The new DBP Act amendments – insurance requirements for Builders remain exempt until 1 July 2025

Amendments to the DBP Act – further 12 month reprieve for DBP Act insurance requirements for Builders

Under the Design and Building Practitioners Act 2020 (NSW) (DBP Act), it is a condition of registration for design and building practitioners that they are ‘adequately insured’ against liabilities arising under the DBP Act including as a result of providing design or building compliance declarations as required for ‘building work’ in New South Wales – currently applicable to class 2 buildings (multi-unit residential buildings), class 3 buildings (boarding houses or other long term accommodation) or class 9c buildings (aged care).

The details of insurance requirements are found in the DBP Regulations and provide for a degree of discretion and subjectivity given that each insurance policy must ‘in the reasonable opinion of the registered building practitioner concerned, provide for an adequate level of indemnity for the liability that could be incurred by the practitioner in the course of the practitioner’s work’ (see sections 75(2) and 77(1) of the DBP Regulations). In forming that opinion, the following matters must be taken into account in respect of the builder’s policy (section 75(3) and for designers see similar section 77(2)):

1. the nature and risks associated with the work typically carried out by the practitioner;
2. the volume of the work typically carried out by the practitioner;
3. the length of time that the practitioner has been registered;
4. a reasonable estimate of claims that could be brought against the practitioner on the basis of paragraphs (a)–(c);
5. the financial capacity of the practitioner; and
6. any limits, exceptions, exclusions, terms or conditions of the policy.

It is noted that in respect of building practitioners, the DBP Regulations provide that the Secretary may exempt a registered building practitioner from the requirement to be adequately insured in relation to the provision of a building compliance declaration, but only if the Secretary is satisfied by the practitioner that:

1. ‘the practitioner is unable to obtain an insurance policy that provides indemnity against the liability to which the practitioner may become subject as a result of providing the compliance declaration; and
2. the practitioner is adequately insured, in accordance with clause 75, in relation to the doing of building work relating to the compliance declaration’. (Section 76 of the DBP Regulation)

In other words, there is a general fall-back provision for builders who may seek to rely on their current contract works and public liability policies typically provided as a condition under most building contracts.

New insurance requirements now on hold until 1 July 2025

Perhaps in recognition of the difficulties building practitioners are facing in the current market to obtain financially feasible insurance, on 7 June 2024, the New South Wales Government published amendments to the DBP Regulation which provide for a stay of the insurance requirements for builders under the DBP Act and Regulation for a further 12 months (now to 1 July 2025).

Section 106 of the DBP Regulation currently provides:

‘For the purposes of the Act, section 107(5A), registered building practitioners are exempt from the insurance requirements under the Act, including insurance requirements in regulations made under section 24, 1 July 2023 to 30 June 2024′.

The Design and Building Practitioners Amendment (Miscellaneous) Regulation 2024 (NSW) (Amending Regulation) amends section 106 above by replacing that section and extending the exemption until 30 June 2025:

‘Registered building practitioners are exempt from the insurance requirements under the Act until 30 June 2025′ (see Schedule 1 [5] of the Amending Regulation).

Additional changes provided by the Amending Regulation include:

• excluding temporary accommodation facilities from being building work for the purposes of the DBP Act; and
• excluding certain work relating to specified class 3 or 9c buildings from being building work until 30 June 2025.

The insurance exemption amendment will come into force on 1 July 2024.

As for the other major reforms to propounded in the Building Bill (2022), which sought to repeal the Home Building Act 1989 (NSW) (Home Building Act) and introduce additional licencing and enforcement powers, everything has gone quiet for now. There is no doubt significant reform is already well and truly in train in NSW through 2 significant pieces of legislation (the DBP Act and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW). There have been additional changes to other Building legislation implemented through the Building Legislation Amendment Act 2023 (VIC) which include the option for developers to procure decennial insurance, broader inspection and enforcement powers under the Home Building Act and significant amendments to the Building Products (Safety) Act 2017 (NSW).

The NSW Building Commissioner is achieving results through the introduction of the Independent Construction Industry Rating Tool (iCIRT) which uses a five-star system to rate builders on their apartment build, which must meet the minimum benchmark average of three out of five stars or above to be deemed ‘trustworthy’.

The Building Bill reforms have, however, gone quiet with public consultation on the Bill closing in November 2022. The delays may be attributed to the already significant regulatory changes recently introduced that are having a noticeable impact (for example, ‘decennial insurance’ policies are entering the market) along with the critical need for new housing supply which is at the top of the agenda for State and Federal Governments.

Read our previous article on three bills the NSW Governement introduced in 2022 and one accompanying regulation which aimed to improve the standards and accountability of participants in the construction industry within the state. Major reform of NSW construction legislation on the horizon | Gadens

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Authored by:

Matthew Taylor, Partner
Ryan James, Lawyer
Natanya Pinto, Paralegal