Previous amendments to the Construction Contracts Act 2002

There have been some changes made to the Construction Contracts Act since it commenced in 2002, including to the retention money regime.

The Construction Contracts (Retention Money) Amendment Act 2023

This Act was passed by the Government in April 2023 and introduced new requirements for withholding retention money.

The new requirements strengthened the retention money regime by making it easier for subcontractors to access retention money without a court order, should a head contractor become insolvent. The new requirements included:

• keeping retention money held on trust, without mixing it with other money or assets
• ensuring that retention money held as cash is also held separately in a bank account with prescribed ledger accounts
• using retention money only to rectify non-performance of subcontractors' obligations under the contracts – if retention money is used to remedy those defects, subcontractors must be given ten working days' notice
• providing quarterly reports to each subcontractor retention money is withheld from
• providing each subcontractor with a report after each transaction with their retention money, promptly and free of charge
• paying out retention money when it's owed.

On 5 October 2023, the Amendment Act became part of the Construction Contracts Act 2002.

Review of retention money regime (2019)

KPMG delivered a report to help MBIE understand the implementation and effectiveness of the retention money provisions regime in the Construction Contracts Act (2002). The purpose was to understand:

• awareness of the regime in the sector
• overall compliance with the regime
• whether there has been any behaviour change as a result of the regime
• any consequences on solvent and insolvent businesses.

The report was finalised in August 2019. In summary, it found that a large portion of the sector was complying with the regime, and there was good knowledge of its requirements. There was some evidence that the regime had protected subcontractors in the event of insolvency and money had been returned to them. However, there were still some issues around compliance.

After engaging with the sector on how to improve the retention money regime, the Minister for Building and Construction announced changes to the regime in May 2020.

The Construction Contracts (Retention Money) Amendment Act 2023 introduces these changes.

Regulatory Systems (Commercial Matters) Amendment Act 2017

The Amendment Act introduced the retention money regime in our legislation. It specified that, 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 applied to contracts entered into, or renewed, on or after 31 March 2017.

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

2015 changes relating to payment and dispute resolution

The Construction Contracts Amendment Act 2015 amended the provisions in the Construction Contracts Act relating to payment and dispute resolution.

Key changes relating to payment and dispute resolution included:

• residential and commercial construction are treated the same under the Construction Contracts Act, with the exception of charging orders. This gives parties to residential contracts full access to the Act’s dispute resolution and payment regimes
• design, engineering and quantity surveying work is included under the scope of the Construction Contracts Act. This gives parties to construction contracts for this type of work full access to the Act’s dispute resolution and payment regimes
• the adjudication process is streamlined
• the enforcement process is strengthened.