Protection measures – part 2

MBIE’s new consumer protection guidance for builders details new regulations

New consumer protection measures, included in the Building Amendment Act 2013, came into force on 1 January 2015.

According to MBIE, the new measures have been adopted in response to consumers having little ability to distinguish between practitioners who have a good business history and repeatedly turn out quality building work, and those who use low-skilled labour, take shortcuts and do not stand behind their work. This type of behaviour creates an imbalance in the sector, as poorly performing practitioners often experience competitive advantage over their better-performing counterparts.

MBIE suggests that this is largely due to consumers often selecting building contractors on the basis of price alone, with little value placed on a practitioner’s overall credentials and in-service track record. The Government seeks to rebalance this lack of transparency through the implementation of the new consumer protection measures.

“When you’re pricing a job, the price should be the total cost of all the building work plus GST, regardless of whether all or part of the work is being done by a subcontractor

To outline the new measures and reiterate other changes that have occurred over the past two years, guidance has been released. It is divided into four parts:

1. New consumer protection measures
2. Before building work starts
3. Once building work finishes
4. What if things go wrong?

Under Construction will feature this content over the next few editions, as well as the ‘Guide to Tolerances’ when it is released later in the year.

New consumer protection measures

Written contracts are mandatory for higher value work

From 1 January 2015, you must provide a written contract for residential building work costing $30,000 or more (including GST) whenever you have been given the job directly by the homeowner. If you are a subcontractor reporting to a main contractor, the new requirements do not apply to you – no matter the value of your work. MBIE encourages you to provide a written contract even if the building work will cost less than $30,000. Having a written contract helps protect you in case of a payment or quality dispute – it means you have a written and signed record of how much your client has agreed to pay for the building work provided with specific terms and conditions relevant to the project.

Who is responsible for providing a written contract?

Any person or business that contracts directly with the homeowner is responsible for providing a written contract if the building work will cost $30,000 or more. You can be fined $500 for not having a written contract with the homeowner when you are required to.

Calculating the cost

When you’re pricing a job, the price should be the total cost of all the building work (including supplies, fixtures and fittings) plus GST. This is regardless of whether all or part of the work is being done by a subcontractor. The cost of the subcontractors’ work can only be excluded if the subcontractor enters into a separate contract with the client. Attempting to avoid your obligations by splitting work into separate contracts of less than $30,000 will not be to your advantage. A written contract protects you as much as it does the client.

What to do before signing the contract

From 1 January 2015, you must give your client a disclosure statement with information about your business and a standard checklist before agreeing a residential building contract if:

• The building work will cost $30,000 or more (including GST) or
• The client has asked for these documents.

NOTE: You can be fined $500 per offence for not supplying homeowners with a checklist or disclosure statement if you are required to.

Standard checklist

The standard checklist has been prepared by the Ministry and includes information on how the building project will be structured and managed, having a written contract, and resolving disputes. This is a standard document that you can easily print or email to clients directly from www.doyourhomework.co.nz.

Remember, you must not make any changes to the checklist (ie you cannot add your business logo or contact details) and you must give your client a copy of it.