Steel industry: change subcontractor retention payments

17 October 2013

Steel industry seeks changes to subcontractor retention payments

Structural steel industry body Steel Construction New Zealand (SCNZ) has called for greater protection for subcontractors during its submission at a select committee hearing into the Construction Contracts Amendment Bill in Wellington today.

“The Construction Contracts Act must be amended, particularly with respect to retention payments, to ensure that subcontractors to the building and construction sector are better protected,” said SCNZ manager Alistair Fussell. “The collapse of Mainzeal has highlighted the vulnerability of subcontractors and the devastating financial implications such an event can cause.”

Mainzeal went under owing an estimated $70 million to subcontractors; $20 million of that was in retention payments.

It is standard practice to retain a portion of the head contractor and subcontractor progress payments to ensure performance to the contract requirements. Called a ‘retention’, this money is intended to remedy any defects if the head contractor is unwilling to fix them.

“It’s only fair subcontractors receive payment for work they have completed,” said Mr Fussell.

SCNZ’s submission seeks to ensure security of subcontractor retention payments, for example by employing independent trust accounts to secure retentions. The organisation is also asking for an equitable retentions scale for client-head contractor and head contractor-subcontractor agreements, reducing the total amount of retentions withheld from subcontractors.

“Subcontractors are the backbone of the building and construction sector and are critical to New Zealand’s economic growth and the Christchurch rebuild,” said Mr Fussell.

“To become established in the steel construction industry requires large amounts of capital expenditure on plant and equipment, and investment in training skilled personnel. These businesses, which generally operate with very low profit margins, carry the greatest financial risk and stand to lose the most in the event of head contractor or client insolvency.

“When subcontractors are not paid everything owed to them, the downstream consequences are considerable: there is less money to grow the business, train staff, and invest in new equipment and technology to continually improve productivity.”

The Construction Contracts Amendment Bill aims to speed up the existing adjudication process, improve accountability in the construction sector, and provide a more cost-effective and efficient option for those with disputes under construction contracts.

The Committee will now enter a consideration stage and is due to report its findings to the House on 11 December 2013.

SCNZ’s submission to the Construction Contracts Amendment Bill was presented by D&H Steel Construction general manager Wayne Carson.

About Steel Construction New Zealand
Steel Construction New Zealand Inc. (SCNZ) aims to advance the interests of New Zealand’s diverse steel construction industry by promoting the benefits of steel solutions in building and infrastructure projects. Members include manufacturers of structural steel and steel products, distributors, fabricators, designers, detailers, galvanisers, and paint and building supply companies. SCNZ provides its members with technical advice on the latest in steel design trends and standards, networking opportunities and a representative voice with key industry and government decision-makers. For more information please visit www.scnz.org

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