NSW Draft Design and Building Practitioners Regulation: are you ready to declare?

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NSW Draft Design & Building Practitioners Regulation

The draft Design and Building Practitioners Regulation 2020 fleshes out the detail of the framework legislative scheme introduced by the Design and Building Practitioners Act 2020 (NSW) (DBP Act). The DBP Act and the draft Regulation are part of the NSW Government's broader overhaul of the building industry to restore public confidence. The reforms bring increased rigour to the design and construction of multi-storey and multi-unit residential buildings, and mixed-use buildings that include a residential apartment component. See our earlier recap of the critical features of the draft Regulation here.

Before the NSW Government released the Regulation for public comment, the industry believed that the reforms (including the new statutory duty of care and registration requirements for professional engineers) could apply to a range of building classes. However, for now, clause 12 of the Regulation sets the scope of "building work" to work on a class 2 building (ie residential apartment buildings), or a building that contains a class 2 part.

The DBP Act, enacted in June 2020, imposes multiple new obligations on design practitioners and builders throughout the life of the building work to foster better quality design documentation and compliance with the Building Code of Australia. The DBP Act sets up a general framework for checks and balances in building and design work through regulated designs and compliance declarations from designers and builders. Most of the DBP Act reforms will commence on 1 July 2021; once the NSW Government finalises the detail of the supporting Regulation that underpins the legislative scheme. Release of the draft Regulation for public comment provides greater clarity for affected industry participants and their insurers about the content and scope of the new obligations in readiness for a 1 July 2021 start date.

Checks and balances – regulated designs and compliance declarations

The DBP Act aims to improve the quality of design documentation and compliance with the Building Code of Australia, in line with the recommendations of the Shergold-Weir Report released in April 2018. The supporting material to the draft Regulation highlights the need to ensure that each step of construction is well-documented and compliant. To this end, the Regulation provides detailed administrative requirements for lodging for-construction regulated designs (and variations to them) at set points throughout the design and construction process. The building practitioner cannot start constructing unless it has obtained all regulated designs from the registered design practitioners, and provided and lodged the necessary compliance declarations. This process may potentially slow down building work progress. The diagram below illustrates critical building compliance checkpoints for registered building practitioners.

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The DBP Act introduced the concept of "regulated designs" for particular building work capturing critical building elements likely to affect the safety and quality of buildings. Regulated designs must be prepared by a registered design practitioner who must also provide a compliance declaration for those designs. The DBP Act allows the Regulation to expand upon the categories of "regulated designs". While the draft Regulation does not extend the types of "regulated designs", it does regulate the form and content of regulated designs and compliance declarations. The Regulation contemplates 15 classes of design practitioner and seven classes of professional engineer. To avoid regulated designs being prepared in a "siloed" fashion, designer practitioners must integrate details of:

other aspects of building work to which their design relates; and
other regulated designs for the work.

The intention of the integrated approach to design is to reduce the need for variations after building commences.

The regulators are pushing for cultural change within the building industry. Some of the changes will require a significant cultural shift, particularly around the process for documenting variations to declared designs. The Regulatory Impact Statement notes that where the design is unclear or not practical, varied designs must be lodged before the builder can carry out the variation. There are scant details on what constitutes a "variation". For design and construct projects, aspects of the design will change throughout the life of the project. Currently, design documentation tends to be produced and developed throughout the project, with variations occurring on the job as changes to approved design transpire.

The new scheme also has potential to delay the issue of the occupation certification. The above diagram shows the various documents that the builder must lodge on the NSW Planning Portal before the issue of an occupation certificate can occur. The DBP Act provides that principal certifiers must consider any non-compliances specified in the compliance declarations when deciding whether to issue an occupation certificate.

Insurance

The DBP Act requires registered design practitioners, principal design practitioners, professional engineers and building practitioners to be "adequately insured" with respect to certain compliance declarations and work.

For registered design practitioners, principal design practitioners and professional engineers (NBPs), the Regulation specifies that an NBP must be indemnified under a professional indemnity (PI) insurance policy which covers all relevant work and indemnifies against "all liability" incurred by the NBP at any time since they became a practitioner, where "liability" means liability to pay compensatory damages for breach of professional duty as an NBP arising from an act or omission by the NBP. Those requirements are extremely broad, and it is implausible that NBPs will be able to secure PI insurance for "all liability". For example, such insurance will typically be subject to exclusions (e.g. for risks associated with combustible cladding). Further, unless the insurer has been on risk since the NBP became a practitioner, it is unlikely that insurer will agree to provide cover for acts or omissions back to that date.

However, the Regulation goes on to state that a PI insurance policy must, in the reasonable opinion of the NBP, provide for an "adequate level of indemnity" for the liability that could be incurred by the NBP in the course of their work, having regard to a range of specified matters including any limits, exceptions, exclusions, terms or conditions of the policies. It may be that, despite the breadth of the insurance requirements noted above, and while not stated in the DBP Act, Regulation or Regulatory Impact Statement, the regulator will not seek to punish NBPs if their PI insurance is subject to limits/exclusions which could not be negotiated out through a proper underwriting process. In that respect, the Regulation requires an NBP to keep written records for at least 5 years specifying how the NBP has determined that a policy provides for an "adequate level of indemnity". Penalties for non-compliance are up to $33,000 per breach for a company and $11,000 per breach for an individual.

