CCAA update extends protection

The Construction Contracts Amendment Act has been updated again and, after 5 October 2023, tradies must ensure commercial contracts entered into, or amended, comply with the latest regulation

The Construction Contracts Act (2002) was originally amended in 2015 following the collapse of construction company Mainzeal in 2013, which saw subcontractors lose an estimated $18m.

The amendment included a requirement for protecting retention money and was amended again in 2017 to specify that retention money must be held on trust in the form of cash, or liquid assets readily converted into cash. It also removed the difference between residential and commercial contracts and included design, engineering and quantity surveying work in the Act. 

An article in Under Construction from 2016 explored the change further, and stated: “From 1 December 2015, parties to residential construction contracts have full access to the Act’s dispute resolution and payment regimes. This 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.” 

The current amendments were announced in 2020, following a review in 2019, and state that:

• Funds must be held in trust, without mixing it with other money or assets. 
• Any retention money held as cash must be held separately in a bank account with prescribed ledger amounts. 
• Retention money can only be used to remedy defects in subcontractors’ work if they are given 10 working days’ notice. 
• Quarterly reports must be provided to each subcontractor from whom retention money is withheld. 
• Contractors must provide each subcontractor with a report after each transaction with their retention money. The report must be provided promptly and free of charge. 
• Retention money must be paid when owed. 

Retentions for residential While Section 5 of the Act defines commercial work as “a contract for carrying out construction work in which none of the parties is a residential occupier of the premises that are the subject of the contract”, it doesn’t mean that subbies doing work on residential jobs aren’t protected. 

Guidance from the Registered Master Builders, developed in conjunction with specialist construction, insurance and environmental law firm Hazelton Law, states: “A commercial construction contract is any construction contract where no party is a residential occupier of the premises that are the subject of the contract. Therefore, a subcontract in the residential sector (for example, with a plumbing subcontractor) is a commercial construction contract and the retention money rules apply.” 

In practical terms, that means a builder who works directly for a homeowner will not have their retentions covered by the Act. However, a subbie working for the builder will be covered. Additionally, it would apply between a developer and a main contractor. 

Increased fines intended to ensure compliance

Failure to comply with the new amendments could result in a fine of up to $200,000 per breach for companies, or a fine of up to $50,000 per breach for directors. There can also be a fine of up to $50,000 per instance of false information being provided to a subcontractor. 

Upon announcing the new laws in March 2023, the Minister for Building and Construction Megan Woods said the changes will provide further additional protection to subcontractors. 

“These changes passed in the Construction Contracts (Retention Money) Amendment Act 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. This is one way to help ensure building work is done right the first time and acts as an insurance that the subcontractor will return if there are any defects. 

“The changes made today 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.” 

Subtrades praise new protections

Master Plumbers Chief Executive Greg Wallace praised the amended Act and said contractors will welcome new protections. 

“This new legislation goes a long way to addressing issues that have left our subcontractors vulnerable to being significantly out of pocket. We applaud the Government for acting.” 

Master Electricians Chief Executive Bernie McLaughlin felt the same way. 

“The passing of this Act is a major win for all subcontractors and one we’ve been strongly advocating for on behalf of our members for some time. We identified the need for changes to the Act to protect the future interests of all parties, and have lobbied hard with the support of Master Plumbers and the New Zealand Specialist Trade Contractors Federation.”