How proportional liability will affect landscapers

The move to proportional liability won’t just affect builders, and it’s important that landscapers are aware of how their obligations might shift. In this article, construction risk expert Ben Rickard lays it all on the line.

The government has announced that it intends to move the construction sector from “joint and several liability” to proportionate liability. Their stated purpose is to reduce the risk averse behaviour of councils, who under the current regime are often the “last man standing” in a dispute. This means they’re more likely to impose extra costs and onerous consenting and inspection rules to minimise their exposure to liability for defective work.

If councils are only liable for their proportion of that cost, the government believes they will reduce red tape, thus speeding up the process and making building work more affordable (although there is very little evidence to support this position).

IMPACT ON LANDSCAPERS

For most smaller landscaping operators, the effect of this change will probably be minimal (provided you are already following good contract management practices). However, if you’re involved in structural work, drainage or major renovations, this change may have further implications.

1. IT’S BETTER IF YOU’RE THE LAST MAN STANDING

Currently, under joint and several liability, if a project fails (eg, a retaining wall collapses due to both poor design and poor construction) and the designer goes bust, the landscaper could be forced to pay 100% of the damages, even if they were only 10% at fault.

Under proportionate liability, you are only liable for the percentage of the loss you actually caused. If the court finds you 20% responsible – you pay 20% – even if the other parties are insolvent.

2. YOU MAY NEED TO PROVIDE A MANDATORY HOME WARRANTY ($100K+ PROJECTS)

To protect homeowners from the “gap” created by proportionate liability (where an insolvent party leaves a portion of the damage unpaid), the government is introducing mandatory home warranties. These are like an insurance policy that the homeowner can claim on if there is a problem with the work down the track, and the contractor is no longer around to remediate it.

Mandatory warranties will likely be required for any new build or renovation project over $100,000 that requires building consent. While all the details haven’t yet been worked out (in terms of what kinds of work will require a warranty), if you’re the main contractor on a high-end residential landscape build (pools, decks, structural walls), you may need to ensure a warranty is in place. You will need to be accredited by a warranty provider, such as a trade association or insurer, to be able to provide these, and there will be a cost as well.

3. BETTER DOCUMENTATION OF SCOPE

Proportionate liability also ramps up the battle over percentages. To prove you are only 10% responsible (or 0%), your paper trail becomes your best defence.

Under the current system, if you’re a small landscaping firm being sued alongside a big City Council, the plaintiff (homeowner) doesn’t really care about your 10%, they’re focused on the Council’s deep pockets. They just have to prove that someone is liable, not how much as well. While the council is likely to add you as a second (or third or fourth) respondent, the battle over what share you may have to pay typically happens later.

4. HIGHER COSTS IN THE EVENT OF A DISPUTE

Under proportionate liability, the plaintiff has to fight every single defendant for every single percent. They can’t just pick the easiest target to pay for everything. This means that if you’re involved in a dispute, you’ll need to pay for more experts and technical reports to fight for a lower percentage. This means your contract management process will need to be robust enough to support your defence in the event of a dispute.

Firstly, you must be extremely clear in your contracts about what is not your responsibility (eg, “Landscaper is not responsible for the structural integrity of the pre-existing sub-base provided by the client”). Even now, when it comes to a dispute, scopes of work are one of the most important but most poorly executed components of a contract, leaving the contractor exposed in the event of a dispute.

Secondly, photos of drainage, installation, soil compaction tests, and sign-offs on council-consented work will be critical to ensure you aren’t assigned a higher percentage of fault by default. Documenting everything becomes an even more important component of your contract management process.

5. PROFESSIONAL INDEMNITY FOR DESIGN AND ENGINEERING ERRORS

While the government hasn’t made Professional Indemnity (PI) insurance mandatory for all contractors, it is becoming mandatory for designers and engineers. If you do “design and build” landscaping, you may be legally required to hold PI insurance under the new rules. Regardless, Builtin always recommends that contractors involved in this work consider having their own “design & construct” PI cover. This is because, even if you weren’t responsible for the error, you are more than likely to be dragged into the dispute. This may increase further when arguments over the exact proportion of liability become even more critical.

IN A NUTSHELL

The government believes a move to proportionate liability will reduce the cost of building. However, it may end up simply moving these costs from one place to another.

To avoid having to pay more than their fair share in the event of a dispute, landscapers need to ensure their contract management processes are robust and detailed. The cost of a dispute is also likely to increase.

Depending on the regulations, landscapers may also have to become accredited for and provide a mandatory home warranty on works over $100,000.

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Builtin are New Zealand’s Construction Risk Management Experts.

For more information visit www.builtin.co.nz, email Ben Rickard at ben@builtin.co.nz or call him on 0800 BUILTIN.