The NSW Design and Building Practitioners Act 2020 (DBP Act) has fundamentally changed the legal landscape for construction professionals.
Section 37 creates a statutory duty of care owed by anyone who carries out “construction work” to owners (and subsequent owners) to avoid economic loss caused by defects, and this duty pierces the corporate veil to expose individuals to personal liability.
This article, by our engineer lawyer, examines the far-reaching implications for engineers, architects, project managers, and directors working in NSW construction projects.
Key Takeaways
Understanding personal liability under the DBP Act is crucial for construction professionals because:
- Section 37 imposes a non-excludable, personal duty of care for anyone carrying out “construction work”
- Liability is personal, not limited to the corporate entity
- Individual professionals can face civil claims, criminal penalties up to $110,000, and potential imprisonment
- Insurance gaps and uncertainty about exposure are major risks
- Directors face exposure through both the statutory duty and executive liability provisions
- Proper risk management strategies can significantly reduce personal exposure
Understanding Section 37: The Statutory Duty of Care
What Section 37 Actually Says
Section 37 creates a statutory duty of care owed by anyone who carries out “construction work” to owners (and subsequent owners) to avoid economic loss caused by defects.
The provision states that:
“A person who carries out construction work has a duty to exercise reasonable care to avoid economic loss caused by defects in or related to a building arising from the construction work”.
This represents a radical departure from traditional liability principles. The duty applies in addition to contractual obligations, cannot be excluded by contract, and applies retrospectively to work done before 2020 (if the loss becomes apparent after the Act commenced).
Breaking Down the Corporate Veil
The most controversial aspect of Section 37 is how it bypasses the normal protection offered by corporate structures.
Traditionally, liability for defective work runs through the company, not individual staff. Section 37 upends that by making the duty personal – which means an engineer or project manager could be personally sued by an owner for pure economic loss (e.g. rectification costs, loss of property value).
Who Can Be Personally Liable Under the DBP Act?
The Broad Definition of "Construction Work"
The phrase “a person who carries out construction work” is extremely broad and captures numerous professionals including:
- Designers and engineers (including those who prepare or review designs, or issue design compliance declarations)
- Builders and supervisors
- Project managers and coordinators
- Company directors and employees involved in the design, coordination, or supervision of work
- Project managers, supervisors and others with “substantive control” over work, and design suppliers/manufacturers
Registered Practitioners
Registered individuals (design practitioners, principal design practitioners, building practitioners, professional engineers, specialist practitioners) face exposure through multiple pathways:
- Civil claims under the statutory duty of care
- Criminal offences for compliance failures
- Administrative disciplinary action
Directors and Executives
Directors face a particularly challenging position due to dual exposure pathways:
- Officers/directors and managers of corporate practitioners through executive liability for the company’s contraventions (s 95), disciplinary action directed at directors if a corporate registrant is at fault.
- Under Section 95, if a body corporate contravenes a provision of the Act or Regulation, each director or person concerned in management is taken to have contravened the same provision if they knowingly authorised or permitted the contravention.
Types of Personal Liability Under the DBP Act
Civil Claims Under the Statutory Duty
The Act imposes a statutory duty of care on any “person who carries out construction work” to exercise reasonable care to avoid economic loss caused by defects in or related to a building, arising from the construction work.
Key lesson: Individuals in these roles can be personally sued for breach of the duty.
Key features include:
- The duty is owed to current and subsequent owners. It cannot be delegated and parties cannot contract out of it
- Transitional reach: The duty applies to construction work done before commencement if the loss first became apparent within the 10 years before 10 June 2020 or on/after that date
Criminal and Penalty Offences
The DBP Act also creates multiple serious offences with substantial penalties for individuals.
Examples include:
Design Practitioners:
- Failure to provide a required design compliance declaration (max 500 penalty units for an individual)
- Knowingly making a false or misleading design compliance declaration (max 2,000 penalty units or 2 years’ imprisonment, or both)
Building Practitioners:
- Doing building work requiring a regulated design without first obtaining the design and its design compliance declaration (max 500 penalty units for an individual)
- Failing to take all reasonable steps around variations and compliance, including before varied work starts (max 1,000 penalty units for an individual)
Based on recent penalty enforcement by NSW Fair Trading, failing to obtain a design compliance declaration before construction may attract a penalty of up to $110,000 for an individual (and higher for a body corporate).
Administrative Disciplinary Action
Separate from criminal/penalty offences, the Secretary can take disciplinary action against registered practitioners, including cautions, conditions, suspension/cancellation and a civil penalty up to $110,000 for an individual ($220,000 for corporations).
