DESCRIPTION OF EXISTING AND PROPOSED LICENSING SYSTEMS IN THE RESIDENTIAL CONSTRUCTION INDUSTRY IN CANADA INTERIM REPORT

Transcription

1 DESCRIPTION OF EXISTING AND PROPOSED LICENSING SYSTEMS IN THE RESIDENTIAL CONSTRUCTION INDUSTRY IN CANADA INTERIM REPORT Prepared for Canadian Home Builders Association Prepared by Holmen Enterprises Ltd. February 2007

2 TABLE OF CONTENTS Page EXECUTIVE SUMMARY...ii INTRODUCTION... 1 Objectives...1 Scope...1 Approach...2 Organization of the Material...2 SUMMARY OF THE EXISTING LICENSING SYSTEM IN BRITISH COLUMBIA... 3 SUMMARY OF THE EXISTING LICENSING SYSTEM IN ONTARIO... 4 SUMMARY OF THE EXISTING LICENSING SYSTEM IN QUÉBEC... 7 PROPOSED LICENSING SYSTEM IN BRITISH COLUMBIA PROPOSED LICENSING SYSTEM IN SASKATCHEWAN PROPOSED LICENSING SYSTEM IN NOVA SCOTIA PROPOSED LICENSING SYSTEM IN NEW BRUNSWICK OBSERVATIONS AND CONCLUSIONS Existing Licensing Systems...20 Proposed Licensing Systems...21 Conclusions...23 APPENDIX 1: LIST OF SOURCES ON EXISTING AND PROPOSED LICENSING SYSTEMS FOR THE RESIDENTIAL CONSTRUCTION INDUSTRY IN CANADA i

3 EXECUTIVE SUMMARY In response to the ongoing interest in licensing systems among members of home builder associations, the Canadian Home Builders Association commissioned a study of existing and proposed licensing systems for the residential construction industry in Canada. This report documents the results of the study. In this report, licensing systems refer to any legislation or regulation that imposes or sets conditions for practicing the occupation of new home building or residential renovation. While not all of the systems reviewed in this report are called licensing systems in their jurisdiction, they all require specific conditions to be met to legally build new houses or renovate houses. The type of licensing of greatest interest to most CHBA members and associations is occupational licensing. This type of licensing system is defined as follows in this report: Occupational licensing systems grant licenses on the condition that an individual or firm provides evidence or proof of pertinent skills (and perhaps other requirements) in order to practice an occupation. The type of evidence or proof required varies by sector and licensing authority. In this report, occupational licenses in the residential construction industry are interpreted to require individuals or firms to successfully complete a program of courses and pass a set of formal examinations that address the skills of new home building or residential renovation as a condition of being granted a license. The following forms of occupational licensing systems are of particular interest: Self-regulating occupational licensing systems refer to occupational licensing systems whose terms are set by an industry association that also bestows and administers licenses. This is a very significant condition since it means that an industry association determines who will be permitted to practice a particular occupation. Self-managed occupational licensing systems refer to occupational licensing systems in which government sets the standards for licensing and an association administers them. Existing Licensing Systems Three licensing systems currently exist in the residential construction industry in Canada: in British Columbia, Ontario and Québec. On the basis of the definitions used in this report, Quebec has the only occupational licensing system. It is also partly self-managed, since industry associations administer various education and warranty functions. There are two warranty licensing systems, one in British Columbia and one in Ontario. However, the two systems are different from one another. In Ontario, Tarion is a non-profit corporation that provides warranty coverage and sets warranty terms. In British Columbia, the Homeowner Protection Office (HPO) is not a warranty provider. Warranty providers are insurance companies approved under the Financial Institutions Act and provide warranties that must meet minimum terms set by the HPO. The only option for new home builders and building envelope renovators in British Columbia to obtain warranty coverage, which is a requirement for licensing, is through private insurance companies who, in turn, have the right to decide whether to provide warranty coverage to individual companies. ii

4 Other provinces, i.e., Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador, have no licensing systems, not even warranty licensing systems. Key features of these systems are summarized below. Existing System in British Columbia Type Description The licensing system in British Columbia is not considered to be an occupational licensing system according to the definition of this system used in this report. - Two categories of licenses exist: licensed residential builder and licensed building envelope renovator. - Builders who engage in, arrange for, or manage all or substantially all of the construction of a new home in British Columbia must be licensed. - Building envelope renovators who engage in, arrange for, or manage a building envelope renovation in BC must be licensed. - Owner-builders are exempt from licensing and home warranty insurance requirements, but must meet other conditions. - Licensed residential builders must register all new homes with the HPO and show proof of home warranty insurance prior to obtaining a building permit or commencing construction in geographic areas where building permits are not required. Some buildings are exempt from the need to provide home warranty insurance. - Licensed building envelope renovators must provide third-party warranty insurance in order to get a building permit for applicable building envelope renovations or prior to the commencement of the renovation where a building permit is not required. Some types of building and types of work are exempt from home warranty insurance requirements. Existing System in Ontario Type Description This is not regarded as an occupational licensing system according to the definition of this system used in this report. - All builders and vendors must be registered with Tarion to build and sell new homes (includes condominiums) legally in Ontario. - All builders and vendors must provide warranty protection to their customers. - Tarion conducts risk assessments prior to the approval of a builder s/vendor s application to determine if any conditions of registration are required. Terms and conditions may include limits on the number of units a builder may build and/or security requirements. To manage risk, Tarion may refuse or revoke a builder s or vendor s registration with Tarion for a number of reasons, including a high ratio of chargeable conciliations, and/or claims to possessions, failure to provide financial information to Tarion and/or failure to provide security. - The following criteria are used for assessing builders/vendors: 1) size, 2) tenure with Tarion, 3) business and technical skills, based on results of tests and 4) financial information. Existing System in Québec Type Description The licensing system is an occupational licensing system. Part of the licensing system is self-managed. The system is not self-regulating. - Licenses are grouped into a series of categories based on types of buildings and applicable conditions. The two main categories are building contractors licenses and owner-builder licenses. Building contractors licenses are grouped into two categories: general contractors licenses and specialized contractors licenses. General contractors licenses have been divided into 23 sub-categories; five are relevant to housing construction. Specialized contractors licenses have been divided into 75 sub-categories; many correspond to trades and occupations and are not relevant to this study. - Contractors must provide proof of providing home warranty coverage where this is required by law. - Contractor s must meet specified conditions to confirm solvency. - Contractors must successfully pass examinations for their sub-category. The examinations cover the iii

