If you’re in the process of getting quotes for your project here’s some information including about home building compensation fund (HBCF) you need to be aware of.
In another article I wrote about how this particular compulsory insurance – the home building compensation fund (HBCF – formerly Home Owners Warranty) – needs to be in place for works 20K and over, and that building contractors have to be assessed on their capacity to financially manage and complete the works before they actually get HBCF insurance.
Well consider this. Being a government insurance scheme (just recently private insurers have re-entered the scheme) it’s easy to think the government are looking after home owners, and they are indirectly, but it’s because they have a stake in it.
You see if the building contractor you’ve engaged disappears or goes bankrupt (dying is separate from this point but could be related…) and your project is incomplete or worse, full of defects, it’s highly unlikely you’ll be able to get that builder to finish or repair the job.
But having the HBCF in place, the government has a mandate to step in from there and get your job completed or repaired via the HBCF insurance which means THEY are the ones paying the balance.
And guess what? The government being the ‘insurance company’ is not just going to pick up the slack of poorly established builders. Like any insurer they’re going minimise their exposure to risk as much as possible – hence the eligibility testing of building contractors prior to the securing any pre-contract HBCF insurance.
So when a builder applies for HBCF insurance the builder is going to have to show at least three things before the government will provide conditional eligibility (conditional meaning set contract value and quantity limits)
- 1 – they have the necessary available working capital to manage the project
- 2 – they have a satisfactory track record in completing projects
- 3 – (and this one specifically concerns the owner) they don’t undercharge for their work!
Yes that’s right. When a builder gets assessed, we’re asked “how much margin do you apply to your jobs?” and to the surprise of builders, the lower the margin the greater the perceived risk you are to the government and of them not wanting to insure you.
Conversely, the more margin you apply, the more willing they are to insure you.
You see, the government figures that if the builder is making sure all his expenses are covered and is adding a fair margin to the works, enough to have him continue in business, then the greater the guarantee the job will be completed and to accepted standards and that they won’t be called upon to bail-out the builder. They get to keep their money!
So the next time you get the traditional “three quotes” and all your deciding impulses are guided by the lowest price, keep in mind the potential risk you are about to take on – it can look something like this.
Builder gets halfway through a job and realises they’re not going to make any money and is likely to lose money. What are their choices?
- A) cut corners, take forever to finish your job while putting in time on other jobs that actually pay the bills and leave you with hidden faults that will rear their ugly head AFTER the builder is gone.
- B) just disappear, go overseas, change their name etc and leave you with an incomplete job and no way of contacting them
- C) stop works, quickly disperse any assets they have and file for bankruptcy meaning you can’t touch them. That builder can resurface in another company with a different name using someone else at the helm, ready to take on another unsuspecting home owner. etc. etc.
So the main message behind this is – if you want your job done, to a decent standard and in a reasonable time, you have a greater chance of that happening when your builder gets paid sufficiently to cover his expenses along with a fair margin.
This will allow works to proceed to completion with the builder focusing more on things like quality control and time management, which sounds much more owner friendly in the long run. Don’t you think?
You still need to make sure who you entrust with your project is credible and right for the job, so yes ask around or at least make sure you understand their costings and can work with the conditions they are setting.
Completing a job sooner and to industry standards allows the builder to move onto their next paying project and the home owner to get back to their routines quicker and take comfort in the increased capital gain of their newly built/quality renovated home.