New retention money requirements take effect from 5 October 2023

The Construction Contracts (Retention Money) Amendment Act 2023 (the Amendment Act) was passed by the Government in April 2023. The Amendment Act strengthens the retention money regime by making it easier for subcontractors to access retention money without a court order, in the event of a head contractor's insolvency.

The changes in the Amendment Act build on retention money provisions already in the Construction Contracts Act 2002. These provisions were put in place to protect retention money owed to subcontractors in the event of a business failure and to ensure retention money withheld under construction contracts is responsibly managed.

The Amendment Act will commence on 5 October 2023 and will become part of the Construction Contracts Act 2002.

New requirements for head contractors

Many head contractors are already doing the right thing and are holding retention money aside appropriately. For these people, the Amendment Act will result in very little change.

The new requirements for withholding retention money include:

• 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 cashflow and assets
• requiring that retention money held as cash must also be held separately in a bank account with prescribed ledger accounts.

Penalties

The Amendment Act introduces strict liability offences for failing to hold retention money properly, with penalties of up to $50,000 for a director and up to $200,000 for a company. Offences include:

• failure to comply with accounting, recording and reporting requirements
• use of retention money for a purpose other than remedying defects in the subcontractor's performance
• failure to provide regular information to the subcontractor on retention money.

Head contractors looking to hold retention money have until 5 October 2023 to ensure processes are established and standard contracts are renewed.

More information

Additional information about the Amendment Act is available on the Building Performance website.

Construction Contracts (Retention Money) Amendment Act 2023

Guidance document

MBIE’s Building Performance team has developed a detailed guidance document to support the following groups with understanding their rights, duties and obligations under the Amendment Act:

• property owners and developers
• contractors and subcontractors
• legal and accounting professionals
• insolvency professionals.

Retention Money Guidance for the Construction Contracts Act 2002 [PDF 6.8MB]

Webinar

A recording of a webinar (including questions and answers) that was held on 25 August 2023 is available on the Building Performance website. The webinar explains what the changes in the Amendment Act mean for main contractors, sub-contractors, clients, and payment certifiers (Quantity Surveyors and Engineers to Contract).

Accord live webinar - Construction Contracts (Retention Money)