Sub-contractors welcome greater protection for retention payments

9 September 2014

MEDIA RELEASE

Sub-contractors welcome greater protection for retention payments

Sub-contractors today welcomed a decision by the Government to change the law to provide them with greater protection from the collapse of construction companies.

Building and Construction Minister Nick Smith has announced the Government will introduce changes to the practice of construction firms withholding payments, known as retentions, from firms working on projects.

Sub-contractors lost over $18 million in retention payments owed to them following the collapse of Mainzeal last year. The retention system allows the main contractor to hold up to 10 per cent of the sum due to a contractor, interest free, for up to two years as a guarantee of the quality of the work.

Since the Mainzeal collapse, the STCF has been pressing the Government to change the law to ensure the retention is held in trust for the sub-contractor.

Graham Burke, president of the STCF, which represents more than 5,700 contracting firms in New Zealand, said: “We hope these changes will help prevent a repeat of the losses sustained by many sub-contractors working on Mainzeal projects. It will mean retentions cannot be scooped up by the bank or receiver if the principal runs into financial trouble.

“The Federation has been working closely with the Government on a pragmatic and reasonable solution to address this problem and sub-contractors across New Zealand will be overjoyed to hear of the changes. It will not only offer certainty for sub-contractors, but also their employees and families.”

He added: “This change is long overdue and we’re pleased the Government has acted. The timing is also important because of the surge in construction activity, especially in Auckland and Christchurch.

“During economic upswings, firms often grow rapidly to meet demand and may over-extend themselves. If the bank refuses to loan them money, then there is the opportunity to use the retention payments they are holding as working capital. If the company