5 following areas: - Managing construction work - Managing safety on construction sites - Management, e.g., labour relations, financial administration, quality control programs, relevant legislation and regulations - Owner-builders must also successfully pass exams for the category of their license. Proposed Licensing Systems Four licensing systems have been proposed recently: in British Columbia, Saskatchewan, Nova Scotia and New Brunswick. Key features of these systems are summarized below. Proposed System in British Columbia Type Description Implementation considerations Status The proposed system is an occupational licensing system for those applying for their first license as a licensed residential builder. It is not an occupational licensing system for existing licensed residential builders (they will be grandfathered) or for the other two license categories, licensed residential developer and licensed building envelope renovator. The proposal indicates that the system wound be partly selfregulating (industry would have a role in setting and administering some terms). Responsibility for the proposed system would still be held by the Provincial Government. - Three license categories are proposed: - Licensed residential builder - Licensed residential developer - Licensed building envelope renovator - All license holders would have to demonstrate ongoing warranty insurance coverage by a warranty provider. - Licensed residential builders would have to meet the following conditions: - First-time applicants would have to meet education, experience and competency requirements, and be a member of an association involved in the residential construction industry. - Licensees seeking license renewal would have to prove to have home warranty insurance and meet requirements of a continuing professional development program. - Existing license holders would be deemed to be in good standing (grandfathered). - Licensed residential developers would have to meet the following conditions: - First-time license applicants would have to provide prescribed information about the company and confirm acceptance by a home warranty insurance provider. - Licensees seeking license renewal would have to submit an execution plan and prove provision of home warranty insurance. - Existing license holders would be deemed to be in good standing (grandfathered). - Licensed building envelope providers would have to provide home warranty insurance coverage. The proposal acknowledges that a number of tasks must be completed to implement the proposed licensing system, including defining the education benchmark, experience requirements and a program of continuing professional development. Estimates of the cost and time required are not provided. The proposed system is being assessed by the Provincial Government. Proposed System in Saskatchewan Type Description The proposed system is neither an occupational licensing system nor a self-regulating system. - This industry proposal is for new home builders to be required to provide third-party guaranteed warranty coverage of the dwellings they build. - New home builders would be required to register and enrol all new homes they construct with an approved third-party warranty provider, unless they are exempted. - Owner-builders who build their own home for use as their principal residence and occupy it for more than five years are exempt from builder registration and the requirement to provide warranty coverage. However, they would be required to register the home. If the home is sold within five years, they would be required to provide subsequent owners with third-party warranty protection similar to that provided by registered home builders. iv

6 Implementation considerations Status - A number of buildings would be exempted from the requirement to provide warranty coverage: rental homes as defined, seasonal homes under specified conditions, farm homes, government housing, care facilities, dormitories, hotels and motels, floating homes and First Nations reserve housing. - Warranty providers would have to be approved by the organization governing the licensing system. - The main warranty would cover the following items: workmanship and materials, water leaks and major structural elements. The proposal acknowledges that a number of planning, set up and operating tasks must be carried out to implement the licensing system. These are summarized below. - Planning tasks: This includes legislative work and a financial plan. - System set-up tasks: This includes builder registration, new home registration, penalties/fines for noncompliance and public awareness. - Operating tasks: This includes working with municipalities to collect information on home building activity in their jurisdiction and steps to enforce the requirements. Some of the planning work has been completed. The system is being promoted by the Canadian Home Builders Association Saskatchewan (CHBA-SK). Proposed System in Nova Scotia Type Description Implementation considerations Status The proposal is for a self-regulating occupational licensing system. The proposal is in the form of a business plan developed by a group of organizations related to the housing industry. The main features are outlined below. - One license category is proposed covering two types of activity: new residential construction and residential renovation. - All new residential and renovation construction would have to be done by a licensed contractor. This would include detached dwellings and multi-dwelling buildings. Details on exceptions are not yet developed. - Licensees would be required to meet the following conditions: - Provide insurance-backed warranty coverage for specified new residential construction and renovation - Provide proof of financial viability - Complete specified courses - Participate in a program of continuing education - Employment, either directly or as a sub-contractor, of qualified trades for work in the compulsory trades - Commit to comply with applicable codes and standards - Commit to comply with all health and safety legislation and regulations The business plan identifies a number of planning, set up and operating tasks to implement the proposed system and estimates their cost. These are summarized below. - Planning and set-up tasks: This includes completing legislative work, finalizing licensing standards and regulations, develop training and certification standards and finalize licensing fees. - Set-up tasks: This includes setting up the operating organization and hiring staff. - Key operating tasks: This includes review applications, registering approved new home builders and renovators, issuing licenses to approved new home builders and renovators, maintaining a registry, administering licensing standards and regulations, administering training and certification standards, collecting license fees, investigating and acting on complaints, and conducting and distributing research/information products. - Estimated implementation costs are provided: i.e., estimated start-up costs of $135,000 and estimated annual operating costs of $450,000. A strategy for generating revenues is proposed. The Provincial Government will not bring forward legislation to implement this proposed system. Proposed System in New Brunswick Type Description Elements of a self-regulating, occupational licensing system are proposed. - Residential construction and residential renovation would be required to be carried out by a licensed residential contractor. Residential construction is defined (in part) as any structure intended for residential use of three stories or less in building height, having footprint area not exceeding 600 square meters. A residential contractor means (in part) any person who undertakes the construction or renovation of a residential dwelling for profit. v

