Industry Advice
What If Your Builder Goes Bust? NSW Process Explained
Builder insolvency is a real risk in the NSW construction market. While the worst-case scenarios are uncommon, the impact when they happen can be significant. Here is what to know.
What HOW insurance covers
- Continuation or completion of incomplete works (up to $340,000 limit)
- Major defects within 6 years (up to $340,000 limit)
- Non-structural defects within 2 years (up to $20,000 limit)
The cap means very large builds carry residual risk if a builder fails.
Warning signs of a builder in trouble
- Delays in progress payments to subcontractors
- Reduced site presence (fewer workers on site)
- Quality issues becoming common
- Pressure to pay milestones early
- Volume drop (no new builds starting)
- Online reviews showing pattern of issues
- Director changes or company restructuring
If you spot warning signs
- Do not accelerate progress payments.
- Document the build state with photos.
- Verify the HOW certificate is current and valid.
- Contact NSW Fair Trading for advice (no cost).
- Consider engaging a building lawyer to review your position.
If the worst happens
- Stop further payments immediately.
- Contact your HOW insurer within their notification window (typically 30 days).
- The insurer arranges a builder to complete or rectify the work.
- Document the dispute via NSW Fair Trading.
- Consult a building lawyer for any costs above HOW limits.
How to reduce risk upfront
- Choose builders with strong reputations and long operating history
- Verify HOW insurance on day one
- Don’t pay above the legal 5 percent deposit
- Don’t pay for work not yet done
- Maintain a relationship with your certifier (they see the site weekly)
- Watch for warning signs throughout the build
Worried about builder reliability?
13 Homes has been operating in Western Sydney since 2020 with strong financials. We will share our HOW insurance and financial standing as part of any consultation.
Frequently Asked Questions
Quick Answers
Stop. Contact the administrator or liquidator and your Home Owners Warranty insurer immediately. Do not pay any further progress payments. Document the state of the build with photos. NSW HOW insurance covers continuation of the build (up to specified limits, typically $340,000 for residential).
HOW has limits: typically $340,000 per claim for incomplete works, or $20,000 for non-completion of warranty work. Costs above this are not covered. If your build is over $400,000 and the builder fails when 60 percent through, you may be exposed for the remaining build cost above the HOW limit.
Ask for the builder's recent financial statements (some won't share). Check ASIC for company registration and historical issues. Look for builder bankruptcy news (Google searches). Check whether the builder is on the NSW Department of Fair Trading risk list. Builder volume drops, payment delays, and contractor complaints are warning signs.
The NSW Office of the Building Commissioner has implemented several reforms since 2020 including stricter licensing, payment milestone protections, and direct rectification powers. The frequency of major builder failures has reduced compared to 2019-2022 peaks but remains a risk for any major project.
Only the legal maximum 5 percent at signing in NSW. Beyond that, progress payments should align with actual work completed and verified by the certifier. Never pay for work not yet done, regardless of how the builder phrases the request.
Disclaimer: This article reflects 13 Homes' general experience as a residential builder in NSW. Costs, timelines, council rules and regulations change over time and depend on the specifics of your site, finance situation and selections. Information here should not be treated as legal, financial or engineering advice. Always seek site-specific advice from a qualified builder, certifier and engineer before making a decision on your build.
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