Proportionate Liability Is Coming — What the Construction Sector Needs to Know

The move is aimed at improving fairness and reducing the burden on local councils, who have long been exposed as the “last pocket standing” when defects occur in projects involving multiple parties. As the Government notes, councils frequently become “the ambulance at the bottom of the cliff” and end up paying for mistakes made by others who cannot meet their liabilities.

But the practical implications extend well beyond councils. Construction businesses must now prepare for new compliance obligations, new insurance requirements, and a more complex risk environment. Understanding what’s changing — and how to adapt — will be crucial.

The Shift to Proportionate Liability: What It Means in Practice

Under the current joint and several model, if a building defect arises and multiple parties were involved, the claimant can pursue any one of them for the full cost of damages. This often results in councils carrying responsibility far beyond their share of the fault.

The new proportionate model reverses this dynamic. Each party will be liable only for the portion of the defect they contributed to.

For construction companies, this introduces:

• Greater clarity around exposure — parties are no longer liable for the failings of others.
• Increased scrutiny of contractual obligations — with liability directly tied to clearly defined scopes of work.
• More emphasis on documentation and record-keeping — to demonstrate precisely what work was undertaken and how decisions were made.
• A shift in dispute dynamics — litigation and claims processes may become more complex as parties seek to attribute fault more precisely.

While proportionate liability may offer fairer outcomes, it also demands greater diligence from all players. Defective work — even small errors — will remain costly if not properly managed.

Mandatory Home Warranties: A New Layer of Consumer Protection

The reforms also introduce mandatory home warranties for:

• All new residential buildings up to three storeys, and
• Renovations valued at $100,000 or more.

These warranties will include:

• A one-year defects period, and
• A 10-year structural warranty.

This change is intended to give homeowners stronger protections in the event of workmanship issues. But for construction companies, it means:

• Higher upfront compliance requirements when undertaking residential projects.
• Increased risk management costs built into project pricing.
• More administrative oversight to ensure warranty requirements are met and registered correctly.
• A potential need to engage with warranty suppliers early in design and planning stages.

Companies that fail to comply will face new offences under the Building Act.

Professional Indemnity Insurance Becomes Mandatory — But Only for Designers

One of the most significant adjustments is the introduction of mandatory professional indemnity insurance (PII) for design professionals such as architects and engineers.

Importantly, this requirement does not apply to builders, though many may still choose to carry insurance for risk management purposes.

Design professionals should expect:

• Increased premium costs, especially for higher-risk work.
• Stricter underwriting requirements related to competence, systems, and previous claims.
• More rigorous contract conditions, as insurers may impose limitations or exclusions.

Businesses that employ or subcontract designers will need to ensure that:

• PII is kept current,
• Policies meet upcoming statutory minimums, and
• Documentation is available for audits or council verification.

Stronger Disciplinary Penalties for LBPs

Licensed Building Practitioners will face:

• Maximum fines increasing from $10,000 to $20,000, and
• Suspension periods doubling from 12 months to 24 months.

These changes reflect a renewed focus on lifting industry standards and penalising “cowboy” behaviour — something reputable businesses have long called for.

For compliant companies, the change is largely positive. But for LBPs, it reinforces the need to:

• Stay within licence classes,
• Maintain thorough documentation,
• Meet quality assurance expectations, and
• Avoid shortcuts that could trigger disciplinary action.

What Construction Businesses Should Be Doing Now

Although some measures will not take full effect until 2026, the sector should begin preparing immediately. Businesses should:

1. Review Contracts and Scopes of Work

Clear allocation of responsibility will be more important under proportionate liability.

2. Update Risk Registers and Project Management Systems

Accurate documentation will be essential for demonstrating the extent of liability.

3. Engage Early With Insurers and Warranty Providers

Costs, exclusions, and required standards may change before implementation.

4. Train Staff on Compliance Requirements

Frontline teams must understand how warranties, insurance obligations, and disciplinary changes affect daily operations.

5. Seek Early Legal Advice

Complex reforms require tailored strategies — especially for companies undertaking mixed-use or higher-risk projects.