Construction Contracts Amendment Act

Subcontractors working on commercial construction projects will be better protected under new legislation

Tens of thousands of small subcontractors, such as builders, plumbers, electricians, plasterers, tilers and painters, stand to benefit from the Construction Contracts Amendment Act 2015.

The new law requires that retention money for commercial contracts be held on trust, protecting it in the event of a business failure.

Under the old law, retention payments were often not held on trust and were put at risk by being used as working capital. In the event of a company going bust, subcontractors lost the retention owed to them.

From 31 March 2017, this trust obligation will apply to all retention money over a yet-to-be-determined minimum amount that will be prescribed in regulations. This will drive better business practices without excessive compliance costs.

Retention money is an amount withheld by a party to a construction contract (the Payer) from an amount payable to another of the contract’s parties (the Payee) as performance security, which can be used to pay for any remedial action that may need to be done as a result of faulty work. They are used regularly in commercial construction contracts and while allowable, seldom in residential construction contracts.

The Amendment Act makes the trust requirement clear for parties to commercial construction contracts – the Payer will be required to hold retention money on trust in the form of cash or other liquid assets, such as accounts receivable. Payers will have to ensure they pay the full amount of retentions when they are due under the contract, or else they could be found in breach of the trust.

Better access to dispute resolution

The other significant change with this Amendment Act is that parties to residential construction contracts now have full access to the Act’s dispute resolution and payment regimes.

This also builds on the changes to the Building Act 2004 that came into effect on 1 January 2015, requiring residential building work over $30,000 in value to be covered by written contracts.

Contractors continue to be unable to obtain charging orders against residential occupiers.

The Amendment Act also widens the scope of the Construction Contracts Act 2002 to include construction-related services, such as work done by architects, engineers and quantity surveyors.

From September 2016, these professions will be able to access the payment and dispute resolution processes in the Act.

Meanwhile, their clients will have greater means to hold architects, engineers and quantity surveyors to account for their work.

The changes are the result of a comprehensive review of the Construction Contracts Act 2002.

The amendments ensure the Act provides:

• A fair, balanced and appropriate payment regime.
• Access to fast and cost-effective dispute resolution.
• Cost-effective and timely enforcement of rights and obligations.
• Better certainty of payment of retention money held under construction contracts.

Key dates when changes to the Construction Contracts Act 2002 take effect:

• 1 December 2015: Residential and commercial construction contracts are to be treated the same under the Act, with the exception of charging orders. This gives parties to residential construction contracts full access to the Act’s dispute resolution and payment regimes. These changes have no effect on retentions.
• 1 September 2016: Design, engineering and quantity surveying work is included under the scope of the Act. This gives parties to construction contracts for these types of work full access to the Act’s dispute resolution and payment regimes.
• 31 March 2017: Retention money withheld under commercial construction contracts must be held on trust from 31 March 2017.

Further information on the Amendment Act and retentions is available here.