04.06.2020

Retentions Regime: Government Announces Changes

On 27 May 2020 the Government announced several in-principle changes to strengthen the retentions regime (Regime) in the Construction Contracts Act 2002 (the CCA).

Despite the Regime’s introduction in 2017, many subcontractor retentions have still been left unprotected and various gaps in the legislation have been exposed. These shortcomings were highlighted by the high-profile insolvency of Ebert Construction and resulting litigation by its Receivers for directions on administering an inadequate retentions account. 

In view of this, MBIE commissioned KPMG to undertake a review in 2019 before releasing (on a limited basis) a consultation paper in February this year.  Although the KMPG review suggested a tolerable level of compliance, on closer examination the survey evidence would tend to indicate that around one third or more of retentions holders are not complying with the Regime in light of Ebert.  The consultation paper therefore focused on amendments to the CCA that aimed to clarify the obligations for holding retentions on trust and impose sanctions for non-compliance.

The recently announced changes appear to be a progression of that paper.  Perhaps surprisingly, to our knowledge, MBIE has not consulted more widely despite the limited circulation of the paper, nor publically considered other models including the possibility of abolishing retentions altogether.  It is unclear at this stage whether the changes have been brought forward by the government in response to the Covid-19 crisis.

The announced changes include:

  • Trust requirements: Strengthening how retention money is held to prevent firms from dipping in to retention money to use it as working capital;
  • Transparency: Requiring those who hold retention money to issue a “transparency statement” stating how much is being held and where; and
  • Penalties: Making non-compliance an offence with fines of up to $ $200,000 for businesses and $50,000 for company directors.

Further details of the amendments, including the legislative drafting, and when they might be implemented are still awaited.  For example, it is currently unclear what the modified trust requirements will be, when the “transparency statement” will need to be issued and what it must contain, or whether the Courts will publically administer fines.[1]  There is also currently no indication as to whether the changes will include statutory machinery for administering retentions in an insolvency (to avoid the need for Court orders), which would seem to be essential.

That said, subject to the details, the changes should tighten up the Regime, provide greater certainty for the industry, and seem to be in line with the information sharing objectives from the Construction Sector Accord.  For those reasons they are encouraging.  The introduction of statutory offences represents the most significant change, which should see improved compliance and help redress the problem of those who do not comply being afforded a commercial advantage. 

The announcement focuses on tweaking the existing Regime.  In doing so, it is hoped that the process to get here has not been unduly narrow or rushed, and that we will not be revisiting the Regime once again in a few years time.  Another update will be provided once more is known.

See our previous commentary on the Retentions Regime:

Administration of Retentions Trust:  Oorshot v Corbel Construction

Ebert Construction:  Court provides Guidance on the Retentions Regime

Ebert Construction:  Receivership and Liquidation

Ebert Construction:  What you need to know

Clarification of retentions requirements for construction contracts

Changes to the Construction Contracts Act 2002

[1] MBIE’s consultation paper had floated the idea of adjudicators having jurisdiction to administer fines, noting that adjudication under the CCA is a confidential process.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Kerry
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Mind your business: What happens when an employer uses an employee’s personal information?
A recent decision by the Human Rights Review Tribunal (the Tribunal) provides a noteworthy reminder of the importance of privacy rights and obligations in the workplace.  In BMN v Stonewood Group Lim...
14.02.2025 Posted in Employment
Construction Framework Wide BW
Public consultation on NZS 3916:2025 and NZS 3917:2025
Public consultation on the draft DZ 3916 Conditions of contract for building and civil engineering – Design and construct and DZ 3917 Conditions of contract for building and civil engineering – F...
13.02.2025 Posted in Construction
Court of Appeal rules Gloriavale’s challenges to BNZ decision to close its account are not seriously arguable
Background BNZ made the decision to close the accounts of 16 entities associated with the Gloriavale Christian Community following a decision by senior management that this action was appropriate give...
07.02.2025 Posted in Disputes & Insurance
Milford sound
Government unveils ‘Invest New Zealand’ agency to position NZ as premier FDI destination
Yesterday, the Prime Minister Rt Hon Christopher Luxon announced the Government’s plan to establish a new foreign investment agency, as part of his ‘State of the Nation’ speech in Auckland.  We...
Construction Framework Wide BW
Construction insurance cover: Sky UK Ltd v Riverstone Managing Agency Ltd
Parties to a building contract usually take out insurance to protect the contract works from damage from unintended events such as vandalism or a flood.  The policy is intended to cover the cost of r...
23.01.2025 Posted in Construction & Insurance
Family sunset BW
Have you updated your Will since becoming a parent? The importance of nominating a Testamentary Guardian
For parents, preparing a Will or Deed that appoints a testamentary guardian is an important step to ensure the well-being of your children if you die. A testamentary guardian is a person who after a p...
22.01.2025 Posted in Private Wealth
vecteezy calendar and santa on table happy new year and xmas concept  ext e
Let me check my calen-deer – Leave entitlements over the festive period
What you need to know about holiday and leave entitlements over the festive season
18.12.2024 Posted in Employment
SEND AN ENQUIRY
Send us an enquiry

For expert legal advice, please complete the form below or call us on (09) 375 8700.