Changes to retention money requirements

Tēnā koe 

In April this year, the Construction Contracts (Retention Money) Amendment Act 2023 was passed.

The Amendment Act aims to strengthen and provide protection by making it easier for subcontractors to access retention money without a court order, in the event of a head contractor’s insolvency.

The changes in the Amendment Act build on retention money provisions already in the Construction Contracts Act 2002. This was 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.

The Amendment Act will come into force on 5 October 2023 and become part of the Constructions Contracts Act.  

Key changes to the regime in the Amendment Act

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

The new requirements for retention money include:

• clarifying that retention money is automatically held on 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 cashflow and assets
• requiring that retention money held as cash also be held separately in a bank account with prescribed ledger accounts.

Compliance with the law  

The Amendment Act introduces strict liability offences for failing to hold retention money properly, with penalties of up to $50,000 for a director and up to $200,000 for a company. Offences include:

• 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.

Head contractors looking to hold retention money have until 5 October 2023 to ensure processes are established and standard contracts are renewed.

New Guidance document

A new Retention Money Guidance document is now available for people who withhold retention money. The purpose of this guidance is to support property owners, developers, contractors and subcontractors, along with legal, accounting and insolvency professionals with understanding their rights, duties and obligations in respect of changes to the retention money regime.

Retention money guidance for the Construction Contracts Act 2002 - Building Performance

Webinar

A webinar will be held for main contractors, sub-contractors, clients, and payment certifiers (QS’s and Engineers to Contract) on Friday 25 August, from 12pm to 1pm.

Graham Burke, Transformation Lead People, Accord Transformation Unit, will be speaking with Peter Degerholm, Director, Calderglen Associates, and Amy Moorhead, Manager Building Policy, Ministry of Business, Innovation and Employment (MBIE) on what the changes mean for these groups.

Register for the webinar

Further information and resources

Additional information is available on the MBIE’s Building Performance website to help people who withhold retention money comply with the Amendment Act. Further resources will be added later.

Construction Contracts (Retention Money) Amendment Act 2023 – Building Performance

Construction Contracts Act 2002 – Building Performance

Any questions on these changes can be directed to building@mbie.govt.nz

Ngā mihi nui
The Building Performance team