Improving Security of Payment Building and Construction Industry

9. Mutual Fund Insurance Page 109National Public Works Council IncImproving Security of Payment in the Building and Construction IndustryThe HGF comprised a pool of funds which were sourced from the following contributions:• Builder registrationsUnder the relevant Regulations each builder was required to be registered and pay anannual fee, which varied depending on the balance of funds within the HGF. In 1996the annual registration fee was $180.• Job registrationPursuant to the Regulations, every job undertaken by a builder had to be registeredand a registration fee was to accompany the registration. The registration fee wasdependant upon the nature of the job with fees ranging from $135 to $280 for jobs inthe private sector and up to $450 for jobs in the public sector. This cost was in turnpassed onto the Principal via the building contract.The HGF was simply a guarantee to the building owner and his successors in title "of theperformance of the builder's obligations under the Domestic Building Works Contract". Theliability of the fund was to make good loss or damage suffered by the building owner or hissuccessor in title on account of:• The failure of the builder to fulfil its obligations under the contract; or• In any case, a defect caused by bad workmanship during the guarantee period. Theguarantee period was seven (7) years.Basically, there was a limit to the liability of the HGF, which was capped at $40,000 and aclaim could be made on the fund only where the value of the work performed was greaterthan $3,000.The scheme worked with difficulty and was abandoned recently as part of the reform of thesystem governing the Victorian Building and Construction Industry.The reform was initiated with the proclamation of the Building Act in 1993. This Legislationrestructured the method for obtaining an approval of building permits by permitting issue byprivate building surveyors. It also created compulsory professional indemnity and publicliability insurance for building practitioners.Significantly, the insurance was underwritten by a limited number of some four (4) privateInsurers. These Insurers were not interested in considering involvement in the Scheme untilit was compulsory for the whole industry and backed by legislation.In May 1996 the Domestic Building Contracts and Tribunal Act was introduced as anextension of the Building Act to cover the domestic building environment simultaneouslyreplacing the Housing Guarantee Fund.The Housing Guarantee Fund applied to all domestic work commenced prior to 1 May 1996.From that date, the Domestic Building Contracts and Tribunal Act applied.