The Construction Contract (Retention Money) Amendment Act 2023: What to Expect

On 5 October 2023, the New Zealand Government rolled out new updates to the Construction Contracts Act 2002.

Known as the Construction Contracts (Retention Money) Amendment Act 2023, this legislative overhaul brings forth new measures aimed at providing greater protection over contractors’ retention money in construction contracts.

With these changes, financial processes in the construction industry are set for a shake-up.

So, let’s dive in and explore how the Amendment Act is reshaping the rules of the game. 

What contractors need to know

For contractors, the updated Construction Contracts Act brings pivotal changes that demand your attention:

1. Holding of retention money

The Amendment Act brings a notable shift in the way retention money is handled.

Where previously contractors could freely mingle retention funds with their working capital, the new regulation puts a strong end to this practice.

Contractors now need to ensure that retention funds are either securely held in a dedicated bank account or are subject to an appropriate financial instrument, such as an insurance policy or bank guarantee.

Contractors can choose whether to maintain individual accounts for each subcontractor’s retention money or to consolidate all retention funds into one account.

However, if the funds are pooled, meticulous accounting practices are required. Separate ledgers must be maintained, clearly identifying each subcontractor and the relevant construction contract.

2. Reporting on retention money

Parties holding retentions are now obligated to provide comprehensive information about the retention money to the subcontractor, including:

• The most recent and total amounts withheld;
• The relevant construction contract, and;
• The date of the retention. 

This reporting is required when the retention money is initially held and then at least once every three months. Details of the account or instrument holding the money are also required to be shared.

3. Penalties for non-compliance

The consequences for non-compliance with the updated Construction Contracts Act are weighty. Companies failing to meet the new regulations risk fines of up to $200,000, while individual directors can be personally fined up to $50,000 for each breach. 

Intentionally providing false information about retention money also constitutes an offence, with fines reaching up to $50,000.

The financial consequences underscore the need for proactive measures. So, what can you do to navigate this change effectively?

How to navigate the change

Adapting to the changes brought by the Amendment Act demands more than a legal adjustment; it requires a strategic shift. In an environment where less working capital is available, maximising cash flow becomes crucial for success.

Here’s your roadmap to navigating this new era:

Utilise technology for compliance reporting

First things first, you’re going to need your compliance sorted. Relying on spreadsheets for compliance reporting will be a time-consuming and cumbersome process.

Not to mention, manual processes always run the risk of increased errors and delays, putting your compliance at risk. 

Automation is the key to streamlining these processes. By leveraging progress claims automation, you not only ensure accuracy but also save valuable time, allowing your team to focus on more strategic activities. Talk about a win-win! 

Optimise working capital

With less working capital available, the focus must shift to reducing costs and inefficiencies while at the same maximising revenue.

To achieve this, adopting a smarter work environment becomes crucial. This involves leveraging construction software to automate repetitive tasks, optimise resource allocation and provide real-time insights into project performance.

In Conclusion 

The Construction Contracts (Retention Money) Amendment Act 2023 has brought in significant changes, demanding contractors’ attention and proactive measures.

The legislation imposes strict guidelines on the holding and reporting of retention money, with hefty penalties for non-compliance. Navigating this shift requires more than legal adjustments; it necessitates a strategic overhaul.

With less financial flexibility, adopting a smarter work environment through construction software is the key to reducing costs, maximising revenue and successfully adapting to the evolving landscape.