Hon Dr Nick Smith
Minister for Building and Housing

20 October 2015 Media Statement
New construction law better protects subbies

Subcontractors will benefit from Parliament’s passage today of the Construction Contracts Amendment Bill which will provide improved security of payment and better access to dispute resolution, Building and Housing Minister Dr Nick Smith says.

“This new law will benefit tens of thousands of small subcontracting businesses like plumbers, electricians, plasterers, tilers and painters. It will require retentions money – that previously could be put at risk by the main contractor and used as working capital – must now be held in trust and given priority in the event of a business failure. It means the people who do the bulk of the physical work on building projects get properly paid for their labour,” Dr Smith says.

Retentions are payments withheld by the developer and main contractor from subcontractors so as to ensure any faults or repairs to work done can subsequently be put right. An issue arises when the developer or main contractor puts this money at risk by using it as working capital or for another project which then fails, leaving the subcontractor unpaid. Thiswas highlighted with the collapse of Mainzeal where about $18 million of subcontractors' retention money was lost for many small mum-and-dad subcontracting businesses.

“The new Act makes the trust requirement clear for contractors – they will be able to hold their on-trust funds in the form of cash or other assets, such as money they are owed from another party. Payers will have to ensure they pay the full amount of retentions when they are due under the contract, or else they could be found in breach of the trust. This will drive better business practices without excessive compliance costs,” Dr Smith says.

“The other significant change with this new Act is the extension to its coverage to include residential building work contracts, as well as commercial work – effectively doubling its ambit to all $16 billion of construction work carried out nationally. This builds on the changes to the Building Act that came into effect 1 January this year, requiring residential building work over $30,000 in value to be covered by written contracts.

“The scope of the Act has also been widened to include construction-related services, such as work done by architects, engineers and quantity surveyors. These professions will now be able to access the payment and dispute resolution processes in the Act. Meanwhile, consumers will have greater means to hold architects, engineers and quantity surveyors to account for their work.

“New Zealand is on the cusp of a building boom which is projected to reach unprecedented levels in the next few years. This new construction law is about underpinning this strong growth with improved standards of business and building practice.”

Further information on the Act is available from: www.building.govt.nz/construction-contracts-act

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