Contract Works and Public Liability Insurance covers the following:

• Contract Works Insurance - this protects all the construction materials against loss or damage throughout the construction period, and it extends to covering such materials against events such as Fire, Burglary, Malicious Damage, Flood, Storm and Tempest, etc.
• Public Liability Insurance - this protects the builder against any financial lose or exposure to Third Party Property Damage and/or Third Party Bodily Injury.  In other words, if the actions of a builder cause damage or destroy any one else’s property, the builder will be covered by this insurance.  It will also cover the builder if a third party is hurt or injured through the builder’s actions of building/constructing.

• maximum weekly hours of work
• parental leave
• annual leave
• personal / carer’s leave and compassionate leave
• community service leave
• long service leave
• public holidays
• notice of termination and redundancy pay

Builders also need to comply with the Modern Award that applies to their business, and the most common Modern Awards in the home building industry are:

• Building and Construction General Onsite Award 2010
• Joinery and Building Trades Award 2010

Building businesses should ensure that they have in place effective employment templates in place to ensure compliance with the Fair Work Act and a relevant Modern Award.

Building businesses that may also require ongoing workplace advice may wish to become members of an employer organisation, such as Fair Work Online.

Changes from 25 October 2011

Definition of ‘Completed Work’

The meaning of when the work is ‘complete’ is very important, because it marks the beginning of the statutory warranty and home warranty insurance periods.

Residential building work is now ‘complete’ on the day that it is completed in accordance with the requirements of the contract.

If there is no contract, or the contract doesn’t specify ‘completion’, the work is regarded as ‘complete’ when the work can be used for its intended purpose and is free of major defects.  The earliest of the following events can be used to determine when this occurs:

• the date the builder ‘handed over’ the project to the owner
• the  date the contractor last carried out work (other than remedying minor defects)
• the  date of the issue of an occupation certificate, or
• 18  months after the owner–builder permit was issued (in the case of an owner builder).

Changes from 1 February 2012

Statutory Warranty Period

The statutory warranty period will be changed to match the home warranty insurance periods.  Builders will now be required to warranty their work:

• For structural defects - 6 years from completion of the work
• For all other defects - 2 years from completion of the work

Furthermore, if a home owner becomes aware of a defect in the last 6 months of the relevant statutory warranty period, the relevant warranty period will be extended by a further 6 months to allow the home owner time to contact the Builder for rectification purposes.

Home Warranty Insurance Threshold

The new threshold for when home warranty insurance is required to be taken out by the Builder will be increased to $20,000.

New Small Job Contracts

The rules for contracts that relate to home building work, where the value of that work is between $1,001 and $5,000 (inc GST) have changed.

All contracts for work of the value indicated above must be in writing, dated and signed on behalf of both of the parties, and contain the following information:

• the names of the parties, including the name and number of the holder of the contractor licence
• description of the work (including any plans and specifications for the work)
• the contract price, if it is known

Summary

Builders should familiarise themselves with these new changes.  These new changes and any implications for Builders will be covered in the following CPD Seminars to be run in 2012:

• Building Contracts Made Easy
• Builders and the Law

Generally speaking, the answer is no if your contract is with a corporation (i.e proprietary limited company) that is supplying the services of the worker. This is because that corporation itself has to cover its own employees under workers compensation laws, including the person who is going to perform the work.

However, if the contract is with the individual directly (i.e sole trader), it becomes a bit more difficult, particularly if they do not employ any workers themselves.

Under workers compensation laws, a person / contractor can become a ‘deemed worker’ even if they person operates under the belief that they are a contractor.

The fact that the carpenter has an ABN and invoices you for his or her services is irrelevant - instead, the first question you need to ask yourself is whether the person is technically an employee under the law. If yes, then you will most likely have to cover that person under your workers compensation insurance policy.

Remember, though, if the relationship is one of employment, you cannot change that fact by merely having the written contract state that the person is a contractor.

The following factors might point to a contractor relationship:
• The person operates an independent business and provides services to multiple builders
• Payment under the contract is conditional upon satisfactory completion of work (i.e based on work performed rather that time worked).
• The worker has their own insurance and indemnity policies.
• The worker provides their own tools and equipment and pays all business expenses

What happens if my contractor is deemed a worker?
If your business is audited, and one or more contractors that you have engaged are deemed to be your workers, you may be required to ‘back pay’ workers compensation premiums on the contract fees you have paid these people for the last three years. This can potentially add up to thousands of dollars.

For example, if over the last three years you have engaged five (5) contractors on a regular basis, and have paid each of them a total of $70,000 plus GST per year, an audit may add a total of $350,000 to your wages bill each year, for the last three years.

If the workers compensation premium percentage for the construction industry is 10%, then you may be liable for additional workers compensation premiums of $35,000 per year (being 10% of the additional ‘wages’), for three years – a total of $105,000.

• No cash flow problems
• Reduced risk where work is carried out by contractors engaged directly by the Owner Builder
• The builder’s statutory warranty is limited to ‘supervision services’, as opposed to the complete supply of building goods and building services
• Projects can proceed even if the builder has reached his annual home warranty insurance threshold.

If a client prefers to carry out their project as an Owner Builder, they may complete an owner builder course online and obtain a permit from NSW Fair Trading in as little as a few days, which will allow the builder to start providing supervision services promptly.

However, the builder too can play the same game.  Where a client insists on substantial liquidated damages, the builder may agree to this, on the condition that if the project is completed early, the client must then pay the builder the same amount as an early completion bonus, given that the client will have the benefit of the project at an earlier date.  Keep this tip up your sleeve – one day you may have to use it.

When entering into a building contract, if Person A (the home owner) is the party to the contract with the builder, and Person B is going to be making some or all of the payments under that contract, then it is wise for the builder to request that, in addition to Person A signing the building contract, Person B signs a separate Deed of Guarantee.  This will allow the builder to legally chase Person B for payment if Person A fails to make payment under the contract.  Without a signed Deed by Person B, the builder cannot legally chase Person B for payment.

If your office and / or residential address changes, the Home Building Act states that you must notify the Office of Fair Trading within seven (7) days of the change.

Our advice – plan ahead and notify the Office of Fair Trading as soon as you occupy the new address, as you don’t want licence renew forms or other important documents being sent to your old address, as well as the possibility of receiving a fine.

If the builder engages a contractor that does not hold the appropriate licence, then not only will the builder be liable to pay a fine of up to $110,000, but the builder will not be able to claim damages or enforce the contract against the client.  However, that client is still allowed to claim damages or enforce the contract against the builder.

Our advice – make sure every contractor on your site holds the appropriate licence!

However, if the Office of Fair Trading one day decides to audit you, and you have not complied with the CPD requirements, the Office of Fair Trading have the power to suspend or even cancel your builder’s licence.  This will obviously affect you ability to earn an income, and it may affect your ability to later reinstate your builder’s licence.

The system is similar to the driving licence system – you can physically drive a motor vehicle without holding a current driver’s licence, but if the police one day pull you over for a random check, the penalties are very severe.

This blog in no way encourages builders to fail to comply with CPD (given that nothing will happen), it merely attempts to educate builders on how the system works, and the very severe consequences of not complying.