The Construction Contracts (Retention Money) Amendment Act 2023 enhances and provides clearer safeguards for the retention money of subcontractors. This amendment, effective from October 5, 2023, applies to fresh contracts starting on that date and to existing contracts that are renewed on or after that date. The Amendment Act reinforces the existing retention money rules outlined in the Construction Contracts Act 2002. It achieves this by bolstering and clarifying the framework for retaining funds, with a specific focus on safeguarding the retention money of subcontractors.
The Amendment Act introduces new requirements for the retention of money. These regulations encompass:
Trust-Based Holding: The retention money must be held in trust, separate from other funds or assets, to ensure its distinct identification and protection.
Distinct Bank Account: If retention money is held in the form of cash, it should be kept separately within a designated bank account, accompanied by prescribed ledger accounts.
Usage for Rectification: The utilization of retention money should be restricted solely to addressing instances of subcontractors' contractual non-performance. In the event that retention money is employed for rectifying such issues, subcontractors must receive a notice of at least ten working days before the funds are used.
Quarterly Reports: Regular quarterly reports must be furnished to subcontractors from whom retention money is withheld, offering transparency about the withheld amounts.
Transaction Reports: Subcontractors must receive timely and complimentary reports after each transaction involving their retained money, ensuring a transparent record of all activities.
Timely Payouts: Retention money should be disbursed promptly when it becomes due to the subcontractors.
These additional stipulations work to strengthen the safeguards around retention money and enhance the overall transparency and fairness within subcontracting arrangements.
The retentions regime involves two main parties:
Party A: Typically the primary contractor responsible for withholding retention money. Party A has specific responsibilities towards the subcontractor from whom retention money is held.
Party B: Primarily the subcontractor from whom retention money is withheld.
Rights of Party B (subcontractor) include:
Receiving quarterly written reports from Party A.
Prompt receipt of written reports after each transaction involving retention money on a contract.
The ability to request accounting details at any time without incurring charges.
Entitlement to interest if Party A fails to pay the retention money on time.
Assurance that their retention money is safeguarded in case Party A faces insolvency. It would be distributed by a designated receiver or liquidator.
The option to appeal to the chief executive of MBIE (Ministry of Business, Innovation and Employment) to enforce Party A's obligations regarding retention money protection and provision of reports or accounting information.
Importantly, subcontractors are not obligated to adhere to any prohibited provisions within contracts, particularly those related to the treatment of retention money. This emphasizes their right to fair treatment and protection within the retentions framework.
Please check out below link for further information!!
https://www.building.govt.nz/projects-and-consents/why-contracts-are-valuable/construction-contracts-retention-money-amendment-act-2023/#:~:text=The%20Amendment%20Act%20builds%20on,protection%20for%20subcontractors%27%20retention%20money.