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Construction Contracts Act amendment

Law protects out-of-pocket sub-contractors

Out-of-pocket electrical and plumbing sub-contractors will be properly paid out if construction companies collapse thanks to newly passed law changes.

Master Electricians and Master Plumbers welcome the passing of the Construction Contracts (Retention Money) Amendment Act, which provides much-needed financial protections for sub-contractors’ retention money – ensuring they’re paid out even if the head contractor fails.

“The passing of this Act is a major win for all sub-contractors and one we’ve been strongly advocating for on behalf of our members for some time,” Master Electricians Chief Executive, Bernie McLaughlin said.

Master Electricians and Master Plumbers have been working with government on behalf of the electrical and plumbing contracting sector, suggesting ways the Construction Contracts Act can better reflect the changing nature of the construction industry.

A pivotal case was the collapse of Armstrong Downes Commercial in May 2022, owing $30.4m to 203 unsecured creditors, and $670,599 to eight secured creditors.

Master Electricians worked with Master Plumbers and law firm Ford Sumner to successfully lead the charge for all the sub-contractors with outstanding retentions affected by the collapse.

“Through this we identified the need for changes to the Act to protect the future interests of all parties, and have lobbied hard with the support of Master Plumbers and the New Zealand Specialist Trade Contractors Federation,” said McLaughlin.

Master Plumbers Chief Executive Greg Wallace said they had advocated for some time for a change to the retention regime and were pleased government had listened.

“This new legislation goes a long way to addressing issues that have left our subcontractors vulnerable to being significantly out of pocket. We applaud the government for acting.”

Under the new legislation, companies and directors who choose to hold retention money against sub-contractors will now be required to hold retention money on trust in a separate bank account, which cannot be mixed with other company money or assets.

Information about the retention money held must be reported to sub-contractors on a regular basis, at least once every three months. Companies who fail to meet their obligations to sub-contractors will face strict penalties, including fines of up to $200,000.

The changes to the retention money regime will apply to new commercial construction contracts and existing contracts if they are amended from six months after the Act is passed.

“We look forward to working with the government and other industry stakeholders to ensure the new legislation is implemented effectively and that subcontractors are able to benefit from the new protections,” said McLaughlin.

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