7 - The proposal states that individuals would not be prevented from building their own home, but the method for achieving this exemption is not stated - Licensees would be required to meet the following conditions: - Build to the National Building Code (NBC) - Carry liability coverage - Carry workplace injury insurance as required by the Act that governs the Worker Health Safety and Compensation Commission (WHSCC) of New Brunswick - Undertake to provide third-party warranty on all hew home construction - Provide proof of completing specified learning - Commit to adhering to a continuing education program prescribed by the Association - Comply with the Association s Code of Ethics Implementation The proposal does not provide details on the tasks that must be completed to implement the proposed considerations licensing system. Status The proposed system may be submitted to the Province s Legislative Assembly in the Spring of Conclusions According to the definitions of licensing systems used in this report, the following conclusions can be made: The only existing occupational licensing system for the residential industry in Canada is the system in Quebec, and it is partly self-managed. There is no existing self-regulating occupational licensing system in the residential construction industry in Canada. Of the four proposed systems, three would be occupational licensing systems. The British Columbia proposal would make the system partly self-regulating. It is being actively considered by the Provincial Government. The proposal for Nova Scotia was for a self-regulating system but it will not be implemented. The conceptual proposal for New Brunswick is for a self-regulating system. It may be submitted for consideration by the Provincial Government in the spring of vi

8 INTRODUCTION This report summarizes existing and proposed licensing systems for the residential construction industry in Canada. In this report, licensing systems refer to any legislation or regulation that imposes or sets conditions for practicing the occupation of new home builder or residential renovator. While not all of the systems reviewed in this report are called licensing systems in their jurisdiction, they all require specific conditions to be met to legally build new houses or renovate houses. The report has been prepared in response to ongoing interest in the topic by provincial home builder associations and CHBA s interest in providing reference information about such systems, including the implications of specific licensing systems. The impetus for the preparation of this report was a decision by the Executive Committee of CHBA in November 2006 to examine various licensing systems for residential construction in Canada. The Executive Committee considered alternate terms of reference for this study and decided to focus initially on a description of the existing and planned licensing systems. It may decide to carry out further studies of these systems in the future to examine their implications, such as their costs and benefits. This report is not the first that CHBA has produced on licensing systems for the residential construction industry. The first report was titled What Does Occupational Licensing for Builders Actually Mean? and was distributed by CHBA in March The second was Implications of Occupational Licensing Systems for New Home Builders and Renovators distributed by CHBA in June Objectives As noted, the objective of the study leading to this report was to describe existing and proposed licensing systems for the residential construction industry in Canada. The report documents these systems in a similar format to facilitate a comparison of their attributes. It also documents information where it is available on the tasks required to implement proposed licensing systems in order to provide those interested in the concept with information on implementation implications. Scope A search of licensing systems in Canada identified the following: An existing licensing system in British Columbia and a proposal to change it. An existing licensing system in Ontario An existing licensing system in Québec A proposed mandatory warranty protection model for new home builders in Saskatchewan A proposed licensing system in system in Nova Scotia A proposed licensing system in New Brunswick These systems have been reviewed and are summarized in this report.

9 Approach Documentation about each licensing system was obtained from the web sites of the organization, from the organizations directly or from other sources (see list of sources in Appendix 1). These have been reviewed and summarized. Officers of the organizations whose systems have been described were asked to review them or answer questions where they arose. The initial framework used to document attributes of existing and proposed licensing systems was based on the analytical model developed in the report, Implications of Occupational Licensing Systems for New Home Builders and Renovators. The framework was adjusted somewhat on the basis of the documentation on each of the systems, but kept fairly uniform to facilitate comparisons of the licensing systems. The framework for the proposed licensing systems includes an opportunity to document information on implementation tasks and issues. The type of licensing of greatest interest to most CHBA members and associations is occupational licensing. This type of licensing system is defined as follows in this report: Occupational licensing systems grant licenses on the condition that an individual or firm provides evidence or proof of pertinent skills (and perhaps other requirements) in order to practice an occupation. The type of evidence or proof required varies by sector and licensing authority. In this report, occupational licenses in the residential construction industry are interpreted to require individuals or firms to successfully complete a program of courses and pass a set of formal examinations that address the skills of new home building or residential renovation as a condition of being granted a license. The following forms of occupational licensing systems are of particular interest: Self-regulating occupational licensing systems refer to occupational licensing systems whose terms are set by an industry association that also bestows and administers licenses. This is a very significant condition since it means that an industry association determines who will be permitted to practice a particular occupation. Self-managed occupational licensing systems refer to occupational licensing systems in which government sets the standards for licensing and an association administers them. Organization of the Material The next three sections of the report summarize licensing systems in British Columbia, Ontario and Québec. The following four sections discuss systems proposed in British Columbia, Saskatchewan, Nova Scotia and New Brunswick. The report ends with some observations and conclusions. 2

10 SUMMARY OF THE EXISTING LICENSING SYSTEM IN BRITISH COLUMBIA A summary of attributes of the existing licensing system in British Columbia is presented in the table below. Attribute Type of license - The licensing system in British Columbia is not considered to be an occupational licensing system according to the definition of this system used in this report. While the regulation governing licenses gives the Registrar the right to require an applicant for a license to submit a list of courses taken (Section 4), and gives the warranty provider the right to deny a license to an applicant if it does not possess the necessary technical expertise related to constructing new homes (Section 5), these conditions are not imposed on all applicants and no formal tests of competence are imposed on all license applicants. - The system is not a self-regulating system. Legal basis for - Licensing is authorized under the Homeowner Protection Act, assented to in July 1998 and license corresponding regulations. - All warranty providers must be insurance companies authorized under Financial Institutions Act to carry out home warranty insurance business. Warranty providers can appoint an agent to manage their warranty program. Governance The HPO is responsible for administering the Act and for implementing all elements of the licensing system. The HPO is a provincial Crown Corporation accountable to the Ministry of Forests and Range. License categories Two categories exist: - Licensed residential builder - Licensed building envelope renovator The license cites a director-nominee to hold a license on behalf of a company. Types of work requiring a license License conditions for licensed residential builders - Builders who engage in, arrange for, or manage all or substantially all of the construction of a new home in British Columbia must be licensed. - Building envelope renovators who engage in, arrange for, or manage a building envelope renovation in BC must be licensed. - Owner-builders are exempt from licensing and home warranty insurance requirements. However, the following conditions apply to owner-built homes: - The home must be built by the owner-builder for personal use. Owner-builders must not hire someone else as their general contractor but must assume the role of builder themselves. - The owner-builder may not build a house more than once per 18-month period after occupancy of a previously built owner-built home. - The owner must obtain an Owner Builder Declaration and Disclosure Notice in order to obtain a building permit or commence construction. - Owner-builders must provide any future purchaser with a copy of the disclosure notice. - If an owner-builder sells their home within 10 years after first occupancy, the owner is personally liable and could face legal action for defects. - Licensed residential builders must register all new homes with the HPO and show proof of home warranty insurance prior to obtaining a building permit or commencing construction in geographic areas where building permits are not required. - The third-party home warranty insurance must be provided by an insurance company approved by the Financial Institutions Commission. - The following buildings are exempt from home warranty insurance requirements: owner-built homes, multi-unit residential buildings built for rental purposes and where all units are held under a single legal title (for which a 10-year covenant is registered on title), factory-built homes, and nonstrata titled hotels, motels, dormitories, care facilities and float homes. - The following minimum warranty insurance coverage is required: - Two years for labour and materials: Different specific coverages and time limits apply to different types of property. - Five years for the building envelope: Coverage is for defects in the building envelope that permit unintended water penetration such that it causes or is likely to cause material damage. - Ten years for structural defects: Material and labour defects that result in the failure of a load- 3

