INSIGHT

'Rate my builder' – next step in NSW Government rating regime

By Jonathan Light, Tessa Dudfield
Infrastructure Manufacturing & Construction Property & Development

iCIRT reveals the first developers and builders to be publicly rated 6 min read

Marking a further step in the NSW Government's 'Construct NSW' building and construction industry reforms, the Independent Construction Industry Ratings Tool (iCIRT) – which assesses construction professionals against a series of criteria1 – has released the first 19 developers and builders to have a public rating.

In this Insight, we explain iCIRT's potential impact and what action construction professionals and businesses can be taking now.

Key takeaways

  • While iCIRT is presently limited to developers, builders and certifiers of class 2 buildings, it is likely that iCIRT will be expanded in the future to other residential developments.
  • iCIRT is presently voluntary but may become mandatory. Even if it remains voluntary, developers and construction professionals of class 2 buildings that are not listed on the public register may face questions from purchasers regarding why they are not on that register.
  • Given the possible reach of iCIRT, construction professionals to whom the iCIRT applies should consider the relevant assessment criteria and how to position themselves to achieve the best possible scores.
  • The actions businesses can take now include ensuring insurance policies, licences and payments to employees and subcontractors are up to date, as well as resolving any outstanding issues with regulators that may affect their rating.
  • No formal review mechanism currently exists to challenge a rating, though the iCIRT website does have the option to query a rating. A formal review mechanism would seem necessary if the rating system becomes mandatory.

How does iCIRT work?

First announced by NSW Building Commissioner David Chandler in 2020, iCIRT ratings are intended to 'assist in building improved transparency for consumers and to restore confidence in construction'2, and assist consumers and construction industry stakeholders to identify building practitioners and project teams with a proven track record, supported by objective evidence.3

iCIRT allocates a star rating to a construction professional. Ratings range from 0 to 5 stars, with:

  • 0 stars applying to professionals who have not been rated; and
  • 5 stars applying to those professionals deemed more 'trustworthy' or likely to deliver a more reliable outcome.

Ratings are based on the following six assessment criteria (which are set out in detail at paragraph 6.1 of the iCIRT methodology):

  • Character: considers the transparency and trustworthiness of the business and its key persons. It also considers the ultimate holding company, other related parties, director-related connections, shareholders and ultimate beneficial owners of the business;
  • Capability: considers the tenure and trading history of the business (ie officeholder experience, employment history, licences and qualifications), track record on previous projects, and insurance and claims history;
  • Conduct: considers the past conduct (including commercial record) of a business, court judgments (including pending litigation), industrial disputes, tribunal decisions, payments to employees and subcontractors, and any regulator intervention;
  • Capacity: considers the project pipeline of a business and its capacity to meet commitments, as well as assessing business solvency and ongoing sustainability;
  • Capital: considers the capitalisation and funding sources of a business, as well as assessing access to funding facilities and borrowing capacity; and
  • Counterparties: considers the exposure of the business to related parties across the broader supply chain, including capacity to withstand unforeseen disruptions.

Gold, silver or bronze indicators will be given in addition to the overall star rating. These indicators concern the degree of information (and consent to use the information) provided by the construction professional. Bronze applies to limited consent and gold applies to full consent.

Only those professionals with an iCIRT rating of three gold stars or higher are included on the public iCIRT register.

Who does iCIRT apply to?

It is presently open to the Government, and separately to developers, builders and certifiers, to obtain a star rating of their own business via the iCIRT. However:

  • the iCIRT website states that iCIRT will be expanded to rate construction industry professionals such as designers, manufacturers and suppliers;
  • paragraph 6.3 of the iCIRT methodology indicates that iCIRT ratings will extend to assessing multi-party teams, such as a project or development team. This could mean that prospective purchasers or industry stakeholders will be able to consider the rating of a development team as a whole when considering, among other things, purchasing a property or financing its development;
  • while it appears iCIRT is presently limited to developers, builders and certifiers of class 2 buildings, it is likely that iCIRT will expand to other residential developments; and
  • there is also the possibility that iCIRT will expand to commercial developments (noting that iCIRT may already indirectly deal with these by rating businesses that are involved in residential and commercial developments). However, the rating of commercial developments is not a focus of the current program.

Impact

While the precise impacts of iCIRT remain to be seen, it is worth considering:

  • while iCIRT is presently voluntary, it may become mandatory. Even if iCIRT remains voluntary, developers and construction professionals that are not listed on iCIRT's public register may face questions as to why they are not, in fact, on the register – resulting in a 'market-driven push' for industry participants to become rated;
  • iCIRT may impact which businesses construction professionals work with – the FAQ page on the iCIRT's website indicates that the star rating of construction professionals that routinely work with certain lower-rated businesses may be negatively affected – again, this might result in lower-rated players being pushed out of the market;
  • iCIRT may be complementary to the information-gathering and enforcement powers created by the following Acts enacted as part of the NSW Government's construction industry reforms: the Design and Building Practitioners Act 2020 (NSW) and the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020 (NSW). In other words, information gathered, and enforcement action undertaken, under those Acts may form part of the data used in the iCIRT assessment;
  • in addition to being a tool for consumers, iCIRT may provide a valuable source of information to construction industry stakeholders (such financiers and insurers, other construction professionals, and legal and other professional advisers); and
  • iCIRT has the potential to be used as an early warning tool for companies that may be distressed. Equifax has stated that, using iCIRT data, it was able to see that various 'red flags' had arisen regarding Probuild – which went into administration earlier this year – from as early as October 2019.

What's next?

Given the potential scope of iCIRT, construction professionals to whom the iCIRT applies may wish to consider the above assessment criteria and what action they can take to position themselves to achieve the best possible scores.

The action that businesses can take now is varied. It may include ensuring insurance policies, licences and payments to employees and subcontractors are up to date, as well as resolving any outstanding issues with regulators (such as NSW Fair Trading) that may be a source of data for an iCIRT rating.

No formal review mechanism is presently available for an entity or person to challenge a rating. iCIRT does include on its website the option to query a rating, but, as the system expands, it would seem likely that a formal review mechanism or process will need to be introduced, given the prospect for disputes to arise about ratings that recipients perceive to be incorrect, and the impact this may have on their business.

Footnotes

  1. iCIRT from Equifax, Learn More – Frequently Asked Questions about iCIRT <https://www.buildrating.com/faq.html> (iCIRT FAQ)

  2. Equifax Australasia Credit Ratings Pty Limited, Independent Construction Industry Ratings Tool (iCIRT) – Single- Party and Multi-Party Ratings Methodology (v1.0, 2021) (May 2021)<https://www.buildrating.com/pdf/iCIRT-Methodology-Issue1-May-2021.pdf> (iCIRT Methodology), paragraph 4.

  3. iCIRT from Equifax, Find trusted construction experts <https://www.buildrating.com/index.html>