Better protection for subbies – changes to the Construction Contracts Act

October 29, 2014

in Building & Construction,Property

Property: HousingThe government has advised that the current law in this area relating to retentions will be changed.

A retention is a portion of the contract price withheld by the developer or main contractor until the sub contractor has completed all the required works including completing any repairs or defects. The current issue around retentions is that there is no requirement for the developer or main contractor to hold these funds in trust.  As noted by the Commerce Committee:

“We were concerned to hear that many head contractors may be misusing retentions as working capital, delaying payment, or holding retention amounts disproportionate to the contract prices. This behaviour undermines the sector’s growth and productivity”.

The government has recognised that there needs to be greater protection in these situations. The law change will mean a developer or main contractor will now have a duty to hold the retention funds in trust, and not use the funds for other purposes.  Penalties will be imposed where retention funds are used for purposes not related to the specific project.  There will also be default rates imposed for late payment of retention funds.

The intention is that this will provide better protection and certainty in the construction sector and that the risks are covered by the developer and main contractor rather than the sub contractors. The reasoning being that the developer and main contractor are in a better position than the sub contractor to assess the viability of a particular development.

These proposed changes will be incorporated into the Construction Contracts Amendment Bill currently before Parliament. We will keep you advised as these changes progress through to enactment and will provide further details on the final form of these changes.

We are experienced in all aspects of property, contract and construction law, advising both developers and contractors.

If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:

Simon Milne
09 379 0055 or 03 477 8870


The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such.  Professional advice should be sought before applying any of the information to particular circumstances.  While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain. 

Previous post:

Next post: