New service launched to free up retention funds for contractors


New Zealand insurance broker Aon has launched a new service that enables construction contractors to free up funds that would normally be retained in trust during commercial projects.

Traditionally, retention money withheld under commercial construction contracts must be held on trust in the form of cash, or other liquid assets readily converted into cash, unless a complying instrument is purchased.

Aon’s Retention Instrument is the first fully compliant service available in New Zealand that provides an alternative to holding subcontractors’ retentions on trust, enabling those acting as head contractors to legitimately use these funds within their business.

The Retention Instrument complies with the Construction Contracts Act (CCA) and works by securing a specific dollar amount of retentions so that it is not necessary to hold the cash or liquid asset on trust for the benefit of subcontractors.


On March 31, 2017, changes were made to the CCA so that contractors (Party A) must secure the retentions they retain, protecting this money so that if the head contractor becomes insolvent or refuses to return the retention money to the subcontractor (Party B) when it is due, the subcontractor does not suffer the financial loss of losing their retention.

Under the CCA, there are two acceptable options:

To hold the funds on trust as cash or some other liquid asset (on trust), or

Secure the funds via a complying instrument.

Because a complying instrument has not been available, contractors have had to hold retention money as cash or liquid assets on trust (or not fully comply with the CCA).

Holding retentions on trust can cause considerable constraint on day-to-day operations due to restricted cash flow, and is an inefficient use of capital.

Aon construction executive director Warren Tucker says they could see the constant frustration their construction clients were facing, and that it was obvious a solution was needed.

“Our clients needed a solution to enable them to access the capital that was sitting within their business, while also complying with the CCA,” Tucker says.

“The Retention Instrument is the result of listening to their needs and working with them to find a solution.”

Retention regime review

The release of the Retention Instrument is timely, following a recent MBIE review of the retention money regime within the CCA.

The Construction Contracts (Retention Money) Amendment Bill was introduced into Parliament for consideration, and passed its first reading on June 8, 2021.

The Bill is intended to address some of the shortcomings of the current retention money regime. Some proposed changes being introduced by the Bill include:

The contractor must hold retentions in a separate bank account if not utilising a complying instrument. This means contractors cannot use this cash in their business as additional cashflow.

The contractor must advise their subcontractors quarterly as to how the retentions are being secured (as opposed to currently, where the subcontractor is able to ask at any time).

There will be offences and penalties if the contractor fails to hold a retention on trust, in a separate bank account, or through a complying financial instrument.

The proposed maximum fine is up to $200,000 for entities, and up to $50,000 for individuals.

Advantages of a retention instrument

Administered by an independent licensed insurer.

Complies with the proposed changes introduced to the CCA under the Construction Contracts (Retention Money) Amendment Bill.

Frees up cash. Retention cash does not have to be held.

Provides independent evidence to the subcontractor, by way of a certificate issued by the insurer in compliance with the CCA.

Subcontractors can have confidence that their retentions are safe when they are secured by a retention instrument.

The contractor does not have to disclose to the subcontractor all retention money held and who the retention is held for (or the bank balance amounts).

For further information on the application process, visit

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