Construction Contracts Act amended

Commercial contractors and subcontractors’ retention payments to be held in trust

Commercial contractors and subcontractors across the country are set to benefit from the passage of the Construction Contracts Amendment Bill on October 30, with changes to be progressively introduced from the start of December.

Building and Housing Minister Dr Nick Smith said the new law will benefit tens of thousands of small subcontracting businesses, such as plumbers, electricians, plasterers, tilers and painters.

“It will require that retentions money, which could previously be put at risk by the main contractor and used as working capital, be held in trust and given priority in the event of a business failure,” Dr Smith said. “It means the people who do the bulk of the physical work on building projects get properly paid for their labour.”

The issue of retention money being misspent was highlighted by the collapse of construction company Mainzeal in 2013, which saw various subcontractors lose an estimated $18 million. The changes only apply to commercial construction contracts entered into or renewed on or after 31 March, 2017. It’s important to note that varying a contract does not constitute a renewal.

Parties holding retention monies must also keep proper accounts that correctly record all dealings and transactions in relation to the money. Yet to be developed regulations will specify a list of acceptable accounting methods. 

Residential impact

The new Act was also updated to cover residential construction contracts, with the exception of charging orders (and retentions, which only apply to commercial construction contracts). This gives parties to residential contracts full equal access to the Act’s dispute resolution and payment regimes, which has also been amended, from 1 December 2015.

Changes to adjudication and enforcement, around timeframes and prescribed forms, also come into effect from 1 December.

The scope of the Act has also been widened to include construction-related services, such as work done by architects, engineers and quantity surveyors. From 1 September 2016, these professions will also be able to access the payment and dispute resolution processes in the Act.

“Meanwhile, consumers will have greater means to hold architects, engineers, and quantity surveyors to account for their work,” said Dr Smith.

“New Zealand is on the cusp of a building boom, which is projected to reach unprecedented levels in the next few years. This new construction law is about underpinning this strong growth with improved standards of business and building practice.”