Changes to the Construction Contracts (Retention Money) Amendment Act

The retention provisions in the Construction Contracts Act 2002 were put in place to protect retention money owed to subcontractors in the event of a business failure and to ensure retention money withheld under construction contracts is responsibly managed. Changes
to the retentions regime passed at the end of March will make it easier for subcontractors to access retention money without a court order in the event of a company’s insolvency.

Many head contractors are already doing the right thing and are holding retention money aside appropriately. For these people, the new regulations will result in very little change.

The changes will safeguard subcontractors’ retention money by: 

• Clarifying that retention money is automatically held in trust by the head contractor once the contract allows it to be withheld from the subcontractor
• Removing the ability to mix retention money with other money and assets
• Requiring retention money held as cash must also be held  separately in a bank account with prescribed ledger accounts. 

Offences and penalties of up to $200,000 have been introduced for companies and in some cases, directors, who fail to meet the new requirements, including: 

• Failure to comply with accounting, recording and reporting requirements
• Use of retention money for a purpose other than remedying defects in the subcontractor’s performance
• Failure to provide regular information to the subcontractor on retention money.

The Ministry of Business, Innovation and Employment will have the ability to investigate and enforce retention money offences, and the responsibility to provide information and education to the sector on the retention money regime and monitor compliance.

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