Govt may tighten retentions rules
Directors should face penalties if their companies collapse without protecting retention money, the industry group representing subcontractors says.
The Ministry for Business, Innovation and Employment says it expects the Government to announce some changes next year to legislation that protects retention money for sub-contractors.
Anna Butler, MBIE’s general manager of building system performance, said there were still some concerns around ‘‘enforceable penalties,’’ companies comingling retention moneys, and a lack of guidance for construction firms.
Since April 2017, building companies have been required to hold retentions ‘‘in trust’’ so that they can be easily accessed if the company fails.
Before the amendment, retentions – money held aside to guarantee a sub-contractor came back to fix any immediate defects – were at risk of being spent by the lead contractor or lost if the company went out of business.
Sub-contractors and suppliers are usually the losers in any collapse, but the retentions are generally considered off limits.
However, the new regime has created some confusion because it does not protect sub-contractors who signed contracts before April 2017.
An independent review of the retentions regime by KPMG and released by MBIE yesterday found most of the construction sector was complying with the new rules.
But in some insolvencies, the rules had not been enough.
One of the tests of the regime was the collapse of Ebert Construction last year, forcing liquidators to seek court directions, at the creditors’ expense.
‘‘There are cases where retention moneys were not held (either at all, or not for the total retentions balance). Some of the non-compliance in these cases is due to classification issues of pre and post-retention regime contracts,’’ the report said.
The retentions changes were created by amending the Construction Contracts Act 2002, and brought in after the 2013 collapse of construction firm Mainzeal, which saw subbies lose $18m in retentions alone.
Graham Burke, of the Specialist Trade Contractors Federation, says the way the current legislation was worded, retentions could still be co-mingled with general funds.
Sub-contractors and suppliers are usually the losers in any collapse.