The Insurance Council of Australia has said that if practitioners are expected to hold PI insurance which indemnifies against "all liability", without exclusion, insurers will not be able to participate in the market. Accordingly, it seems unlikely that the regulator will take an impractical approach to interpretation of the Regulation and will be satisfied if appropriate PI insurance is effected following a thorough underwriting process and proper records of the decision-making process are kept and able to be produced.

For registered building practitioners (BPs), the Regulation does not specify that PI insurance must indemnify against "all liability", but does impose the same requirements to determine an adequate level of indemnity and maintain records about that decision. Further, there is provision for the regulator to exempt a BP from the requirement to be adequately insured in relation to the provision of a building compliance declaration, if the BP is unable to obtain insurance against that liability but is adequately insured in relation to the doing of building work relating to the compliance declaration. In addition, the Regulatory Impact Statement states that for a two-year period from commencement of the Regulation, BPs will be exempt from the requirement to be adequately insured. The Government's expectation is that within that two-year period the desired change of behaviour in the industry will occur, and that if so BPs will be able to rely upon NBPs and the exemption can then be removed.

Registration scheme

The draft Regulation fleshes out the details of the registration scheme for designers (including principal designers), professional engineers, specialist practitioners and builders.

Before the NSW Government released the Regulation for public comment, there was concern in the industry that the registration of engineers would extend to all engineers in NSW (regardless of their involvement in residential building). However, the draft Regulation limits, for now, the scope of the mandatory registration scheme to professional engineers who work on class 2 buildings, or buildings with a class 2 part (i.e. residential or a mixed-use building with a residential component). The Regulation adds geotechnical engineering to the scope of professional engineering work.

The Regulatory Impact Statement indicates that the NSW Government may broaden the scope of regulatory reforms across other classes of construction in the future.

The Regulation also introduces a code of practice for designers and builders and a separate code of conduct for engineers, covering elements such as the standard of professionalism and competence required, confidentiality and conflicts of interest.

Transitional arrangements

The Regulation is expected to commence on 1 July 2021, once the Regulation is finalised to accommodate industry feedback. Notably, the new regime (apart for the new statutory duty of care which commenced on 11 June 2020), only applies to existing arrangements where the Complying Development Certificate or Construction Certificate has been applied for on or after 1 July 2021.

To accommodate a 1 July 2021 start date, the Regulation also provides for transitional arrangements to accommodate large numbers of practitioners and engineers seeking registration by 1 July 2021. The Regulation sets up deemed registration arrangements for a 6-month period (beginning 1 July 2021 and ending 31 December 2021) to deal with the anticipated influx of registration applications.

What should you do now?

You can provide feedback on any part of the proposed Regulation (whether formal or via an electronic survey). Submissions close 5.00 pm 11 January 2021.

Designers should:

prepare to apply for registration from 1 July 2021 (subject to the transitional arrangements);
familiarise themselves with:
- the proposed form and content of compliance declarations;
- the requirements governing for-construction regulated designs (and variations to them);
review their insurance arrangements to ensure they are adequately insured and have the insurance they need to be registered (and authorised to practise);
comply with the new code of practice governing conduct;
keep records (for at least 5 years) about the adequacy of professional indemnity insurance coverage;
keep records compliant with the record keeping requirements of Part 7 of the Regulation, including copies of design compliance declarations.

Builders should:

prepare to apply for registration from 1 July 2021 (subject to the transitional arrangements);
familiarise themselves with:
- the proposed form and content of compliance declarations;
- the strict time frames for lodging declarations;
ensure that work is carried out strictly in compliance with the certified designs and seek re-certification of any variations before implementing them;
review their insurance arrangements to ensure they are adequately insured and have the insurance they need to be registered (and authorised to practise);
comply with the new code of practice governing conduct;
keep records (for at least 5 years) about the adequacy of insurance coverage;
keep records compliant with the record keeping requirements of Part 7 of the Regulation, including copies of building compliance declarations and the other documents specified in clause 77.

Developers and owners should:

be aware that if variations arise once construction has started, building work relating to the regulated design may need to stop to allow the varied design to be prepared and declared in time to meet the prescribed lodgement timeframe;
consider whether the project budget is adequate for the increased risk of building work delays due to the declaration regime and increased compliance costs for design and building practitioners (including in re-engaging designers for varied regulated designs);
ensure that the DBP Act requirements will be met for any new or renovated buildings caught by the class 2 scope as the principal certifier is otherwise not permitted to grant an occupation certificate.

Disclaimer

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.

We would like to thank the writers: Lina Fischer, Chris Erfurt and Tara Mulroy of Clayton Utz for the use of this article for further information please go to www.claytonutz.com