The 2020 response

As a direct response to the COVID-19 pandemic, the Commonwealth and State Governments stimulated the building and construction industry by way of grants for new homes and renovations.

This stimulus in the residential sector is represented by the increase in the number of insurance policies issued in the Financial Years 2016/17 to 2020/21 as follows:

Figure 1: Queensland Building and Construction Commission Annual Report 2020-2021, page 25.

This figure is directly reinforced by the approximate 50% increase in insurance premiums from 2019-2020 Financial Year to 2020-2021 Financial Year.[1]

Almost simultaneously with this stimulation, the building and construction industry experienced shortfalls in both materials and labour with the natural consequence of delay and increased cost. Many contracts entered into were for a fixed price and period and did not account for delays or increases due to the shortages to be experienced.

These shortages continue to 2023.[2]

Disputes

These diametrically opposed pressures continue to place considerable strain on many licensed Contractors. The delays and cost increases have been a fertile field for disputes commonly culminating in a terminated building contract.

This is demonstrable by reference to the increase in non-completion claims as against the preceding two financial years.

Figure 2: Data extracted from Queensland Building and Construction Commission Annual Reports 2019-2020, 2020-2021 and 2021-2022.

The difference in the Claims Approved and Charged between Financial Year 2020/21 and Financial Year 2021/22 is stark:

Figure 3: Queensland Building and Construction Commission Annual Report 2020-2021, Table B2-2.

Figure 4: Queensland Building and Construction Commission Annual Report 2021-2022, Table B2-2.

Further, the current and non-current future claims and associated costs has seen significant increases from Financial Year 2020/21 of $236m to Financial Year 2021/22 of $347m.

Figure 5: Queensland Building and Construction Commission Annual Report 2021-2022, Table C12.

This increase from $236m to $347m in a single financial year represents an increase in liability of $111m and has seen an increase in the risk margin for all claims. Further, the claims recoverable from licensees has increased but the amount actually recovered has halved.

This is consistent with an increase in non-completion claims and non-recovery due to insolvency type events.

At present, the Insurance Fund appears to have adequate long-term equity. The impact of 2021/22 was a modest $32m loss to reduce total equity to $142m after allowing for future claims.

As the Commission’s Annual Report is due to be published in the coming weeks. We look forward to seeing how the Insurance Fund has performed in Financial Year 2022/23 and whether the losses have steadied in Financial Year 2022/23 and whether the number of non-completion claims has remained at its high level.

Regardless of the Insurance Fund’s performance, these remain important times for Contractors and Owners to ensure their rights are adequately protected and to seek timely legal advice when disputes arise.

Further information / assistance regarding the issues raised in this article is available from the authors, Joshua McDiarmid, Senior Associate, Jordan Moss, Law Graduate or your usual contact at Moray & Agnew.

[1] Queensland Building and Construction Commission Annual Report 2020-2021, page 25.

[2] Master Builders, Queensland’s Building Material & Trade Supply and Cost Issues dated 27 January 2023 (https://www.mbqld.com.au/__data/assets/pdf_file/0019/210682/Letter-Trade-and-material-supply-and-cost-issues-Jan-23.pdf)