Changes to Construction Contracts Act – from 31 March 2017

by Alan Knowsley - Rainey Collins Lawyers

As of 31 March 2017, retention money withheld under commercial construction contracts must be held on trust.

This legislative change aims to protect sub-contractors whose pay is withheld until the head contractor receives payment for work done under the main contract. Problems can arise when the head contractor is liquidated as sub-contractors may find themselves liable for, and carrying the debt of, the head contractor.

Consequently, the new change will require head contractors to hold an amount payable to their sub-contractors on trust as security for their work performance. This retention money may be mixed with other moneys, or else held in cash or other liquid assets that are readily converted.

Most importantly, head contractors will be subject to trustee duties and will be required to:

  • keep proper accounting records of all retention money;
  • make accounting records available for inspection by sub-contractors, at all reasonable times and without charge;
  • pay retention money to sub-contractors; and
  • when no payment is made, pay interest on the retention money from the date on which payment was due under the contract.

It is essential that head contractors seek legal advice if they are unsure about their trustee duties or how to meet their obligations under the Act. 

For more information on this topic, please contact the Rainey Collins office (04 4736850) or the article author - Alan Knowsley. 


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