Understanding the Construction Contracts Act

The Constructions Contracts Act protects retention money withheld under commercial construction contracts.

The Construction Contracts Act

The Construction Contracts Act 2002:

  • protects retention money withheld under commercial construction contracts
  • helps to ensure a fair, balanced and appropriate payment regime
  • provides a fast and cost-effective adjudication process for people with disputes
  • enforcement mechanisms to recover any unmade payments.

Retention money provisions

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 (eg, a bond or insurance product).

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

The provisions are designed to better protect retention money owed to contractors and subcontractors in the event of a business failure. They ensure retention money withheld under construction contracts is responsibly managed.

Background to the Act's development

A review into the Construction Contracts Act 2002 began in 2010. The 'Proposals for Change' Cabinet Paper recommended 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, the Construction Contracts Amendment Act 2015 was passed by Parliament on 20 October 2015.

The amendments ensure the Construction Contracts Act 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.

The Regulatory System (Commercial Matters) Amendment Act 2017 made some additional changes to the retention money provisions to support the sector’s ability to comply with the new regime.

More information

Construction Contracts Act 2002(external link) on the Building Performance website has further information on:

  • retention money
  • regulations
  • changes relating to payment and dispute resolution
  • adjudication and enforcement.

Read the following on the Legislation website: