Smith Murray: Building Bill — Second Reading 
Smith Murray: Building Bill — Second Reading 
[Volume:619;Page:14541] 
MURRAY SMITH (United Future) 
: 
 The ACT member said he was glad he was not part of the select committee. Unfortunately ACT’s contribution shows ignorance of the issues because of its absence from the select committee. For the first time in my life I have to state that Mr Franks simply does not know what he is talking about. While this bill has emerged from the weathertight homes crisis it was clear that that was not the sole problem that needed to be addressed; the problems were more systematic and went further than leaking homes. The Building Act 1991 particularly in conjunction with changes to the Local Government Act in 1989 meant that the prescriptive regime of the pre-1991 days became a very laissez-faire regime. In the absence of adequate supervision we got ourselves into a situation where anything went and we found that the old maxim “safe as houses” was effectively an irony. 
This required a rebalancing and I believe that this bill is a responsible answer that is largely welcomed by all facets of the building industry. It is a beginning however and I am sure that given the comprehensive nature of the bill gaps in the framework will appear and amendments will be necessary. 
In the absence of the Minister I would like to acknowledge the hard work that the Ministry of Economic Development and Suzanne Townsend in particular put into this bill. She has lived the bill for more than 2 years and if anybody’s name were to be put on the top of it it would have to be hers. It is a complicated bill that she has spent hours—and no doubt sleepless hours—in getting through. 
There is one area that I want to address and that is the area of private building certifiers. United Future is not opposed to private building certifiers per se. In fact I was one of the first lawyers in New Zealand to have private property inspection reports as standard conditions in sale and purchase agreements rather than simply relying on council records. I also strongly advocated private clerks of works rather than relying on building inspectors. So I have always been supportive of the private industry in this area. However here United Future is the messenger. We are not putting down private building certifiers; we are simply the guy waving his arms on the highway to tell the truck to stop because there is a washed-out bridge around the corner. For private building certifiers territorial authorities and homeowners the bridge of private building consent authority registration has been washed out but the Government is bent on having people fall into the chasm rather than directing them to the bypass. 
The facts are simple. The bill provides for a continuation of private building certifiers with enhanced responsibilities. The territorial authorities will not be involved at all once private building certifiers take on the work because the private certifiers will carry out all the work. Therefore territorial authorities will not have liability where private building certifiers have handled the work from building certificates and building consents through to code compliance certificates. That is a misleading and falsely optimistic view given to private building certifiers because clause 41(1) states: “Before entering a person’s name in the appropriate register”—as a building consent authority—“the chief executive must be satisfied that— . . . (c) in the case of a person who wishes to be registered as a building consent authority but who is not a territorial authority the person has adequate means to cover any civil liabilities that may arise in the performance of the functions of a building consent authority.” 
It is with those words “adequate means to cover any civil liabilities” that the whole thing falls down because in order to do that the private building certifier would need to have assets available to be sued upon of at least $1 million or professional indemnity insurance. The requirement for professional indemnity insurance I think is a sound one. As a regulatory body the certifier is the independent auditor that ensures that everyone has done his or her job. Contrary to Mr Franks I believe that where a regulatory body takes on that responsibility it is absolutely imperative that it has adequate back-up for the public interest so that houses are built soundly to protect future purchasers and the community good. 
In the case of the public body that is a regulatory body the taxpayer backs it through rates or through a national tax system. In the case of private bodies there must be insurance or other financial back-up. 
In Australia the select committee in Canberra had the opportunity to talk to the Australian Building Codes Board which is the foremost authority in this area in Australia and carries considerable weight. The executive director of that board Ivan Donaldson is a guru in the area of building work and he said to us: “You wouldn’t have private certification if you didn’t have recourse to insurance. If you can’t get professional indemnity cover you can’t have private building certifiers.” 
That is where we should be sitting as a nation. The minimum criterion for private indemnity cover is that it must be adequate. After all $1 million is likely to cover only five houses. It must provide cover for at least 10 years because that is the extent of liability in New Zealand. In fact some say that liability should extend to the life of the house which in structural terms is 60 years. But we in New Zealand have narrowed that to 10 years which I would say is an absolute minimum. 
There also needs to be run-off cover so that if a building consent authority goes out of business the cover will run for the balance of the 10 years from the last building without further premium payments. It is this third area that is the most important. Private building consent authorities that have defective work will quickly go into liquidation leaving a whole lot of homeowners high and dry with regard to any remedy unless the authorities have run-off cover. 
However there are real problems with the Australian situation. Already professional indemnity cover is not currently available in New Zealand in an adequate fashion and has not been for some time. 
 The private building certifiers’ submission to the current consultation review on insurance states: “To be effective in reviewing insurance specifications the Government needs to grasp the rationale behind the withdrawal of many insurers from the New Zealand market and appreciate the reasons why the insurance industry will not”—emphasised—“provide the type of cover the BIA are currently requiring of certifiers in New Zealand. In addition the review needs to investigate fully the reasons why the BIA has resurrected this unattainable insurance specification of old and why this specification is only available in other commercially competitive countries such as Australia and Canada amongst others.” 
The reason Australia has some very limited professional indemnity cover is very clear. In Australia there is professional indemnity cover only because joint and several liability has been abolished. In New Zealand joint and several liability remains and the Government has made it clear it will not abolish that. 
Again in that submission to the insurance review private building certifiers state: “Insurance policy underwriting for full unrestrictive joint and several liability is not generally available to the New Zealand building industry or wider commercial and industry sectors.” 
So it is not available. In Australia professional indemnity cover is limited in size is limited to 6 years—not anything even near the 10 years that we have as a minimum—and no run-off cover is available. It is used only as a last resort cover. Until a company goes into liquidation or the person is bankrupt or dead it is not available. For New Zealand this means that all private building consent authorities will have certification expiring in January 2005. To be registered as a building consent authority a company will have to have professional indemnity cover with minimum terms and conditions. If the terms and conditions require the three cornerstones the cover will not be available and even if they do not a company will not be able to get it with joint and several liability. 
So no private building consent authorities in January 2005 will be able to be registered. Suddenly they will cease to be able to operate and territorial authorities will have to pick up any new work. Currently authorities have 25000 projects among them with over $4 billion of building work. Territorial authorities will suddenly find in January 2005 that private building certifiers are out of business. They will be left under-resourced or under-staffed. If they wait and see until January even then they cannot be sure of the situation. In fact they will not be able to take on staff now who will be needed at that time because they do not know what situation they will face. 
United Future proposed a better way: to accept that private building certifiers will not be able to get the professional indemnity cover that is a prerequisite to their operating as a public protecting regulatory authority instead of having the false hope that this bill gives; and by increasing the scope of the transition period to phase out private building consent authorities in an orderly manner; and over 3 years—which would be the transition time we would recommend—give territorial authorities the time to gain recognition themselves and private building certifiers time to adjust to the new environment. 
The Government in fact entirely agrees with United Future’s view on this. So why will it not do something about it? It does not want to be seen to be axing private building certifiers and scratching them from the race. Rather it wants to set up hurdles that are impossible for them to jump over so that they fall flat on their face. United Future will support the bill but it will not support private building certifiers.