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A pivotal shift in the construction industry is on the way.
A New Dawn: Transformation of the Construction Landscape through Decennial Liability Insurance
15 February 2024
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4 minute read
Decennial Liability Insurance (DCI) promises, like many of its European equivalents, to redefine standards of accountability, safety, and quality. However, what does this mean to the industry in Australia? This blog by Duncan Ferenczy explores what DLI encompasses, its anticipated impact on the construction sector in New South Wales, and the potential challenges and opportunities it presents.
The concept of Decennial Liability Insurance
A Promising New and Long-Awaited Era of Construction Accountability
Decennial Liability Insurance, a well-established concept in numerous international jurisdictions (dating, in fact, all the way back to the French Napoleonic Code in the 1880s), has landed on Australian shores. It essentially holds builders, architects, and engineers liable for any significant structural defects that occur within ten years of a building's completion and has been introduced by the NSW Government via the Building and Other Fair Trading Legislation Amendment Bill 2022 (NSW) (Bill), which proposes to insert a new section 211AA to the Strata Schemes Management Act 2015 (NSW) (SSMA) (Bartier Perry Lawyers, May 2023). This forward-thinking approach seeks to hold construction professionals to the highest quality of standards and to maintain them, in the knowledge that their work will be scrutinised long after the final brick is laid. From a consumer perspective, one could almost ask, what took so long?
The Foundation of DLI
It is important to consider, however, that the premise of DLI is not merely about holding construction professionals accountable but about instilling a culture of excellence within the construction industry. It aims to minimise the occurrence of defects that could compromise a building's integrity and encourages all parties involved to prioritise durability and safety - albeit with the potential of liability hanging over one’s head. A full report on the feasibility of DLI in New South Wales was put together by a Ministerial Advisory Committee in 2022 and can be found here.
Impact on the Construction Industry
Elevating Safety and Quality Standards
So, what does the implementation of DLI mean? Even from just reading the recommendations in the report alone, it’s clear that DLI would have a profound impact on construction practices across New South Wales. With the ten-year liability period, there would be a newfound emphasis on ensuring that every aspect of construction is done with the utmost care and adherence to safety standards. This in turn would be likely to enhance overall building quality, as constructors would be motivated to use superior materials and techniques to avoid future liabilities.
Fostering Consumer Confidence
Another significant impact of DLI is the boost in consumer confidence that it is poised to generate, a clear objective of the NSW Government in seeking to implement it. With more protection and the creation of “trustworthy buildings” will come more confidence (see more commentary on the NSW strategy here). A survey was released by NSW in 2023 asking for the public to vote on the scheme; the rather interesting results can be found here. Prospective homeowners and commercial property investors can take solace in the fact that their investments are protected against structural failings for a decade. This assurance has the potential to add further vigour to the property market, encouraging more Australians to invest in new constructions and therefore good news for construction business. Indeed, as pointed out by prominent insurance players, buyers and lenders are more likely to invest in a property that has been constructed by a builder with DLI, as it demonstrates that the builder is committed to developing high-quality properties.
Potential Challenges
Cost Implications for the Industry
Of course, DLI’s potentially numerous benefits do not come without their challenges. A primary and understandable concern is the potential increase in construction costs faced by an industry already heavily rocked by the consequences of the Covid era, an old mate that we’ve all come to know and endure. A requirement for DLI coverage could very well lead to higher project expenses, as builders and developers seek to offset the cost of securing comprehensive insurance policies. In fact, such an increase could in turn influence the final pricing of new buildings, impacting affordability for our end consumers. It is questionable whether such an end result has been considered by the NSW Government….and perhaps only time will tell.
The Ability to Adapt
As with the introduction of any new regulation, particularly one that is complex and encompassing numerous requirements, implementing DLI will necessitate a thorough understanding of a new regulatory framework and certain tools to adapt. Construction firms must navigate these changes to ensure compliance and in order to avoid the potential legal and financial repercussions. Such a process may require significant effort and could provide extremely challenging for smaller firms with limited resources. It is yet to be seen whether concessions will be made in light of this, if any.
Forward thinking
A Potential Catalyst
As the construction industry tackles the upcoming implications of DLI, there could yet be a silver lining. Businesses should reframe the potential difficulties and challenges presented by DLI as opportunities for innovation, a catalyst of a sort, for creativity. Firms should look to explore new construction methodologies, materials, and technologies to meet DLI standards, where possible and within controls of costs. Such opportunities creating a new drive and flurry of innovation could very well usher in a new era of construction excellence in Australia.
Collaborative Efforts for a Safer Future
It should go without saying that successful implementation of DLI will require collaborative efforts from all stakeholders in the construction industry. Regulatory bodies, insurance companies, construction firms, and consumers must work together to ensure that the transition to DLI is as smooth as is relatively possible and that its benefits are fully realised. Through collective action, the construction landscape in Australia can be transformed, setting a new benchmark for safety, quality, and consumer protection.
Useful links and references
Master Builders Association, " NSW building powers to be expanded” (3 March 2023)
Coleman Greig Lawyers, “What is decennial liability insurance?” (15 September 2023)
