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Smith proposes increased protections for subbies

Smith proposes increased protections for subbies after Mainzeal debacle

By Jonathan Underhill

Sept. 9 (BusinessDesk) - Building and Construction Minister Nick Smith has proposed changes to the Construction Contracts Act that would require retention payments be held in trust, ensuring sub-contractors get paid even if the project fails.

The proposed law change comes after the failure of the Mainzeal group of companies in early 2013 that left subcontractors out of pocket for about $18 million. Company principal Richard Yan has been fighting in the courts to prevent some of the units being wound up until disputed debts are settled.

Smith said a supplementary order paper is being drafted for the Construction Contracts Amendment Bill, which was before the parliament before the House rose for the election. It will impose a trust obligation on retention moneys, prevent the money being used for other purposes and impose penalties when the funds are improperly used, Smith said in a statement.

Retention payments are a portion of the payment withheld from sub-contractors by a developer or main contractor as a lever to ensure any faults or repairs are made good. The proposed changes to the bill put a "trust obligation" on developers or contractors but stops short of requiring the funds be held in a separate bank account or lawyer's trust fund, which Smith said would make compliance costs too high.

"It ensures that in building contracts, the risks are carried by the developer and the principal contractor rather than by subcontractors who are less well-informed of the viability of a particular project," Smith said.

Mainzeal Property & Construction and Mainzeal Living were tipped into receivership on Feb. 6 last year, the Waitangi Day public holiday, and 200 Vic joined them on Feb. 13. Liquidators were appointed to the Mainzeal group later that month on Feb. 28.

(BusinessDesk)

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