11 Attribute License conditions for licensed building envelope renovators Penalties Fees for a licensed residential builder Fees for a licensed building envelope renovator bearing part of the home or any defects materially and adversely affecting its use. - Payout limits: for non-strata homes: $200,000; for strata homes, $100,000 for each unit and for the common property $100,000 multiplied by the number of units in the building up to $2,500, Licensed building envelope renovators must provide third-party warranty insurance in order to get a building permit for applicable building envelope renovations or prior to the commencement of the renovation where a building permit is not required. - The regulations do not apply to the following types of building or types of work: buildings with only one or two self-contained dwelling units, multi-unit rental buildings, social housing, hotels and motels, dormitories, care facilities, floating homes, repairs carried out by the original builder at no cost to the owner(s), or when there is a cost-sharing agreement between the original builder and owner(s), buildings covered with Homeowner Protection Act legislated warranty insurance, or when the dollar threshold and/or percentage of cladding surface renovated threshold is/are not met (the threshold is a total of $10,000 or $2,000 per unit, and more than 60% of the cladding on a building face is renovated). - Building envelope renovators must complete the HPO Building Envelope Renovation Schedule and provide it to the strata corporation before applying for a building permit or commencing renovations. - A building envelope consultant is required to be involved in the renovation and must be named in the HPO Building Envelope Renovation Schedule. - The third-party home warranty insurance must be provided by an insurance company approved by the Financial Institutions Commission. - The following minimum warranty insurance coverage must be provided: two years on labour and materials, and five years on the building envelope including water penetration. Warranty providers are not required to provide warranty insurance on portions of a building which are not part of the building envelope renovation. The maximum age of a building covered by licensing and warranty insurance is 25 years. Fines of up to $25,000 for individuals and $100,000 for corporations may be levied and persons may be imprisoned for up to one year if they are convicted of offences such as the following: - Building without a license - Falsely claiming to be a licensed residential builder - Falsely claiming to be an owner-builder - Building or selling a house without home warranty insurance as required - Failure to pay fees - Failure to file or pass on an Owner-Builder Declaration and Disclosure Notice - $600 for the first year - Renewal fees: $500 - Plus $25 per unit - Reconstruction levy: $750 per dwelling in a multi-unit building containing two or more units under separate title located in the coastal climate zone (detached and rental housing is exempt) - $100 for those who are licensed residential builders; otherwise the first year fee is $ Annual renewal fees: $500 - Only one $500 renewal fee is required for those acting both as Licensed Residential Builders and Licensed Building Envelope Renovators - Plus $25 per unit renovated and not exempted SUMMARY OF THE EXISTING LICENSING SYSTEM IN ONTARIO A summary of attributes of the existing licensing system in Ontario is presented in the table below. Attribute Type of license - This is not regarded as an occupational licensing system. While applicants for licenses are tested (see License conditions Risk assessment, below, they are not deemed to be as formal or extensive as envisioned by the definition of occupational licensing. - It is not a self-regulating system. 4

12 Attribute Legal basis for license Governance License categories Types of work requiring a license License conditions Licensing conditions: - Overview of warranty conditions Licensing is authorized under the Ontario New Home Warranties Plan Act: The Act specifies builders and vendors legal obligations to legally build and sell new homes and condominium units in Ontario. - The Ontario Government, through the Ministry of Government Services, has empowered Tarion Warranty Corporation to administer the Ontario New Home Warranties Plan Act and corresponding regulations. Tarion Warranty Corporation is a non-profit, private corporation. - The primary purpose of Tarion is to ensure that builders abide by this legislation, and to step in to protect consumers when builders fail to fulfill their deposit and warranty obligations. - All new home and condominium builders in Ontario must be licensed by Tarion. Only one category exists but it includes builders and vendors, defined as follows: - A builder is a person who undertakes the performance of all the work and supply of all the materials necessary to construct a completed home whether for the purpose of sale by the person or under contract with a vendor or owner. - A vendor is a person who sells on his, her or its own behalf a home not previously occupied to an owner and includes a builder who constructs a home under contract with the owner. - Licenses are issued to the legal entity that is the builder or vendor. All housing built for sale must be built by a licensed builder or vendor. - All builders and vendors must be registered with Tarion to build and sell new homes [includes condominiums] legally in Ontario. - All homes must be enrolled prior to construction. - Registered builders or vendors must submit a renewal application prior to the anniversary date of their registration. - All builders and vendors must provide warranty protection to their customers. Details of required protection are summarized in the section Licensing conditions: Overview of warranty conditions below. - Tarion conducts risk assessments prior to the approval of a builder s/vendor s application to determine if any conditions of registration are required. Terms and conditions may include limits on the number of units a builder may build and/or security requirements. To manage risk, Tarion may refuse or revoke a builder s or vendor s registration with Tarion for a number of reasons, including a high ratio of chargeable conciliations, and/or claims to possessions, failure to provide financial information to Tarion and/or failure to provide security. Details of the risk assessment process and requirements are presented in the section Licensing conditions: Risk assessment below). - Coverage under the Act includes deposit protection, protection against defects in work and materials, protection against unauthorized substitutions and protection against delayed closings or delayed occupancies without proper notice. - Details of warranty coverage: - Deposit protection: The maximum value is $40,000 for freehold homes and $20,000 for condominium units. - Delayed closing compensation: Builders may delay closing up to five days without giving notice or compensation; up to 120 days with proper written notice without paying compensation. If these conditions are breached, the compensation from the builder may be up to $5,000. However, compensation is not available for delays caused by some factors, e.g., strikes and acts of God. - One-year warranty: The one-year warranty is provided by the builder and requires the home to be constructed in a workmanlike manner, fit for habitation, constructed in accordance with the Ontario Building Code and free of major structural defects. - Two-year warranty: The two-year warranty is provided by the builder and covers water penetration through the basement or foundation walls; defects in materials, including windows, doors and caulking, or defects in work that result in water penetration into the building envelope; defects in work or materials in the electrical; plumbing and heating delivery and distribution systems; defects in work or materials that result in detachment, displacement or deterioration of exterior cladding; violations of the Ontario Building Code affecting health and safety; major structural defects. - Seven-year warranty: During the first two years, the warranty is provided by the builder; from years three to seven, it is provided by Tarion. - Limits of coverage: 5

