Subbies’ retentions given more protection

The changes passed in the Construction Contracts (Retention Money) Amendment Act aim to strengthen subcontractors’ protection from business failure

Minister for Building and Construction Megan Woods announced the new rules in March 2023 and said they would make sure subbies get their retentions if head contractors go under.

“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,” she said.

“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 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.”

If retention money is kept, it must be held on trust in a separate bank account. Retention money cannot be mixed with other company money or assets, and information about the retention money must be reported to subcontractors at least once every three months.

If businesses fail to meet their obligations to subcontractors, the law ensures strict penalties can be applied:

• For every retentions breach, directors can face fines of up to $50,000.
• For every retentions breach, companies can face fines of up to $200,000.
• For every instance of false information being provided to a subcontractor about retention money, there can be a fine of $50,000.

The Ministry of Business, Innovation and Employment (MBIE) will have the power to investigate and enforce offences. It will also have the power to enforce further penalties if head contractors fail to provide it with information necessary to support investigations.

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

The amendment falls under the Constructions Contracts Acts (2002), which was amended in 2015 to put in place new requirements for protecting retention money. It was further amended in 2017, and, after a review in 2019, the current amendments were announced in 2020.