For those who are working in the NSW construction space, please consider voicing your opinions and concerns on the Home Building Compensation (HBC) Scheme.

Those who know me understand that I have always advocated for an overhaul of the HBCF.

Link to Home Building Compensation Fund Review

For most multi-million-dollar projects, the HBCF cover of ‘just’ $340,000 offers very little in the grand scheme of things.

Not only that, given that the HBCF policy only covers extreme situations — such as a major defect, the builder going insolvent, or being unable to complete the work — the costs of HBCF can often be an unnecessary expense for the owner.

The current HBCF overhaul under consideration proposes increasing the coverage from $340,000 to either $440,000 or $540,000.

While I do support the idea of increasing the cover amount, I am not in favour of raising the average insurance cost by $4,790 to $5,130 for new home builds, or by $1,450 to $1,550 for renovations and alterations.

One thing many may not be aware of is how incredibly difficult it is for builders to increase their HBCF insurance cover.

For a new building company, it’s often almost impossible to grow the business, even if you want to, as increasing your HBCF cover typically requires capital injections — making it financially impossible for most.

The other gripe I’ve always had with HBCF is the fact that it fails to consider that most multi-million dollar projects often having a building cycle that is longer than 12-months.

Meaning that the majority of your HBCF insurance coverage can be held hostage by projects that run over a 12-month cycle or are running late.

This effectively prevents the builder from being able to pick up new projects, which results in the cashflow purgatory that many face which leads to insolvencies.

In fact, the current ASIC data shows that ‘there were 1372 construction companies which entered into external administration for the first time in 2023-24 compared to 981 in 2022-23, and 513 in 2021-22. Construction industry insolvencies in NSW increased by 40% in 2023-24.’

However, what that data doesn’t capture is the building businesses that are sole traders or partnerships that have also gone into administration or insolvent.

Now, more than ever it is important to choose your builder wisely.

For builders, it is even more important to choose your clients wisely.

Having recently gone through unprecedented events involving difficult owners myself, I must confess that I’ve learned a lot about the legal shortcomings of industry-standard contracts.

Did you know that as a builder, if you encounter a difficult owner who refuses to pay, there’s little recourse but to take them to either adjudication or NCAT?

While you could always contractually ‘suspend’ work on-site, there are no means of recovering lost costs except through legal battles, which can drag on for months or even years.

These are the issues not many people are talking about.

Unfortunately, only those who have experienced this first-hand can truly relate and often only discover these challenges when it’s ‘too late’ in most cases.

What’s worse is that some owners deliberately wait until the project is nearing completion to instigate these non-payment issues, knowing it would often cost the builder more in legal fees than simply walking away and cutting their losses.

In an ideal world, there would be greater transparency, not just for builders with checkered pasts, but also for owners who are repeat offenders, deliberately refusing payment to hard-working builders and subcontractors.

With the forecast for the residential construction sector looking grim, it’s no wonder that many builders have decided to call it quits.

It’s simply becoming too hard, and good people are being taken advantage of.

Here’s hoping that the HBC review will bring about positive changes to support the building industry.

In an ideal world, this review would not only result in greater coverage for homeowners but also consider extending the insurance coverage period to accommodate longer projects. This would enable builders to grow their businesses organically with a roll-over insurance cover.

Book a free call with our team today and get expert guidance from a licensed and qualified builder.