13 Attribute License conditions: - Risk assessment Other licensing conditions Penalties - Up to $300,000 coverage for new homes and condominium units - Up to $50,000 multiplied by the number of units to a maximum of $2.5 million for condominium common elements. Tarion will conduct a risk assessment prior to the approval of an application or renewal. The outcome determines if any conditions will be placed on a builder s or vendor s registration. These conditions can include limiting the number of units a builder can build, requiring security or setting other requirements. The following criteria are used for assessing builders/vendors. - Size, in terms of the average number of possessions over the past five years by project type (freehold and condominium projects). - Tenure with Tarion, i.e., the number of consecutive years of registration - Business and technical skills: New applicants must complete a business test and technical test, as follows: - Business test (done by interview): The scope covers business and construction experience, the company s marketing strategy, contractual documents, the customer service plan and anticipated construction. - Technical test: This is based on Part 9 of the Ontario Building Code and is comprised of 40 multiple choice questions. The questions cover the most common and costly Tarion claim defects and the most common construction problems that builder s experience. - Financial information. The assessment is based on two criteria: 1) equity per unit and 2) financial assessment and/or credit history. The equity per unit is a calculated amount. Points for this are allocated based on the ratio of the builders equity per unit and the minimum required equity: An indemnitor is required if the registrant does not meet the suggested minimum equity or has not been registered for five years or more. Alternately, the builder can provide security instead of an indemnitor. Points for financial status and/or credit history are based on an analysis of financial statements using traditional tools to determine debt load, liquidity, profitability, sales growth and changes in financial position or status. Security requirements depend on the total score for size, tenure, business skills and financial information. If the point score is low, registration is refused or revoked. Otherwise, it ranges from $0 to $20,000 per unit for builders of condominiums and $0 to $10,000 for builders of freehold projects. Vendors may be required to post additional security of $5,000 per unit for all homes enrolled with a private sewage disposal system. - Builders must comply with the Customer Service Standard. It requires the following: - Builders must provide a Homeowner Inspection Package and provide confirmation of its provision to Tarion. - Builders must conduct a standard Pre-Delivery Inspection (PDI) with purchasers on or before their possession using a PDI Form provided by Tarion, or an alternate form approved by Tarion. - Builders must comply with standard warranty service rules that outline when and how homeowners can make warranty service requests, the timeframe builders have to service these requests, and the circumstances under which Tarion will become involved. - Consequences for failure to comply with the Customer Service Standard: - Builders will be subject to escalating consequences if they fail to complete the necessary warranty repairs within the required Builder Repair Periods under the Customer Service Standard. The escalating consequences are triggered if the builder s ratio of chargeable conciliations to the number of possessions over the past three years is greater that 0.04 and the builder has had at least two chargeable conciliations over the past three years. - The escalating consequences are grouped in three levels, with each being more stringent. The impact on a builder depends on the response of the builder to these consequences. Other performance issues will also lead to consequences including possible revocation of license. Every person who knowingly provides or allows false information to be provided in any statement, or contravenes the following sections of the Act: Section 6 (deals with registration), Section 12 (deals with the provision of information and payment of fees) or Section 18(4) (deals with hindering an inspection) is liable for a fine of not more than $25,000, and/or imprisonment of up to one year. A corporation convicted of an offence noted previously may be fined up to $100,000. Fees - Registration fee: $600 - Renewal fee: $300 - Enrolment fees are based on the sale price of a home or condominium and range from $ for a dwelling selling up to $100,000 to $855 for a dwelling selling for more than $500,000 (fees are effective July 1, 2006). These fees include taxes. 6

