Cost-effective quality: next generation building control in New Zealand — Building Act Review discussion document February 2010
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Introduction
Why building controls are important
The building and construction sector is vital for New Zealand’s economic performance and prosperity. The sector contributes around 5 percent of Gross Domestic Product (GDP). In a typical year, the sector builds about 24,000 new homes, and renovates approximately 32,000 existing homes, although there were fewer homes built in 2009. The sector also builds $4,500 million worth of non-residential buildings a year – schools, hospitals, offices, factories and other facilities. These buildings are crucial to the performance of every other sector in New Zealand.
Much of our wealth is tied up in buildings, particularly houses, and any unnecessary costs or delays in the sector have an impact on New Zealand’s economy and on New Zealanders’ net wealth.
New Zealanders expect to live and work in quality buildings that are safe, healthy and free of defects. We also expect the building and construction sector to work in an efficient, cost-effective manner.
Ideally, New Zealanders would have cost-effective, quality buildings that:
- are designed and built by skilled, capable people who stand behind their work
- meet or exceed minimum requirements that are clear and widely known
- are constructed according to clear, upfront, contracted agreements between all parties about what is going to be built, how any faults will be fixed, and how arguments will be resolved
- are appropriately maintained by well-informed owners
- are overseen by authorities who target their regulatory control according to the level of risk and the consequences of failure.
In this ideal scenario, everyone – consumers, building professionals and tradespeople, and building consent authorities – would interact with confidence and a clear understanding of responsibility for decision-making. If things went wrong, there would be quick, fair and cost-effective ways of resolving disputes.
The ideal scenario
Why buiding controls are important
New Zealanders expect to live and work in quality buildings that are safe, healthy and free of defects. we also expect the building and construction sector to work in an efficient, cost-effective manner.
In a well-running building and construction market the elements mash together smoothly to deliver cost-effective, quality buildings.
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The current building control system
The current system was established in 1991 and was significantly amended in 2004 in response to systemic problems that failed to prevent the construction of a large number of leaky buildings. The key problems with the system were:
- lack of skills and capability
- lack of responsibility and accountability for building quality
- poorly articulated building standards
- inadequate regulatory oversight by the Building Industry Authority (the central regulator at the time)
- inadequate focus on consumers’ interests.
The Building Act 2004 significantly tightened regulation to strengthen the existing performance-based regulatory approach.
Since 2004, amendments to the system include:
- strengthening the role of the central regulator, now the Department of Building and Housing
- reviewing the Building Code and producing more guidance in support of the Code
- requiring building consent authorities to become accredited and to have periodic performance audits
- introducing a voluntary Licensed Building Practitioner Scheme to recognise and improve capability
- introducing statutory warranties into every residential building contract.
In August 2009, the Government confirmed its support for the Licensed Building Practitioner Scheme, and defined the scope of restricted building work, which from March 2012 will have to be carried out or supervised by licensed building practitioners.
The building consent authority accreditation programme is also well advanced.
In addition, a new national process for approving standard multiple-use building designs will be under way from February 2010. More information is available here.
Since 2004, there has been a general improvement in building quality, but it appears the current system is out of balance, relying too heavily on building consent authorities. The system is overly cumbersome and there are concerns about costs, complexity and delays.
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About the review of the Building Act
In August 2009 the Government announced a review of the Building Act 2004 to find out how the Act could be updated to minimise the cost of compliance without compromising quality of building and construction.
The Government wants:
- quality homes and buildings produced through a business-enabling and efficient regulatory framework
- consumers able to make informed decisions and have confidence in carrying out transactions in the building and housing market
- homes and buildings produced cost-effectively by a productive sector with the right skills and knowledge
- a regulatory system that is administered in an efficient and cost-effective manner.
The full Terms of Reference of the review are available here »
The Department of Building and Housing is conducting the review. To ensure the sector’s issues are adequately addressed, the Department is working with a reference group of people from building consent authorities, the building and construction sector and consumer representatives. The reference group members are Peter Neven (Fletcher Construction), Richard Harris (New Zealand Institute of Architects), John Gray/Roger Levie (Home Owners and Buyers Association), Brent Mettrick (Registered Master Builders Federation), Richard Merrifield (Certified Builders Association),
Gordon Buswell (ITM Building Supplies), Adam Thornton (Institution of Professional Engineers New Zealand and Association of Consulting Engineers New Zealand), John Duthie (Auckland City Council), George Skimming (Wellington City Council) and Irene Clarke (Local Government New Zealand).
A group of senior officials from other government agencies is providing strategic oversight of the review. This group includes representatives from the Department of Prime Minister and Cabinet, Treasury, Ministry of Economic Development, Ministry for the Environment and the Department of Internal Affairs.
The first phase of the review (August–December 2009) examined the issues and possible options for updating the building control system. These are set out in this document.
The second phase, now under way, invites the public and industry to consider and comment on these options.
The third phase, in mid-2010, will see the Government make final decisions on amendments to the Building Act and any other changes to the building control system, and present them to Parliament. An implementation phase will follow.
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Findings of the Review
The review found that the building regulatory system is not broken, and changes made by the Building Act 2004 have contributed much-needed improvements to the quality of building work. However, it also found that the system is more costly than necessary, and less efficient and effective than it could be.
The review found that there are weaknesses in certain parts of the system such as consumer protection, and the system is out of balance.
The current regulatory settings have resulted in an unduly low tolerance for risk, with a strong emphasis on central and local government protecting homeowners from the risks of building defects and failures.
Since 2004 building quality has improved as a result of strengthened regulation and adjustments within the sector, and the foundation for recognising and improving skills and capability has been put in place through the Licensed Building Practitioner Scheme.
