Two building and construction-related issues have received much media and political attention in WA recently: subcontractor payments and home indemnity insurance.
Historically, these issues have been treated as separate and dealt with separately.
For example, there are proposals to deal with subcontractors’ difficulties in getting paid for their work, through proposed amendments to the Construction Contracts Act 2004 (in WA) and the use in some government works of Project Bank Accounts. There are separate reforms under consideration to deal with, for example, the 116% increase in the home indemnity insurance premiums that WA home builders have been charged over the past four years.
We at HHG Legal Group, however, see the two issues as related.
The connection lies in the impact on both home owners and subcontractors of home builder insolvencies. Put simply, when a home builder experiences financial difficulty, subcontractors become less likely to get paid on time or at all and the owner may find themselves stuck with an incomplete house that the builder cannot afford to finish building.
So far, the law has responded to this by requiring the builder’s home indemnity insurer to pay the owner up to $100,000 to compensate, basically, for not getting what the owner had bargained for.
This may put a band aid on the owner’s immediate financial concerns (sometimes not even that!) but it does not address the bigger issue, that the works are left unfinished and consequently:
– owners are unhappy because they do not get the homes they wanted;
– subcontractors are unhappy because they are no longer engaged to carry out works on site;
– the insurance industry is that unhappy that premiums have increased 116% over the past four years and there is only one major provider of home indemnity insurance in WA; and
– the public at large is unhappy because unfinished home building works detract from the built environment and have an obvious social and economic cost.
Our proposals involve insurers applying the funds that under the current regime, would be paid to the owner by way of compensation, to fund completion of the works instead. This could work when combined with:
– giving liquidators/administrators a statutory duty to novate the head contract (as is sometimes done in any event – for example, by the administrators of the Home Art Building Group Pty Ltd, under recent administration in WA);
– using insurance monies to compensate for delays and cover increases in labour and material costs under the novated contract in a generally rising market for labour and materials; and
– using insurance monies to further compensate owners for any consequential capital losses in a generally declining real estate market.
That way, the owner’s bargain may be better secured, subcontractors may be kept in paid work, insurers’ costs and therefore premiums may be better managed and the community may be enriched by a properly and efficiently built environment.
This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office on Freecall 1800 609 945 or email us now.