Construction contracts

The Construction Contracts Act 2002 (the Act) regulates payment provisions in construction contracts.

The Construction Contracts Amendment Act 2015 (the CCAA) was passed by Parliament on 20 October 2015. The amendments ensure the CCAA provides:

  • protection of retention money withheld under construction contracts
  • a fair, balanced and appropriate payment regime
  • access to fast and cost-effective dispute resolution
  • cost-effective and timely enforcement of rights and obligations.

 

Changes relating to retention money

The CCAA as amended by the Regulatory Systems (Commercial Matters) Amendment Act 2017 contains new requirements for protecting retention money.

From 31 March 2017, retention money withheld under commercial construction contracts must be held on trust in the form of cash or other liquid assets readily converted into cash, unless a complying instrument is obtained.

The retention money requirements only apply to contracts entered into, or renewed, on or after 31 March 2017.

Payers (e.g. developers and head contractors) who choose to withhold retention money have two options:

  • holding retention money on trust in the form of cash or other liquid assets readily converted into cash [the default option], or
  • obtaining a financial instrument, such as insurance or a payment bond, to provide third-party protection of retention money (a ‘complying instrument’ under the CCAA).

 

Regulations

During 2016, the Ministry of Business, Innovation and Employment (MBIE) consulted the construction industry on what, if any, regulations should be made under the retention money provisions of the CCAA. The CCAA contains the power to make regulations setting a minimum amount of retention money that the provisions will apply to, and setting methods of accounting for retention money (additional to those set out in the CCAA).

No regulations are currently proposed. The retention money provisions will apply regardless of the amount of money involved to ensure payment for small subcontractors is protected. The methods of accounting for retention money and records of financial instruments are those set out in the CCAA. MBIE expects industry participants to develop reporting methods that best suit the accounting systems they have in place.

Further information

Further information on changes relating to retention money is available on the Building Performance website.

Read the:

 

Changes relating to payment and dispute resolution

Key changes relating to payment and dispute resolution include:

  • residential and commercial construction are treated the same under the Act, with the exception of charging orders. This gives parties to residential contracts full access to the Act’s dispute resolution and payment regimes
  • design, engineering and quantity surveying work is included under the scope of the Act. This gives parties to construction contracts for this type of work full access to the Act’s dispute resolution and payment regimes
  • the adjudication process is streamlined
  • the enforcement process is strengthened.

 

Further information on changes relating to adjudication and enforcement is available on the Building Performance website.

You can read the following on the Legislation website:

 

Background

In 2010 a review into the Construction Contracts Act 2002 began. The Proposals for Change Cabinet Paper recommended that amendments be made to the Act to make the existing adjudication process a faster, more cost-effective and efficient resolution option for people with disputes under construction contracts.

Following the review, a Construction Contracts Amendment Bill was introduced to Parliament on 29 January 2013.

On 11 December 2013, the Construction Contracts Amendment Bill was reported back from the Commerce Select Committee. The Committee's report recommended a number of changes to the Bill.

The Bill completed its second reading on Thursday, 20 March 2014 and was passed by Parliament on 22 September 2015.