There is now an opportunity to update the current system with a view to reducing the amount and cost of regulation, particularly for low-risk work, where it is carried out by people with recognised skills and capability. At the same time, it is important not to lose sight of the critical importance of having an appropriate level of regulation to govern the quality of building work. It’s about getting the balance right.
The issues identified by the review are as follows.
Problems with ensuring responsibility sits in the right place
Responsibility and accountability for ensuring building quality and reducing the rate of defects is not well aligned to the ability of each party to actually do anything about it. The roles of the different parties – consumers, building professionals and tradespeople, and building consent authorities – are not always clearly defined or understood.
- Many consumers, especially homeowners, are often unaware of their rights and obligations, and are not sufficiently informed to recognise and manage risk when commissioning building work. They also find it difficult to hold building professionals and tradespeople to account for defective work, for various reasons including a lack of access to low-cost dispute resolution.
- People in the building sector are sometimes able to avoid carrying the cost of poor performance or reduce it (for example through limited-life companies).
- Building consent authorities end up carrying a share of the responsibility that is out of proportion to their ability to influence the quality of the final product.
This is less of an issue in the commercial sector because of the greater experience of the parties, who are generally more familiar with commercial contracting arrangements and have more sophisticated risk-management practices.
Undue reliance on building consent authorities
There is currently a heavy reliance on the role of building consent authorities in reviewing plans and construction to protect consumers from defective building work, even when the likelihood and consequences of failure are low.
This has understandably translated into a risk-averse approach because of a number of factors:
- the duty of care imposed by the courts on local authorities in respect of residential homeowners because of their statutory responsibility to issue building consents, carry out inspections and issue code compliance certificates
- the use of risk-avoidance techniques (such as creating limited-life companies) by people in the building sector, which means they sometimes fail to stand behind their work
- the fact that in negligence cases related to leaky buildings where liability is apportioned between several parties, the payment of damages (financial compensation) must be shared by the parties. Where some of the parties cannot pay their share, the cost of damages must be carried by those who can pay, and in practice this means that the ‘deep pockets’ of local authorities, as the parent organisations of building consent authorities, are covering much of the cost.
This reliance on building consent authorities is out of balance with their actual ability to influence building quality through documentation and inspection, and their capacity to do so without considerable cost. It has had the consequence of imposing higher-than-necessary costs. Common issues raised during the review include:
- excessive requests by building consent authorities for documentation and plans
- slow processing of consents
- a large number of inspections during the course of construction – too many in the case of simple buildings
- a reluctance by building consent authorities to approve new or novel building designs, products or processes.
The changes proposed are outlined below.
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Clarifying the purpose, principles and requirements
To get the fundamental elements right for the next generation, the Government proposes clarifying the purpose and principles of the Building Act, and continuing work to clarify the requirements set out in the Building Code. There are also proposals to improve access to requirements and supporting information.
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Moving to a more balanced approach to building control
This proposal would see building consent authorities targeting their oversight at buildings and building work where the risks and consequences of failure are most significant. The options put forward for feedback include:
- exempting more of the lowest-risk work from consenting requirements, especially where it is undertaken or overseen by licensed building practitioners
- a more streamlined process for low-risk (simple residential) buildings when the work is undertaken or overseen by licensed building practitioners
- in the commercial sector, a more streamlined process for complex commercial building work that acknowledges the commercial risk-management and quality-assurance processes already in use
- importantly, retaining the current building consent system for more complex and less conventional residential buildings, and some commercial buildings, because of the higher risk and greater consequences of failure
- simplifying other processes, including fire safety review of plans, and maintaining essential systems through building warrants of fitness and compliance schedules
- exploring options for more cost-effective administration of the building regulatory control system to reduce costs, improve consistency of practice and ensure critical mass of capability, especially for key technical skills.
Building consumer confidence
This proposal would see consumers better equipped to make informed decisions, more aware of their rights and obligations, and better able to enforce those rights. Changes include:
- informing consumers better
- improving contracting practices
- making warranties more effective
- encouraging surety as a financial backstop for warranties
- providing better access to dispute resolution.
All the proposals are inter-dependent – a balanced system requires all these elements to be put in place. The proposals are also part of and linked to a broader programme of building sector initiatives, including:
- the Licensed Building Practitioner Scheme, which will ensure critical elements of a building can only be built or supervised by practitioners who have an appropriate level of skill1
- a new national system for approving standard building designs that will be built repeatedly, rather than requiring a separate approval for each individual build (MultiProof2).
What these changes would achieve
These proposed changes are expected to result in:
- building professionals and tradespeople taking more responsibility for getting it ‘right first time’ and efficiently fixing defects if they occur
- building consent authorities targeting their attention to higher-risk areas and relying more on building professionals and tradespeople to confirm that lower-risk work meets Building Code requirements (with specific arrangements for expert peer-review of complex commercial work)
- tried and true building designs and practices going through a streamlined process, especially where competent building professionals and tradespeople are in charge of the work
- residential consumers confidently making informed decisions when selecting and contracting with building professionals and tradespeople, backed up by contracts, warranties and dispute resolution processes to hold them accountable for any defects.
How this review links to the resource Management review
In a separate process – the Resource Management Phase Two review – the Government is looking at how the Resource Management Act and Building Act work together, seeking opportunities to:
- streamline and align the processes for approving resource consents and building consents when both are required for a building project
- improve consistency of definitions, terminology and provisions between the two Acts
- improve public understanding of the processes for the two Acts and how they inter-relate.
Emphasis will be on reducing duplication, particularly in regard to simple building projects.
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1.) Details of restricted work under the Licensed Building Practitioner Scheme and the exemptions for owner-builders (DIYers) are available for download [PDF 53 KB, 2 pages].
2.) Volume builders can apply to obtain national MultiProof approvals for building designs that will be replicated multiple times in any part of New Zealand. Details are available online.