Builder beware - meeting regulatory requirements and avoiding defects with construction products

Construction Law eBulletin - 15 December 2016

Summary

Never before has the range of building products available to Australian building practitioners been so plentiful. The sheer number of similar products on the market — many of which are manufactured overseas — can make it difficult to verify whether they are of an acceptable quality and comply with regulatory requirements.

With the pressure placed on building practitioners to deliver innovative buildings quickly and cheaply, it can often be tempting to install now and ask questions later. However, it is important for designers and builders alike to be aware of the risks posed by the use of defective or non-compliant building products.

 

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The legal framework

Building work in Australia is required to comply with the performance requirements of the National Construction Code (NCC). The NCC, by reference to Australian Standards and other documents, sets the minimum standard that various building products must meet.

However, building contracts often set out additional requirements or require a higher standard of performance or durability than what is set out in the NCC.

In addition, warranties as to the fitness for purpose and quality of materials used are implied into domestic building contracts in many States. The Australian Consumer Law also requires consumer goods to be of an acceptable quality and consumer services to be provided with due care and skill.


How issues with building products might arise

Issues with building products can arise in various ways.

The most obvious is the physical failure of an inferior product. For example, the failure of an inferior quality plumbing valve shortly after final completion, causing property damage and business interruption losses.

Less obvious is the discovery of non-compliance — either with the requirements of the NCC or the construction contract — shortly prior to or after project completion. Examples include:

  • the discovery that glass used in the windows of a high rise building does not conform to the requirements of the construction contract, thus preventing practical completion; and
  • the use of combustible aluminium composite panels as external cladding that are in breach of the fire safety performance requirements of the NCC (this issue is at the heart of a regulatory investigation into external cladding commenced in response to the 2014 fire at the Lacrosse apartments building in Melbourne — whether the use of combustible panels in this application is non-compliant is disputed).


Insurance perspective

Insurance cover is generally available for the cost of repairing damage caused by a defective product and compensating occupiers for their related economic loss. However, there are no insurance policies on the market that cover builders for the cost of replacing or upgrading the defective or non-compliant product itself.

While in some cases, the cost of replacing the faulty product (such as a plumbing valve) is minor, in many cases, the main cost lies in replacing the non-compliant product. This is particularly relevant where there are issues with services, cladding, and fire protection materials.

Professional indemnity insurance may cover building designers for third party loss and damage arising from the specification of a non-compliant product. Some professional indemnity insurers also offer 'mitigation' extensions to design and construction contractors. These extensions cover the cost of rectifying a design issue when it is first identified and before the receipt of a third party claim, on the basis that it is more cost effective to address the issue early than wait for a demand. However, the monetary sub-limit for this type of cover is usually modest.


Tips for builders

While there is no insurance cover available to builders for the cost of replacing a faulty product, builders can protect themselves by:

  • avoiding the substitution of products from those specified in approved design documents;
  • taking care when using innovative or imported goods by checking the accuracy and robustness of the evidence of suitability provided, for example, questioning whether a product purporting to have a Fire Resistance Level has a current Certificate of Conformity or a compliant report from a Registered Testing Authority in Australia;
  • exercising caution when installing a product specified by a client to ensure that it is compliant (the builder is ultimately responsible for ensuring that the products installed meet the requirements of the NCC); and
  • where possible, avoiding the procurement of products direct from overseas manufacturers, as the prospect of recovering any losses from a supplier based in Australia is much greater than recovering losses from another jurisdiction — particularly in regions where trade practices regulation is lax.

Building designers should also ensure that they research the products that they specify carefully and seek appropriate advice where necessary

The diversity of building products on the market means that it can be difficult to determine how to verify compliance. The Australian Procurement and Construction Council has published a guide to this process titled Procurement of Construction Products — a guide to achieving compliance, which will prove to be an invaluable tool for builders and designers alike.

 

Authors
Rohan Bennett, Consultant
Karolina Juric, Senior Associate

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Further information

All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.

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