March 14, 2019

Shakeup of the building industry expected after independent Opal Tower report released

The NSW Department of Planning and Environment has recently released an independent report it obtained regarding the widely publicised concerns regarding the Opal Tower located in Sydney Olympic Park. The property and construction industry should take note of the recommendations, as the response of regulators is likely to mean greater oversight of construction works and engineers.

A copy of the report and press release from the Department can be found online.[1] The report follows increased scrutiny of the building and property development industry, with reports of defective building works on various construction projects, including flammable cladding installed on apartment buildings. Last year the Building and Development Certifiers Act 2018 was enacted, attempting to tighten obligations on certifiers.[2]

National and State Building Ministers likewise commissioned the Shergold and Weir report,[3] which made a range of recommendations concerning regulation of the building and construction industry in Australia. The NSW Government has indicated it will accept the "majority" of recommendations.[4]

Opal Report's recommendations concerning the building industry

The report provided a number of opinions on the alleged defects in the Opal Tower, including commenting on works required to enable residents to return to the building.

Of broader interest to the building industry, the report acknowledged that while structural damage in new buildings of this nature are rare, the community and consumers have a reasonable expectation that all components in a new building will be structurally sound and stable. The report recommended:

  • creation of a government Registered Engineers database;
  • independent third party checking and certification of engineering designs and subsequent changes to critical design elements by a Registered Engineer;
  • critical stage, on-site checking and certification by a Registered Engineer;
  • an online database of certifications relating to new buildings, to enable owners and prospective purchasers to inspect the certificates;
  • a Building Structure Review Board is formed, to investigate structurally defective buildings, and make recommendations where appropriate regarding building codes and regulations.

Lessons for the building and development industry

With the increased public and media scrutiny of the quality of new buildings, the building industry should expect an overhaul of building regulation to require greater independent oversight of construction works, new certification requirements, and new registration requirements for engineers and builders. The timing of these amendments will now depend on the outcome of the NSW State Election. As such, extra time likely to be required for any additional inspection and certification regime should be factored into construction timetables.

Developers and principal contractors should also be ensuring that contractors and consultant engineers are properly qualified for the work they will be completing, including holding registrations under any regimes which are likely to be established. They should further be reviewing that processes for due diligence and oversight of consultants and contractors are working appropriately.

Notwithstanding the commercial implications for these reforms, should the recommendations be implemented, there are likely to be benefits for the industry as a whole. The reputation of new buildings and the industry is undermined when high profile allegations of defective construction or materials arise. As such, there is benefit in ensuring that the community can have greater confidence in the quality of new buildings. The reforms would also even the playing field for reputable builders and developers, as "dodgy players" will find it harder to cut corners.

Lessons for insurers and investors

Insurers in the building and construction industry should remain informed of these issues and developments. It is in everyone's interests for the industry to improve compliance across the board, and thereby decrease the likelihood of claims being made against relevant insurance policies for defective design or construction. However, investors should be conscious there may be increased compliance costs as a consequence of any reforms introduced by the Government. Some costs may hopefully be offset by a decrease in rectification works required under building warranties.

If you would like to discuss these building or planning regulatory issues, or otherwise receive future updates, please contact Jacinta Studdert or Kristyn Glanville.

1. https://www.planning.nsw.gov.au/News/2019/Final-Report-on-Opal-Tower-Released
2. https://www.finance.nsw.gov.au/about-us/media-releases/biggest-overhaul-building-laws-nsw-history
3. https://www.industry.gov.au/sites/default/files/July%202018/document/pdf/building_ministers_forum_expert_assessment_-_building_confidence.pdf
4. https://www.finance.nsw.gov.au/about-us/media-releases/biggest-overhaul-building-laws-nsw-history