Understanding the Construction Contracts Act

The Construction Contracts Act 2002

The Act:

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

Retention money provisions

The Construction Contracts (Retention Money) Amendment Act 2023 (the Amendment Act) strengthens and clarifies protection for subcontractors’ retention money by:

• clarifying that retention money is automatically held on trust by the head contractor once the contract allows it to be withheld from the subcontractor
• removing the ability to mix retention money with other money and assets
• requiring that retention money held as cash must also be held separately in a bank account with prescribed ledger accounts. 

The changes in the Amendment Act increase transparency by introducing regular reporting requirements, adding the need for head contractors to confirm with the subcontractor the amount and location of the retention money being held.

The Amendment Act also introduces offences and penalties of up to $50,000 for a director, and up to $200,000 for a company for each offence that fails to uphold the obligations.

The Amendment Act will come into force on 5 October 2023.

Construction Contracts (Retention Money) Amendment Act 2023(external link) — New Zealand Legislation

Previous changes to the Construction Contracts Act 2002

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

You can read the Cabinet paper here: Proposals for Change — Cabinet Paper(external link)

2015 – Following the review, the Construction Contracts Amendment Act 2015 was passed by Parliament. The amendments provided:

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

2017 – 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.

The Regulatory Systems (Commercial Matters) Amendment Act 2017(external link) — New Zealand Legislation

For more information about Regulatory System Amendment Bills, visit MBIE's webpage — Regulatory system amendment bills 

More information

MBIE’s Building Performance website has further information on:

• retention money
• regulations
• changes relating to payment and dispute resolution
• adjudication and enforcement.
• legislative changes to the Construction Contracts Act 2002.

Construction Contracts Act 2002(external link) 

Read the following on the Legislation website:

• Regulatory Systems Amendment Act 2017(external link) — New Zealand Legislation
• The Construction Contracts Amendment Act 2015(external link) — New Zealand Legislation
• The Construction Contracts Amendment Regulations 2015(external link) — New Zealand Legislation
• The Construction Contracts Act 2002(external link) — New Zealand Legislation
• Construction Contracts (Retention Money) Amendment Act 2023(external link) — New Zealand Legislation