14 SUMMARY OF THE EXISTING LICENSING SYSTEM IN QUÉBEC A summary of attributes of the existing licensing system in Québec is presented in the table below. Attribute Type of license Legal basis for license Governance License categories License categories for building contractors License subcategories for general contractors - Licenses are occupational licenses. - Part of the licensing system is self-managed; the system is not self-regulating. Licensing is authorized under the Building Act and regulations respecting the professional qualification of building contractors and owner-builders. - The license issuer is the Régie du bâtiment du Québec. - The Régie delivers, modifies and annually reviews the licenses of general and specialized contractors and owner-builders after evaluating their skills, solvency and probity. - The Régie enforces its requirements by monitoring stakeholders, tracking construction work to ensure that contractors hold the required licenses and monitoring the financial guarantees associated with new residential buildings. - The Régie delegates some responsibilities for implementing the licensing system to other organizations: - Three associations, the Association provinciale des constructeurs d'habitations du Québec (APCHQ), the Association de la construction du Québec (ACQ) and the Association patronale des enterprises en construction du Québec (APECQ), have been accredited to deliver the education programs which are a key part of the occupational licensing system in Quebec. This delegated responsibility includes the following functions: course development, course delivery and preparation and administration of examinations (except those examinations challenged by contractors who do not take the courses). (Courses, minimum hours of course delivery and examinations must be approved by RBQ). Details of education requirements for licensing are described below (see License conditions: Examination of skills). - Three organizations have been allocated the responsibility by the Régie to deliver specific guarantee (warranty) programs. They are La Garantie habitation du Québec inc. (administrator of the Qualité Habitation guarantee), La Garantie des bâtiments résidentiels neufs de l'apchq inc. (administrator of APCHQ's La nouvelle garantie des maisons neuves) and La Garantie des maîtres bâtisseurs inc. Licenses are grouped into two broad categories: - Building contractors licenses - Owner-builder licenses Building contractors licenses are grouped into two categories: general contractor s license and specialized contractor s license. These are described as follows: - The general contractor category includes any contractor whose main activity consists in organizing, coordinating, carrying out or having carried out, in whole or in part, construction work included in the sub-categories of the general contractor category or in making or submitting tenders personally or through an intermediary, for the purpose of carrying out or having carried out, in whole or in part, such work. Relevant details about sub-categories of the general contractor are presented below. - The specialized contractor category includes any contractor whose main activity consists in carrying out or having carried out, in whole or in part, construction work included in the subcategories of the specialized contractor category or in making or submitting tenders, personally or through an intermediary, for the purpose of carrying out or having carried out, in whole or in part, such work. Comments about sub-categories of the specialized contractor category are presented below. Twenty three sub-categories have been defined. The following five are relevant to new home building and renovation: - Contractor new residential buildings covered by a guarantee plan, Class 1 (sub-category 3031): This sub-category includes construction work in respect of - a detached, duplex or town house single-family dwelling, whether or not it is held in divided coownership (divided co-ownership is condominium ownership); - a multi-family building, from a duplex to a quintuplex, that is not held in divided co-ownership; 7

15 Attribute License subcategories for specialized contractors License categories for owner-builders Types of work requiring a license License conditions for general contractors - a multi-family building of more than five units, held by a non-profit organization or a cooperative and not held in divided co-ownership. - Contractor new residential buildings covered by a guarantee plan, Class 2 (sub-category 3032): This sub-category includes construction work in respect of a multi-family building of combustible construction or of a multi-family building of non-combustible construction comprising no more than four private portions stacked one above the other, held in divided coownership. - Residential building contractor, Class 1 (sub-category 4041): This sub-category includes construction work in respect of buildings of a building height of four stories or less, not covered by the Regulation respecting the guarantee plan for new residential buildings, and intended to be used mainly for residential purposes and similar or related construction work. - Residential building contractor, Class 2 (sub-category 4042): This sub-category includes construction work in respect of all types of buildings not covered by the Regulation respecting the guarantee plan for new residential buildings, and used mainly for residential purposes and similar or related construction work. - Maintenance, renovation, repair and alteration of residential buildings contractor: This subcategory includes construction work to maintain, renovate, repair and alter, in whole or in part, residential buildings including the construction of small additions with respect to the building as a whole. Seventy-five sub-categories have been defined. Many correspond to trades and occupations and are not deemed relevant to this study. - Owner-builder who has construction work carried out: The sub-categories are similar to those for the general contractor, with adaptations. - Owner-builder who carries out construction work. The sub-categories are similar to those for the specialized contractor, with adaptations. The types of work described in the contractor sub-categories must be done by contractors licensed in those categories. - Applicants must provide the following information for the issuance of, renewal of, or amendment to a license: - Identity and contact information - Information on registrations in other sole proprietorships, partnerships or legal entities - Applicable sub-category of licenses - Proof of joining a guarantee plan (warranty) in accordance with the Act, Sections 77 and 78. Selected details of the guarantee plan are presented below (see License conditions: guarantee plan below) - Payment of required security - Criminal judgements/records - Notice of bankruptcy in the last three years, if applicable - Proof of payment of notice of violations as a result of decisions on violation of the Consumer Protection Act, the Act respecting labour relations, vocation training and manpower management in the construction industry or the Act respecting occupational health and safety - Unless they are exempted from demonstrating the required skills, contractor candidates must pass the examinations dealing with construction work management, safety management on work sites and administrative management that relate to the sub-category license applied for. Details of examination requirements are summarized below (see License conditions: Examination of Skills below). - Applicants must meet conditions respecting solvency: Conditions are stipulated for natural persons, partnerships and legal persons, and include the following: - Minimum assets: $20,000 for general contractors; $10,000 for specialized contractors; also alternative arrangements for partnerships and legal persons - Minimum working capital ratio of 1.1/1 - Balance sheet or financial statement - Alternate proposals designed to achieve the same objectives will be considered - Joining a guarantee plan meets the solvency requirements 8

16 Attribute License conditions for owner-builders License conditions: - Examination of skills - Applicants must provide the following information for the issuance of, renewal to, or amendment to a license: - Identity and contact information - Information on registrations in other sole proprietorships, partnerships or legal entities - Applicable sub-category of license - Description of construction work planned - Address of the site where a journeyperson electrician is in charge on behalf of the owner. - List of work to be done by subcontractors - Proof of payment of notice of violations as a result of decisions on violation of the Consumer Protection Act, the Act respecting labour relations, vocation training and manpower management in the construction industry or the Act respecting occupational health and safety - Applicants must successfully complete an examination applicable to the sub-category applied for Examination of Skills Related to Managing Construction Work The examinations are related to the sub-category applied for and include modules that may cover the following subjects: - Organization, coordination and execution of construction work - Implementation and management of quality control programs for construction work - Skill and knowledge in reading plans and specifications when required for the carrying out of construction work in the sub-category for which the person wishes to qualify - Evaluation, estimation and distribution of building costs - Knowledge of the regulations and basic technical principles applicable to construction work included in the sub-category for which the person wishes to qualify - Knowledge of the legislation and regulations relevant to the carrying out of the duties of construction work manager Examination of Skills Related to Managing Safety on Construction Sites The examinations are related to the sub-category applied for and includes modules that may cover the following subjects: - Managing the prevention of work accidents - Managing accident files on construction sites - Processing files with the Commission de la santé et de la sécurité du travail du Québec - Knowledge of the legislation and regulations relevant to the carrying out of the duties of safety manager - Managing quality control programs for construction work Examination of Skills related to Management The examinations are related to the sub-category applied for and includes modules that may cover the following subjects: - Management - Labour relations - Financial administration - Setting up and supervision of the enforcement of quality control programs for construction work - Knowledge of the legislation and regulations relevant to the carrying out of the duties of manager Examination of Owner-Builder Skills The examination of the owner-builder's skills takes into account the sub-category applied for and may cover the following subjects: - Organization, coordination and execution of construction work - Skill and knowledge in reading plans and specifications when required for the carrying out of construction work in the sub-category for which the person wishes to qualify - Knowledge of the regulations and basic technical principles applicable to construction work included in the sub-category for which the person wishes to qualify - Managing the prevention of work accidents - Knowledge of management and knowledge of the legislation and regulations relevant to the carrying out of the duties of an owner-builder Other Conditions Related to the Examination of Skills - An applicant must obtain a pass mark to obtain a license applied for. - Specific examination procedures are stipulated. Penalties for fraud, cheating, etc. in an exam are punishable by declaring the examination results null and disallowing the applicant from retaking the examination within a one-year period. 9

