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What would happen if your builder went into receivership part way through your build? Architect Cymon Allfrey explores the possibility of proportionate liability insurance.

Watching the news around Stonewood Homes unfold has captivated many in the construction sector. While they aren’t the first, and sadly won’t be the last to go into receivership, as a big player in the industry it will be interesting to see how this will impact the market as a whole.

For those home builders affected, the Registered Master Builders Association were quick to assure that homes would be completed, if the Master Builders Guarantee had been opted into prior. While this raises questions concerning by who and when this work would be undertaken, the key issue for those watching this unfold is, how robust is the guarantee system?

As an architect, one of the key discussions we have with our clients early in the process is that of the risks involved. Consequently, we ensure that we are putting contracts in place that hold a degree of robustness; contracts which leave the consumer holding the power as they pay in arrears, never in advance.

Within the construction industry, in cases of liability, the last man standing potentially carries a hundred percent of the responsibility. The Weathertight Homes Resolution is a clear example, with those no longer in existence unable to be brought to account – leaving those left standing, regardless of the level of involvement, liable. An issue that should be prompting us to more seriously consider proportionate liability.

Operating in numerous countries around the world, including Australia, proportionate liability would mean those involved in the design and construction of a home are never left responsible for more than the proportion of their involvement. As a collective of architects this concept has always been a focus, considering our liability (in a joint and several environment) becomes disproportionality high should the head contractor fall.

While yes, it would add additional red tape and costs to the build process, it is an issue that we can’t ignore. As, should the head contractor fall, the costs would have to be borne by someone – the question is who? Like the Master Build 10 Year Standard Guarantee, proportionate liability insurance would be a system in which a levy is paid into a pot of money, which effectively provides a second level of defence should one party no longer be in existence.

The Master Build Guarantee underwrites risk and as we have seen in the case of Stonewood Homes, successfully protects those who opt to take it out. Providing a second level of security, the Master Build Guarantee sees the problem for the client become one of inconvenience rather than financial – which has to be a positive for the industry. However what becomes of those who aren’t protected by this guarantee system?

The question I have, is whether we should be affording similar benefits for all construction contracts? A question which paves the way for proportionate liability insurance, a system designed to protect consumers while leaving no one party holding an unwarranted bill.

While entering into a guarantee can be seen as a significant financial outlay, in a process which sees budgets stretched to the limit and every penny accounted for, it is a cost that can’t be ignored – because can you really afford not to take it out?

Published in Metropol Magazine

Published on Thursday, April 21st, 2016