Building law proposal shifts risk without securing compensation

A proposed overhaul of Iceland’s Construction Act could leave homeowners with legal claims but no practical way to recover damages, Gunnar Ármannsson writes in an opinion article published by mbl.is.

The draft legislation would remove the statutory role of the construction manager and introduce a new system of building inspections. But eliminating that role would not remove the need to coordinate the work of architects, engineers, tradespeople and contractors, Ármannsson argues. The responsibility would simply move elsewhere.

Under the proposals, the project owner would take on a greater role in organising and overseeing construction. Designers and tradespeople would conduct internal checks, while the Housing and Construction Authority, known as HMS, or inspection bodies would carry out external inspections of buildings in risk category C.

The change would also remove the specific requirement for construction managers to hold professional liability insurance. Designers would still need insurance, but the proposals do not require comparable cover for tradespeople or project owners. The Federation of Icelandic Industries says it should be established whether tradespeople’s liability under the new system can be insured, and says the relevant professional liability policies are not currently available.

Ármannsson distinguishes between legal liability and insurance protection. A homeowner could have a valid claim against a contractor or tradesperson but still be unable to collect if the company became insolvent. He also notes that the draft does not address construction-defect insurance, leaving an assessment of whether it is needed until experience has been gained with the inspection system.

The project owner would pay for mandatory external inspections where required, with their scope largely set by an inspection plan. Ármannsson asks how costs will be kept predictable and reasonable, what means project owners will have to challenge the scope or cost of a plan, and whether municipal fees will fall as inspection work moves from building officials to other bodies. Otherwise, he warns, the changes could lead to duplicated work and higher costs.