamentary inquiry final report: further reforms for construction industry, rectification of flammable cladding

By Lina Fischer, Stuart Cosgriff and Jessica Lighton

The PAC's Final Report provides further food for thought in the ongoing regulatory response to the crisis of public confidence facing the Australian construction industry.

The NSW Government Public Accountability Committee (PAC)'s Final Report, "Regulation of building standards, building quality and building disputes", makes 22 recommendations, many advocating the adoption of measures put in place in Victoria, including establishment of a cladding rectification fund and a specialist agency to oversee such rectification. If implemented, the recommendations would overhaul the NSW construction industry.

Background to the Public Accountability Committee's Final Report

The Final Report is the result of the PAC's inquiry (established 4 July 2019) into the government regulation of buildings standards, building quality and building disputes in NSW. Previously, a First Report was published on 13 November 2019 which considered existing building-related legislation, the current licensing system for building trades, and the potential establishment of a Building Commission as an independent statutory authority.

Key issues in the Report

The Final Report serves to highlight the "systemic issues plaguing the building and construction industry" and the "lack of regulation and oversight by the NSW Government". Building on the First Report, the Final Report makes a further 22 recommendations and canvases other issues, including flammable cladding and its rectification, the adequacy of private certification in protecting building standards, and the role of strata committees in circumstances where there are building defects in common property. The Final Report also comments on the extent to which recommendations made in the First Report have been implemented.

Broadly, the 22 recommendations fall into the following categories:

  • flammable cladding and its rectification;
  • the role of the NSW Building Commission and Commissioner;
  • financial assistance from the NSW Government for strata homeowners with major defects in their buildings;
  • the role of private certifiers; and
  • the introduction and/or progression of new legislation.

Flammable cladding

Of all the issues addressed in the Final Report, flammable cladding received the greatest coverage with 11 of the 22 recommendations relating to it (Recommendations 4-14).

These 11 recommendations include requirements for disclosure to proposed purchasers, lessees or invitees of buildings that contain flammable cladding. Additionally, the PAC recommended that the NSW Government provide substantial funding package, proportionate to the Victorian Government's $600 million package, for the rectification of buildings containing aluminium composite panels and building products that may be banned in future. The package should be available to homeowners who have already commenced remediation work. In situations where insurance has not provided an appropriate solution to the issue, the Final Report proposes the NSW Government pay for the rectification of flammable cladding on dwellings in NSW.

Additionally, the PAC called on the NSW Government to adopt a practice where genuine purchasers and potential tenants are able to access information from the flammable cladding register or a similar database to clarify the cladding status of their potential future home. Currently, the state's cladding register (including buildings with potentially flammable cladding) remains a privileged document and is only available to view by members of NSW's Legislative Council.

Design and Building Practitioners Bill 2019

The PAC recommends that NSW Parliament resume debate on the Design and Building Practitioners Bill 2019 (NSW) as a matter of urgency.

The Bill proposes to reform the NSW construction industry by introducing a statutory duty of care owed to land owners and subsequent owners by persons who carry out construction work, compliance declarations for the Building Code of Australia, and establishing minimum registration requirements and insurance obligations for design practitioners. These proposed reforms address a number of recommendations from the First Report and form part of the NSW Government's response to the Shergold-Weir Report released in April 2018 which considered the effectiveness of compliance and enforcement systems for the Australian building and construction industry. Debate of the Bill was interrupted when it was last before the Legislative Council on 19 November 2019 and has not yet been resumed.

Opposition to the Final Report

As was the case with the First Report, the Final Report includes a dissenting statement by two of the Government members of the PAC. In particular, they oppose the recommended expanded role for the NSW Building Commissioner and the deployment of government funding for flammable cladding rectification. Instead, the Government members preferred the "driving cultural change" approach to expanding the Commissioner role, a position advocated by Commissioner David Chandler OAM himself, and stated that "the NSW taxpayer should not foot the bill for the practices of others" in relation to potential rectification funding.

Next steps for the NSW cladding response

The PAC's Final Report provides further food for thought in the ongoing regulatory response to the crisis of public confidence facing the Australian construction industry. However, the NSW Government's response to the Final Report is not due until 30 October 2020, so it remains to be seen how many of the recommendations will ultimately result in reforms.

For further information on the impacts of these recommendations on the building industry in NSW, please contact a member of our team.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.