Quantity surveyors lead joint effort to develop retention guidelines

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Calls for an industry-wide collaboration to design guidelines governing how the construction sector makes payments to builders and subcontractors have come to fruition.

On March 31, the new retention regime introduced under the Construction Contracts Amendment Act 2015 (CCAA) came into force.

The regime requires the retention money withheld from builders and subcontractors on all new commercial contracts to be held in trust.

However, there was no information available about how to manage the new retentions regime.

In order for the new legislation to be widely understood and used to improve industry-wide practices, the New Zealand Institute of Quantity Surveyors (NZIQS) teamed up with Registered Master Builders and the Specialist Trade Contractors Federation.

The collaboration produced the Retentions Guidelines Bulletin #1, recently issued to respective members and other industry organisations that are part of the Construction Industry Council. Further bulletins are planned.

NZIQS spokesperson Peter Degerholm explains that the retention regime requires all retentions on new commercial contracts to be held in trust so they are protected for the builders and subcontractors who performed the work.

If the payer becomes insolvent the retentions are also protected from receivers and any creditors, he says.

If retentions are not released when the defects have been remedied the payer must pay interest.

The payer who holds retentions — the owner, government department, developer or builder — has a statutory duty as trustee.

Last minute changes mean the payer may now avoid the trust obligation by providing a “financial instrument” such as a payment bond from a bank or insurer.

In addition, the payer must keep proper records and disclose full details as to how the retentions are protected.

Mr Degerholm says in order for the industry to comply with the Act, it required a better understanding of what it means in practice.

“That’s the purpose of the bulletin. The retention regime will have a significant impact on the industry as a whole and the way it manages retention money, and we need to know how to comply with it.”

Mr Degerholm was pleased that Registered Master Builders and the Contractors Federation joined with the NZIQS to positively approach what could have been a challenging piece of legislation.

“Retentions have been used for decades as a rough and ready way of ensuring builders and subcontractors fix their defects,“ Mr Degerholm says.

“Looking forward, this change also provides an opportunity for industry to consider whether there are smarter ways of delivering building work that is free of defects.

“It will, of course, take time to measure the success of the retention regime, but I am confident the industry, working together, will collectively improve its management of retentions.”