Building Surveyors and the Cost Estimate in Building Permit Applications: the need to exercise due care

Building Surveyors and the Cost Estimate in Building Permit Applications: the need to exercise due care

24 Jan 2017

By Justin Cotton, Director, Lovegrove & Cotton Pty Ltd (Construction and Planning Lawyers)

Recent case law at VCAT has underscored the need for a Relevant Building Surveyor (“RBS”), when considering a Building Permit application, to make certain that the estimate for cost of works is reasonably accurate.

This should involve the RBS making due inquiries of their own, if there is no contract for the relevant building work that sets out the contract value / price of the works.

The owner or applicant providing the estimate may be keen to undervalue the cost in their estimate or simply state what they consider to be a ‘ball park’ figure. An owner stands to gain if the estimate is too low because, for one thing, the owner will then be paying a lower Building Permit levy to the government.

Regulation 1502 of the Building Regulations 2006 mandates that a registered building practitioner must act in a competent manner and to a professional standard. It is a common provision under which building surveyors in Victoria are brought before the Building Practitioners Board, if they are accused of failing to act in a competent manner and to a professional standard.

Is the registered building surveyor, acting as the appointed RBS under the Building Act 1993 required to assess the value of the building works the subject of the Building Permit application?

In the VCAT Review Decision of Cole-Sinclair v Building Practitioners Board (Review and Regulation) [2014] VCAT 902 (24 July 2014), the RBS had approved a Building Permit for the construction of a carport and gazebo where the stated value of the works was $11,000.

At the hearing, the Building Surveyor argued that he was under no positive duty to perform a cost assessment of the applicant’s estimate. In contrast, the Building Practitioners Board (“BPB”) argued that the Building Act 1993 imposes a duty on Building Surveyors to ensure that the stated value of the works in the Building Permit is “reasonably accurate”.

Whilst at the hearing the Building Surveyor said he believed the cost estimate of $11,000 in the Building Permit application was “within the ballpark”, he did concede that in hindsight the cost estimate in all likelihood should be closer to $20,000. Meanwhile, the BPB insisted that the building works under the Permit would actually exceed $50,000, and they called 3 experts to support their claim, including the giving of quantity surveyor evidence.

The BPB conceded the Building Surveyor’s contention that the total costs would be less if carried out by an Owner Builder (as was the case here), but still said that the cost of materials alone would almost double the estimate of $11,000 given in the application. To that end, the BPB’s quantity surveyor expert had stated that the cost of materials alone would exceed $20,000.

In addition two other valuation experts were called by the BPB, both of whom provided basic cost estimates coming in with total values (materials and labour) in excess of $40,000.

As a consequence, the Tribunal Member held that even if one were to take the most optimistic valuation (for the RBS’ argument) the total cost of works was likely to exceed $40,000 if performed by a professional contractor or in excess of $20,000 if built by the owner builder himself.

Furthermore, the learned Member rejected an argument put forward by the Building Surveyor’s lawyer to the effect that the Act did not impose any duty on the RBS to be satisfied that the estimate of work value was accurate. It was found that such an argument, were it to be accepted, would undermine the important role for Building Surveyors in regard to:

• Ensuring the collection of the correct amount for the Building Permit levy, which is a key component of the regulatory framework in Victoria; and
• Ensuring that an Owner Builder is not permitted to perform domestic building work without a certificate of consent being issued by the BPB. This is because if the works were valued only at around $11,000 (ie less than the $12,000 threshold) then it is not an offence for the Owner Builder to carry out the works without a certificate of consent.

The learned Senior Member then found:

“In my view, the Act clearly imposes an obligation on building surveyors to conduct some evaluation of the cost of the proposed building work. In that regard, they may have regard to the contract price, if a contract exists. Alternatively if there is no contract there must be sufficient information available to enable the building surveyor to estimate the cost of the building work.” (Paragraph 90 of the Decision)

Ultimately as the Tribunal found it is a professional discretion question for the RBS as to what constitutes “sufficient information”, and we note that this is the same descriptor used in regulation 301 as regards the level of detail in plans and specifications that accompany a Building Permit application.

However, while the appointed Building Surveyor remains the arbiter that is entitled to exercise his or her judgment on a case by case basis, for instance about whether there is “sufficient information”, the Building Practitioners Board (or VCAT on review) can cast a watchful eye over how that discretion is used. If on balance it is shown that insufficient inquiry has been made by the RBS, then the exercise of the judgment may be found to be in breach of regulation 1502.

The learned Member said in the Decision that a figure stated in a Building Permit application of itself may not constitute “sufficient information”. This certainly means that some careful consideration needs to be given by the RBS about the accuracy of the figure rather than a blithe acceptance that something may be “in the ballpark”.

Perhaps not unreasonably, the RBS’ Counsel had also argued that Building Surveyors only have 10 days maximum to decide Permit applications and the cost does not justify engaging a quantity surveyor to work out the estimated value.

However, in referring to the evidence of 1 of the valuation witnesses, the Tribunal reasoned that it was not necessary to engage a quantity surveyor to make a simple assessment of works value and that estimating guides such as Rawlinsons Construction Cost Guide are a quick reference to enable a higher level of scrutiny than was adopted in this case. The RBS was also at some disadvantage for not calling their own valuation expert at the hearing.

In many situations where there is a Building Permit application, there may be a building contract where the RBS can reasonably ask for a copy and base their consideration of the works value off that. In the absence of a contract (as with most owner builder projects), there may be a quotation or quotations from contractors to be used in the works.

It is suggested that the RBS should at the very least seek some documentary evidence from the applicant to justify the estimate in the application, particularly if there is a suspicion that the value could be a little ‘light on’, or if it comes in just under the threshold requiring an owner builder certificate of consent.

In the Cole-Sinclair case, the learned Member said that in the absence of a contract with a stated price, some assessment should have been done by the RBS himself prior to the Building Permit being approved as to whether this figure of $11,000 was indeed a fair assessment of value. As an alternative, the applicant should have been asked to supply more information about how the figure was calculated.

The case is illustrative that an under assessment of the stated value of works in a Building Permit does have flow on adverse effects to the building industry, even if life or limb is not necessarily imperiled. Further to this though, the regulatory authorities will not necessarily see a laissez faire attitude by Building Surveyors as a matter of low moment.

If you have any doubt about your rights and responsibilities involving this and other aspects of building regulation, you should seek prompt legal advice to head off any potential problems “at the pass”.

For more information and assistance, please contact Lovegrove & Cotton, Lawyers