Builder guarantee schemes

At the Certified Builders Association conference in Wellington Dr. Smith has given attendees a sneak peek into a discussion paper being prepared for later this year, which looks at shifting risk away from councils and back onto those carrying out the work, by making it mandatory for builders to guarantee their work (RNZ article here).

On an initial read it was unclear what additional protection was being proposed. Builders are already legally liable for their work under both contract and tort for a period of up to 10 years. However, the ability of the homeowner to recover largely depends on the builder’s solvency and this is where the problem has been recently.

One potential solution is a guarantees provided by a third party, such as those already provided by Master Build or Certified Builders, which would respond where the builder was no longer solvent. This would provide another layer of security for homeowners and would release the legal burden councils are currently facing (as guarantees are generally easier to rely on than establishing council liability through the courts).

There are some technical issues to work through. For example, this scheme is equivalent to insuring for negligent work, which is not generally available. There would also be an additional cost which would be passed on to homeowners. Although the scheme may appear to be consumer focused, given there are already builders out there providing these types of guarantees (for a cost) it would appear that the main benefactors will be councils.

This move is by no means novel with the Government having indicated a shift away from council liability during the recent Building Act review. However, issues with a comparable builder warranty scheme implemented in Australia raised concerns around a NZ equivalent and when it became clear that any such scheme may require Government backing the proposal was put on the back-burner. We will need to await the discussion document to see whether this phoenix has been revived or whether a different tact is proposed.

Insurance

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