Changes to Construction Contracts Act protect subcontractors’ retention money

Contractors have six months to change their agreements before new offences apply

Changes to Construction Contracts Act protect subcontractors’ retention money

Minister for Building and Construction Megan Woods has announced changes to the Construction Contracts Act 2002 that better protects subcontractors and ensures their payment is kept safe.

“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,” said Woods.

The changes were made in consideration of the commonplace practice of head contractors withholding part of the payment intended for specialist tradespeople for up to 12 months – even when they were not required to hold retention money – as insurance that the subcontractors performed the work correctly and returned to fix 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,” Woods said.

Under the Construction Contracts Amendment Act 2015:

  • Companies and directors who choose to hold retention money against their subcontractors must hold it in trust for the subcontractors in a separate bank account. This helps prevent companies and directors from dipping into retention money intended for subcontractors and using it as working capital instead.
  • Subcontractors must be informed and updated on the retention money regularly, which the amendment pins at once every three months at least.
  • Where the company or director chooses to keep retention money, directors face fines of up to $50,000 while companies face fines of up to $200,000 for a breach of the retention money regime.
  • It is now an offence to intentionally report false information about retention money held in trust for a subcontractor, punishable with a fine of up to $50,000 for each instance of false information.
  • The Ministry of Business, Innovation and Employment now also has the ability to investigate retention money offences and enforce retention money regimes. Head contractors who fail to provide the ministry with information necessary to the investigation may likewise be penalised.

“Everyone should have the confidence they will be paid for their work,” Woods said. “The changes announced today ensure that there are strict penalties in place for companies who fail to meet their obligations to those who carry out work for them.”

Contractors who wish to hold retention money have six months to ensure processes are established and their standard contracts amended before the new offences and penalties apply. The changes to their retention money regime will apply to new commercial construction contracts as well as existing contracts amended six months after the Construction Contracts (Retention Money) Amendment Act is passed.

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