A late change to the Construction Contracts Amendment Act 2015 will make it clear that the new retentions trust regime will apply only to contracts entered into or renewed on or after 31 March 2017.
This clarifies one aspect of the new system which had been causing headaches for the industry as it prepares to meet the new requirements.
The clarification is provided for in the Regulatory Systems (Commercial Matters) Amendment Bill introduced into Parliament yesterday.
Mechanics of the regime
Retention money may be held as cash or other liquid assets that are readily converted into cash. It can only be used to remedy any defects in the payee's work. It cannot be used for working capital.
Disbursement of retention money cannot be made conditional on anything other than performance of the work, and the date of payment in the contract cannot be set later than the date at which the obligations under the contract have been completed.
Interest applies if payments are late.
Payers may invest the retention money while held in the trust and may retain any interest earned but are liable to make good any losses on the investment.
The Ministry of Business, Innovation and Employment (MBIE) has provided a guide on the Bill, available here.
The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.