New laws broaden liability for non-conforming building products in NSW

A broad range of construction industry participants will have new obligations regarding non-conforming building products under recent law reforms in New South Wales.

The new laws impact all persons in the “chain of responsibility” for a product – including designers, manufacturers, engineers, architects, suppliers, developers, and builders.

These persons will assume responsibility for ensuring building products are compliant with relevant codes and regulations.

The new laws have been passed and are expected to come into effect in the coming months.

What is changing?

The current system in New South Wales of banning “unsafe” products is being entirely replaced with a non-conforming building products (NCBP) “chain of responsibility” regime.

The new regime expands the scope of responsibilities to a wider group of people in the construction industry. Failing to uphold the new positive duties may lead to strict penalties.

The changes are effected through changes to the Building Products (Safety) Act 2017 (NSW).

Non-conforming building products

Under the amended Act, a building product is a NCBP if:

• the product does not comply with the National Construction Code or any other relevant regulatory provision; or
• a person in the chain of responsibility for the product makes an incorrect representation, whether intentionally or not, about the quality, feature or capability of the product, the performance of the product, or the product’s compliance with the NCC or another legal requirement.

Chain of responsibility

Various groups of people are deemed to form part of the chain of responsibility – this includes any person who:

• designs or deals with the product and knows, or ought reasonably to know, the product will, or is likely to, be used in a building (such as designers, engineers and architects);
• prepares a building design that incorporates or recommends the use of the product in the building (such as designers, engineers and architects); and
• uses the product in a building, including a builder or a party who coordinates or supervises the installation of the product during construction.

What are the duties?

The Act introduces the following new positive duties to be complied with by each person in the chain of responsibility:

1. ensuring building products are conforming and their use is compliant;
2. providing certain information about the product to the next person in the supply chain in relation to the suitability of the product for its intended uses and details of maintenance requirements. For example, a designer of a building incorporating a building product must provide the relevant product information to the builder who will give effect to the design, and a builder must provide the information to the owner of the building;
3. notifying the Department of non-compliance or safety risks; and
4. following the appropriate procedure in relation to recalled building products – for builders, this will mean no longer using the products; for manufacturers, suppliers and importers, it will mean repairing, replacing or refunding the product; and for designers, amending designs and specifying alternative conforming building products.

A person may have more than one duty because of the functions they perform, and more than one person may concurrently have the same duty as another.

Failing to comply with any of the above duties is an offence and can attract penalties of up to $165,000 for a company or $55,000 for an individual.

A person in the chain of responsibility must discharge the above duties:

• as far as is reasonably practicable; and
• taking into account the risk management factors in relation to the matter to which the duty relates.

To discharge the duty as far as is “reasonably practicable” means that which is reasonably able to be done by a competent person in relation to the duty, taking into account all relevant matters. ?This is a broad definition, which provides some discretion as to how this standard is met.

The “risk management factors” are:

• the likelihood of the existence of a safety risk or a non-compliance risk;
• the harm that could result from the risk;
• what the person knows, or ought reasonably to know, about the risk and the ways of removing or minimising the risk;
• the availability and suitability of ways to remove or minimise the risk; and
• the cost associated with available ways of removing or minimising the risk, including whether the cost is grossly disproportionate to the risk.

These factors must be considered in discharging each of the duties.

There are further offences in the Act for:

1. supplying or performing work using a building product in contravention of a building product notice (product recall or ban) which has been issued by the Department; and
2. falsely representing that a building product is suitable for a use which would contravene a building product notice.

These offences attract serious penalties of up to $1.1 million for a company and a further maximum $110,000 for each day the offence continues; or for an individual, up to $220,000 or two years imprisonment and a further maximum $44,000 for each day the offence continues.

Executive liability

Company directors or people in positions of influence may also be held personally liable for fines for particular “executive liability” offences.

The “executive liability” offences apply to persons who are a director or person involved in the management of the corporation in a position to influence the corporation.

If a company commits an executive liability offence, and the relevant person knew, or ought reasonably to know, that the offence was or would be committed, and fails to take reasonable steps to prevent or stop the offence, the person also personally commits an offence.

Executive can be held personally liable for a fine of up to $22,000.

The executive liability offences are:

• failure to ensure that a non-compliance risk does not exist in a building product;
• contravening a building product ban or recall; and
• falsely representing that a building product is suitable for a use which would contravene a building product ban or recall.

How can you prepare for the changes?

Persons in the chain of responsibility should take steps now to:

• understand their new obligations and duties;
• consider any risk management strategies required to be implemented in their business, including by identifying relevant building products and ensuring compliance;
• consider other risk management strategies, including:

1. any amendments required to standard contracts;
2. whether compliance needs to be factored into pricing; and/or
3. whether insurance coverage and policies may need revising;

• take steps to ensure compliance, including updating procedures and processes to:

1. provide information to others about building products, as required to meet the obligations;
2. maintain adequate records of compliance;
3. keep informed of any notices, warnings or recalls issued by the Department.

Please contact us if you require any assistance to understand how the new laws impact you, and how to ensure compliance.