17 Attribute License conditions: - Guarantee plan Penalties Fees and other charges - Conditions for exemption of the examination are specified. They include completion of an alternate course deemed relevant and proof that the applicant has one year of relevant experience. The Régie enforces the guarantee plan for new residential buildings. For affected buildings, it is mandatory. Main elements for buildings held in divided co-ownership (condominiums): - Buildings covered: New buildings that are 1) detached, semi-detached or row housing; 2) multifamily building of combustible construction; 3) multi-family building of non-combustible construction held in divided co-ownership and comprising not more than four private portions stacked one above the other. - Coverage and benefits for each type of building: 1) recovery of partial payments up to $39,000; 2) completion (of private and common portions); 3) cost of relocation, moving and storage in the case of delayed completion up to $5,5000 with other constraints; 4) repair of defects or poor workmanship a) for detached, semis and rows, up to $260,000 per dwelling and $2,600,000 for the total number of units where there are common portions, and b) for multi-family buildings, the lesser of the cost and $130,000 per unit times the number of units, up to $2,600,000; 5) repair of latent defects; also costs to ensure an adequate water supply. Main elements for buildings not held in divided co-ownership: - Buildings covered: New buildings that are 1) detached, semi-detached or row housing; 2) multifamily building from a duplex to a quintuplex; 3) a multi-family building with not more than five units held by a non-profit or cooperative; also pre-fabricated homes in some circumstances. - Coverage and benefits for each type of building: 1) recovery of partial payments up to $39,000; 2) completion (of private and common portions); 3) cost of relocation, moving and storage in the case of delayed completion up to $5,5000 with other constraints; 4) repair of defects or poor workmanship a) for detached, semis and rows, up to $260,000 per dwelling, and b) for multifamily buildings, the lesser of the cost and $130,000 per unit times the number of units, up to $1,900,000; 5) repair of latent defects; also costs to ensure an adequate water supply. A variety of penalties can be imposed. For example, an individual is liable for a fine of between $700 and $1,400, and a legal entity is liable for a fine of between $1,400 and $2,800 for the following: - Failure to obtain a permit for the use or operation of his/her building, facility or installation - Failure to obtain a permit for specified work on a pressure vessel. - Holding oneself to be a building contractor with holding a license for that purpose - Holding oneself to be an owner-builder without holding a license for that purpose - Acting in a way that breaches the restrictions on permitted activity specified in a license - Using the name of another licensee or another person s license Other examples of penalties are license suspensions and licenses that restrict activity. Item Issuance of license - One category - Two categories Amendment - Add license category - Other amendment Renewal of license - One category - Two categories Amendment at the time of renewal - Adding one category - Change other than adding a category to one category - Change other than adding a category to two categories. Retaking an examination Performance evaluation Appealing an examination Fees $ $ $ $0.00 $ $ $ $ $ $0.00 $0.00 $0.00 Charges $ $ $ $ $ $ $ $ $ $ $92.56 $ Total $ $ $ $ $ $ $ $ $ $ $92.56 $

18 PROPOSED LICENSING SYSTEM IN BRITISH COLUMBIA The licensing system now being considered in British Columbia is the result of a series of developments that occurred from August 2002 to May 2006, as outlined below. In August 2002, CHBA-BC submitted a brief to the Minister of Community, Aboriginal and Women s Services, entitled Optimizing Home Building Quality and Consumer Protection & Confidence: An Institute of Professional Home Builders. This brief recommended amending the Homeowner Protection Act to disband the HPO, and to devolve the home builder and building envelope licensing and home building education and research functions to a self-regulating home building industry body governed and administered by industry stakeholders. It also recommended transferring responsibility for the loans and grants to an existing agency such as BC Housing. In 2003, as a result of the Provincial Government s core service review of all British Columbia Crown Corporations, the Provincial Government concluded that the HPO should continue as a Crown Corporation responsible for administering the residential builder licensing and home warranty insurance system. As well, the HPO Board of Directors was reconstituted to include industry and consumer stakeholders. In early 2004, CHBA-BC prepared a request for funding to develop a professional home builder Five Star accreditation program. This request observed that licensing was based almost entirely on applicants ability to obtain insurance coverage, and not on factors such as professional competence, technical skills and business acumen. It identified key elements of a proposed accreditation system, including education and examinations. It also acknowledged the need to address a number of implementation issues including administration, research, the development of accreditation standards (including a system to assess prior learning), and marketing and communications. In August 2005, the HPO produced a discussion paper entitled Raising the Bar: Enhancing Professionalism in British Columbia s Residential Construction Industry. It responded to direction from the Minister responsible for the Homeowner Protection Act in February 2005 for the HPO to prepare a discussion paper on the implementation of proposals in the HPO Board s Futures Report (completed in September 2004) to bring about a further increase in the professionalism of the residential construction sector. The Raising the Bar report included the following ideas. Some are similar to those proposed by CHBA-BC and some are different, as explained below: One of the options proposed links training, licensing and owner-builder requirements in a way that complements existing activities of the various industry associations and training organizations. This option would make measurable, relevant knowledge in the business of building new homes mandatory for all those who would be involved in a general contractor capacity and impose other requirements on owner-builders. The report cites the results of a survey to support the idea, i.e., in 2004, the HPO surveyed all licensed residential builders and found that 70% favoured making education and training a condition of licensing. Comment: This is similar to proposals by CHBA-BC and supports the concept of occupational licensing. Under the proposed option, responsibility for assessing the non-financial aspects of an applicant would shift from the warranty insurance provider to the HPO. This would require establishing the legal authority for the HPO to introduce minimum education requirements as a condition of licensing. The report also cites a survey that supports a significant role for government, i.e., Both groups [recent buyers and prospective buyers] have high expectations of the provincial 11

