Law changed to protect subcontractors

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Minister for Building and Construction Megan Woods.
Minister for Building and Construction Megan Woods.

Legislative changes have been made to give subcontractors the confidence that they will be paid the retention money they are owed should the head contractor’s business fail.

Minister for Building and Construction Megan Woods has announced changes passed in the Construction Contracts (Retention Money) Amendment Act that safeguard subcontractors who are often the first to miss out in the event a construction company becomes insolvent.

“While it is not a requirement to hold retention money, many head contractors choose to withhold part of their payment to specialist tradespeople for up to 12 months,” Woods says.

“This is one way to help ensure building work is done right first time, and acts as an insurance that the subcontractor will return if there are any defects.

“The changes made provide important protections for subcontractors so they can be certain their payment is kept safe, can’t be used for any other purpose, and will be paid out should the head contractor’s business fail.”

Companies and directors who choose to hold retention money against subcontractors will now be required to hold retention money on trust in a separate bank account, which is unable to be mixed with other company money or assets.

Information about the retention money held must be reported to subcontractors on a regular basis, at least once every three months.

Where retention money is kept, there will be a strict liability offence for failing to hold retention money properly: for every breach of the retentions regime directors will face fines of up to $50,000, and companies will face fines of up to $200,000.

It will also be an offence to intentionally provide false information about retentions money held for a subcontractor, with a fine of up to $50,000 for each breach.

The Ministry of Business, Innovation and Employment will have the ability to investigate and enforce retentions money offences, and further penalties will be incurred if head contractors fail to provide the Ministry with information necessary to support investigations.

“Everyone should have the confidence they will be paid for their work.

“The changes announced ensure there are strict penalties in place for companies who fail to meet their obligations to those who carry out work for them,” Woods says.

Contractors looking to hold retention money have six months to ensure processes are established and standard contracts are amended before the new offences and penalties apply.

The changes to the retention money regime will apply to new commercial construction contracts and existing contracts if they are amended from six months after the Act is passed.

Background to the CCA 2002’s development:

A review into the Construction Contracts Act 2002 began in 2010. The “Proposals for Change” Cabinet Paper recommended amendments be made to the Act to make the existing adjudication process a faster, more cost-effective and efficient resolution option for people with disputes under construction contracts.

Following the review, the Construction Contracts Amendment Act 2015 was passed by Parliament on October 20, 2015.

The amendments ensure the Construction Contracts Act provides:

• protection of retention money withheld under construction contracts,

• a fair, balanced and appropriate payment regime,

• access to fast and cost-effective dispute resolution, and

• cost-effective and timely enforcement of rights and obligations.

The Regulatory System (Commercial Matters) Amendment Act 2017 made some additional changes to the retention money provisions to support the sector’s ability to comply with the new regime.

New legislation passed recently to safeguard subcontractors’ retention money ensures strict penalties for companies who fail to meet their obligations to subcontractors.

It also helps ensure building work is done right first time, and acts as an insurance that the subcontractor will return if there are any defects.

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