For corporate registrants, the NSW Secretary can also take action personally against a director (e.g. caution/reprimand, require training, or disqualify from registration), and may suspend the body corporate’s registration while a director is disqualified.
Recent High Court Confirmation: Broad Liability Upheld
The High Court of Australia recently confirmed the broad application of these provisions in a December 2024 decision. Section 39 of the DBPA ensures that a person subject to the duty imposed by s 37(1) cannot discharge the duty merely by exercising reasonable care in arranging for another person to carry out any work or task within the scope of the duty.
The Court held that the liability of each of the appellants is “as if the liability were the vicarious liability of” them for the whole of the construction work in relation to the building.
This means that appellants cannot exclude or limit their liability by apportioning any part of that liability to any of those persons to whom each, in fact, delegated or otherwise entrusted any part of the construction work.
Industry Response and Reform Efforts
Industry bodies (e.g. Consult Australia, Engineers Australia) are lobbying for amendments to narrow personal liability under s 37. No changes yet – but pressure is growing.
The broad scope of personal liability has created significant concern within the construction industry, with many arguing that the current framework goes too far in exposing individual professionals.
Practical Risk Management Strategies
Insurance Coverage Review
Confirm Professional Indemnity policies expressly cover DBP Act duties of care. Ensure run-off cover is maintained after projects finish. Many professional indemnity insurers exclude personal statutory duty claims unless specifically endorsed, creating dangerous coverage gaps.
Internal Process Improvements
Keep robust document control, QA systems, and sign-off records. Ensure design declarations and revisions are traceable to avoid dispute over who “carried out” work. Clear documentation trails can be crucial in defending liability claims.
Employment Contract Protections
Consider including an indemnity from the company to employees/directors for liabilities arising in the course of employment. While not foolproof, such indemnities can provide some protection for individuals exposed to personal liability.
Mandatory Compliance Steps
The following steps come directly from statutory obligations:
Registration and Scope Management:
Only prepare/declare designs or undertake building/professional engineering work within your registration class and any conditions (e.g., low‑rise/medium‑rise).
Declaration Timing:
- Before work starts: ensure construction‑issued regulated designs are prepared by a registered design practitioner and lodged, and design compliance declarations obtained/lodged
- For variations: obtain updated regulated designs and declarations before varied work commences
Insurance and Records:
Being “adequately insured” is compulsory for registered practitioners when preparing designs or providing declarations; maintain written records demonstrating adequacy and supply them to the Secretary on request.
Enforcement Reality
The NSW regulatory authorities are actively enforcing these provisions in a number of ways.
Stop work orders are also in play – The Secretary can order work to stop where there is (or likely to be) a contravention causing significant risk of harm or damage.
Non‑compliance is a serious offence with high maximum penalties (including continuing daily penalties), applying to the person who fails to comply (which includes individuals).
Frequently Asked Questions
Does Section 37 mean every employee can be sued personally?
Not necessarily. Only those involved in carrying out construction work (designing, supervising, coordinating). Administrative staff are generally not caught. The key test is whether the individual carried out “construction work” as defined in the Act.
Can we contract out of the statutory duty of care?
No. Section 39 of the DBP Act says the duty cannot be contracted out of. This non-excludable nature is one of the most challenging aspects for commercial arrangements.
Does Section 37 apply to all building types?
Yes — the Court of Appeal confirmed it applies to all building classes, not just residential. While the DBP Act initially focused on residential buildings, its scope has expanded significantly.
What about projects that started before the DBP Act commenced?
It can apply retrospectively if the defect/loss became apparent after June 2020. This transitional provision has caught many professionals off guard, extending liability to much earlier work.
How do we protect our staff and directors from personal exposure?
Audit your current insurance, employment contracts, and project processes to ensure individuals are protected and exposures are identified early. A comprehensive risk management approach combining insurance, contractual protections, and robust compliance procedures is essential.
The DBP Act represents a fundamental shift in construction liability, moving from corporate to personal responsibility. For construction professionals, understanding and managing this exposure is no longer optional—it’s essential for career protection and business sustainability. While industry reform efforts continue, professionals must adapt to this new reality through comprehensive risk management strategies.
If you’re a construction professional, engineer, architect, or director working on NSW projects, obtaining specific legal advice about your personal exposure under the DBP Act is crucial. The stakes are simply too high to leave to chance.
For a deeper look at how the DBP Act affects architects specifically, read our article on the Design and Building Practitioners Act for Architects.
