The Master Builders Fidelity Fund is designed to protect consumers through a package of measures that includes tighter controls, builders applying for annual cover and compulsory Fidelity Fund Certificates that protect consumers against financial loss from defective work or non-completion because a builder has died, been declared bankrupt or insolvent or disappeared.
The Fund was introduced in response to a number of builders going bust in the Northern Territory, leaving families with uncompleted houses and little chance of getting their money back.
Every time a builder goes bust, there is an enormous ripple effect on consumers and tradespeople who are caught up in the mess and a dent in people’s confidence in the building industry.
The certificates and our compliance audits act as important preventative measures as well as ensuring work gets completed.
As with all insurance policies, the Fidelity Fund does mean extra costs for consumers, but it also delivers peace of mind.
Unlike insurance cover, however, the Fidelity Fund is an industry run not-for-profit Trust administered by a range of experienced Trustees. That means all fees go into administration of the Fund and into a pool of money that is available should claims be made.
Costs include accountants checking the financials of all builders seeking registration, actuaries managing the fund, consumer education and engaging a compliance auditor, whose role is to keep an eye on projects and make spot checks to ensure work is performed in a timely manner.
The Fidelity Fund is what is known as a scheme of ‘last resort’, which means a builder has to die, be declared bankrupt, disappear or lose registration before a claim can be made for non-completion of a new home or extension.
So there is still an onus on consumers to:
The new Residential Building Cover package also includes provisions for Consumer Affairs to mediate should disputes arise between builders and home owners.
The vast majority of Territory builders provide reliable, quality service. The whole industry should benefit from these measures designed to protect consumers from the few high risk builders who give the industry a bad name.
How does the scheme work?
All residential builders have to register with the Fidelity Fund and provide information on their financial status and experience. They are then assigned a rating that determines the amount of work they can take on at any one time. This protects both builders and consumers by ensuring builders operate within their capacity and don’t over-extend themselves financially, which is the cause of most cases of non-completion.
When you engage a builder to build a new house or extensions worth more than $12,000, the builder has to obtain a Fidelity Fund Certificate. This is like insurance cover. You can make a claim under the certificate if your builder doesn’t complete work because they have been declared bankrupt, lost their registration, died or disappeared.
You can claim up to 20% of the contract price, capped at $200,000. As long as you obtained a reasonable quote and haven’t advanced money ahead of work being done, this would normally be sufficient to complete your house or extension or get it to a point where another builder can finish the job.
If you are claiming for both defective work and non-completion, the cap is still $200,000.
The Certificate covers non-structural defects for up to a year and structural defects for up to six years.
You have to get a Certificate if you are building or extending your own home. Then, if you decide to sell, the buyer is covered for any defects that emerge after the sale.
What does it cost?
The scheme is calculated at 1.2% of the price of your new home of extensions. For building costs of between $450,000 and $499,000, the cost is $2900.
Contact the Fidelity Fund to request the current schedule of rates.
What are structural defects?
Structural defects are substantial items such as roof structures, wall structures or concrete slab.
What are non-structural defects?
Non-structural defects are fittings such as kitchen cupboards, taps and doors.
See also the Building Advisory Services guidelines at www.lands.nt.gov.au/building/residential-building-insurance
The new building regulations set the following progress payments:
Builders can request payment only through an invoice after making a declaration that the stage has been completed.
Role of the Commissioner for Consumer Affairs
The Fidelity Fund Certificate covers non-completion of houses or extensions because a builder has died, become insolvent or bankrupt or because their registration has been suspended or cancelled by order of the Building Practitioners’ Board.
If none of these apply, the owner must resolve disputes before the Commissioner of Consumer Affairs, who is the Commissioner of Residential Building Disputes, or other dispute resolution procedures.
See Government Q&A for more information on the process at http://www.lands.nt.gov.au/building/residential-building-insurance
How to make a claim
Contact the Master Builders Fidelity Fund on 08 8922 9680 or firstname.lastname@example.org
10 TIPS FOR CONSUMERS
1. Always do your research when you are thinking of building a home or doing extensions.
2. You can ask to see previous work done by the builder.
3. Get builders to explain the contract to you and ensure you understand everything.
4. Read the contract or consult a lawyer.
5. Make sure you understand issues such as ‘prime costs’. Builders will make estimates, eg for bathroom tiles, but if you decide to use different tiles, costs could vary and you will be charged.
6. Understand how variations work. If you contract to build a three-bedroom home, then change your mind and want an extra bedroom, there will be an extra cost for both design changes and the additional work.
7. Make sure you are clear on completion time and anything that could cause delays.
8. Apart from the initial deposit, don’t pay for work that hasn’t been done, including advance payments for materials.
9. When in doubt about contracts or the work being done, call the builder first and try to resolve your concerns direct. If you are still in doubt, contact Consumer Affairs, whose role is to offer a dispute resolution service (www.consumeraffairs.nt.gov.au/ForConsumers/residentialbuildingdisputes)
10. We recommend using builders for new homes and extensions. Sometimes it may seem tempting to do your own work, but people often end up paying more due to inexperience.
FAQsFrequently asked questions by owners and builders