19 government; more than 90% in both groups want the government to ensure that all new homes have basic warranty coverage and to license residential builders. Comment: This is a proposal in favour of occupational licensing but not self-regulation. Licensing conditions are proposed. They include requirements for financial resources, technical expertise, business management, practical experience, past conduct and capacity to provide aftersales service; also industry involvement. Comment: This is similar to proposals by CHBA-BC. In October 2005, CHBA-BC responded to HPO s discussion paper in its own report, Raising the Bar: A Shared Responsibility. Its response included the following ideas. The relative agreement between ideas in HPO s and CHBA-BC s reports is indicated. Licensing should be linked to professional competence, skills and business acumen. Comment: Both HPO and CHBA-BC agree on the concept of occupational licensing. CHBA-BC asserts that industry should be responsible for education, training and certification; HPO can be responsible for establishing the regulatory framework to require the participation of the industry and to act as registrar. The report refers to the need to develop various concepts and functions in order to implement the concept of professionalism as part of licensing, e.g., setting certification criteria and educational requirements, assessing candidates and financing operations. It suggests responsibility for the licensing function should be allocated to an institute comprised of a partnership of industry stakeholders and governed by CHBA-BC. Comment: This text suggests a concept of substantial self-regulation of an occupational licensing system inasmuch as the proposal makes the industry responsible for all aspects of the licensing function. This contrasts with the system in Quebec where the licensing function remains with the Régie du bâtiment du Québec. The components of the proposed system could include the following: standards for designation, credentials, education programs, a method for recognizing prior learning, examinations, performance, ethical requirements, etc. Comment: There is general agreement on the general requirements of a system to establish a professional housing industry. In January 2006, the HPO outlined a collaborative process with representatives of the residential construction industry to design a minimum qualification system for licenses. The industry participants included CHBA-BC, the Independent Contractors and Business Association (ICBA), the BC Construction Association (BCCA), the Urban Development Institute (UDI) and individuals not affiliated with any organization. The result was a report completed in May 2006 entitled Main Task Group Report to the Homeowner Protection Office: Results of a Collaborative Process to Design a Minimum Qualification System for Licenses under the Homeowner Protection Act. This report has been submitted to the provincial government for consideration and, if approved, it will provide the basis for legislative changes to permit implementation of the proposed system. This proposal differs from the previous proposal from CHBA-BC inasmuch as the licensing function would remain with the provincial government through the HPO. The elements of the proposed system are summarized in the table below: 12

20 Attribute Type of license Legal basis for license Governance License categories Types of work requiring a license License conditions: all license holders License conditions for licensed residential builders The proposed system is an occupational licensing system for those applying for their first license as a licensed residential builder. It is not an occupational licensing system for existing licensed residential builders (they would be grandfathered) or for the other two license categories, licensed residential developer and licensed building envelope renovator. The proposal indicates that the system wound be partly self-regulating (industry would have a role in setting and administering some terms). Responsibility for the proposed system would still be held by the Provincial Government. The legal basis for any changes will be changes to the Homeowner Protection Act and corresponding regulations. The proposed system involves a shared responsibility for setting terms of the licensing program, but with the responsibility for its administration remaining with the HPO. Three license categories are proposed. - Licensed residential builder: This category applies to a builder who builds and/or sells residential buildings that contain one to four new dwellings per building. The builder may operate under the following alternate arrangements: - Own the land and build and sell a home to a purchaser. The builder must arrange for home warranty insurance coverage on the new home. - Build a dwelling under contract to an individual who owns the land. The builder must arrange for home warranty insurance coverage on the new home. - Build buildings containing one to four dwellings under contract to a developer. The developer must arrange for home warranty insurance. - Licensed residential developer: This category applies to those who build and sell new homes, directly or by contract with a general contractor. The residential developer may operate under the following alternate arrangements: - If building directly, they must utilize an acceptable professional oversight system or, if building a building containing one to four dwellings, the developer may use a licensed residential builder. - In all cases, the developer must arrange for home warranty insurance to cover the new homes. - Licensed building envelope renovator: This category applies to those in the business of managing the work of repairing defects in a building envelope which allows unintended water penetration or repairing damage caused by unintended water penetration; and where 60% or greater of a building face is replaced. The licensed building envelope renovator must arrange for home warranty insurance to cover the renovation. The work included in the categories described above must be carried out by a licensed company. The license is held by the company but a director must be identified and co-licensed with the company. - A director may demonstrate that company has the required competencies through staff collectively. - License duration: not yet determined. - License holders must demonstrate ongoing coverage from a home warranty provider. - Entry requirements for individuals applying for their first license (see Note 1 below): - Proof of attaining an educational benchmark as approved by an industry-led working group. This can be done by completing courses, challenging exams or complying with a prior learning assessment (PLA) process. - Experience requirements: time in senior management position of a residential construction company, as set by an industry-led working group. - Proof of required competencies: This requires completion of a log book consisting of core competencies as identified in the National Occupational Analysis (NOA) or other authorized document. - Association membership: Proof that the applicant is a member in good standing of an association involved in the residential construction industry. - License renewal: - Existing license holders will be deemed to be in good standing. - Licensees must demonstrate proof of home warranty insurance. - Licensees must pay renewal fees. - Proof of compliance with continuing professional development program (when developed). - Requirements for continuing professional development: Licensees must demonstrate compliance 13