Changes to the Construction Contracts Act: What you need to know
The Construction Contracts (Retention Money) Amendment Act 2023 has been significantly reformed with the passing of the Construction Contracts (Retention Money) Amendment Bill and it is now law.
The Amendment Bill, which received Royal Assent recently, will apply to all commercial construction projects entered into or renewed from 5 October 2023.
“It is important to note that the Act applies to any company or organisation that withholds retentions such as building owners, developers, school committees, councils and government agencies. However, special provisions apply to government agencies in terms of the Public Finance Act 1989,” says RDT Pacific Associate Director, Mike Hanson.
The new regime clarifies that all retention money becomes trust property. The party holding retention money, Party A automatically assumes the responsibilities of a trustee for the retention money that is being held from Party B.
Retention money is to be held in a trust account used solely for the purpose of holding retentions, in a registered bank in New Zealand. Separate accounts are not required for each project or contractor, but separate ledgers have to be kept for each party and each construction contract. The current commingling of retention money with other non-retention money is no longer permitted.
“Standard form contracts will need to be updated to ensure that the retention money provisions line up with the new regime. The draft revised NZS 3910 form of contract currently in the public consultation phase incorporates the necessary changes but the final product is not likely to be available until after 5 October 2023,” says Mike.
A key change is the introduction of penalties and offences for the holding firm and its directors if they fail to comply with the new construction retention money regime.
Other changes once the Amendment Bill comes into force on 5 October 2023 include liquidation or receivership where the receiver or liquidator will become the trustee of the retention money and a mandatory reporting and record keeping regime.
For more information, read the Construction Contracts (Retention Money) Amendment Act 2023
If you have any questions on the changes to the Act and how to prepare, contact Mike.Hanson@rdtpacific.co.nz.