The Construction Contractors Amendment Act has been updated again and, after 5 October 2023, landscapers must ensure commercial contracts entered into, or amended, comply with the new regulations
Upon announcing the new laws in March 2023, the Minister for Building and Construction Megan Woods said the changes would provide further additional protection to subcontractors.
“These changes passed in the Construction Contracts (Retention Money) Amendment Act safeguard subcontractors, who are often the first to miss out in the event a construction company becomes insolvent," said Woods.
“While it is not a requirement to hold retention money, many head contractors choose to withhold part of their payment to specialist tradespeople for up to 12 months. This is one way to help ensure building work is done right the first time and acts as an insurance that the subcontractor will return if there are any defects.
“The changes made today provide important protections for subcontractors, so they can be certain their payment is kept safe, can’t be used for any other purpose, and will be paid out should the head contractor’s business fail.”
Changes welcomed, results dependent
A headline change to the CCAA is that funds must now be held in a trust, without mixing it with other money or assets. It’s a move Espaso Verde Creative Director and Landscape Designer Charlotte Pedersen praised in theory, but had some reservations about the practical application of the rules.
“In theory, it provides some security in regards to where the money is held and the accessibility to that money. However, in reality, how well will this be monitored? Is there someone checking that all head contractors who use retentions are sending out their quarterly reports? Or will the fact that someone hasn’t adhered to the new rules only come to light if the main contractor or developer goes into liquidation, as it’s too late at that point?“
The current amendments were announced in 2020, following a review in 2019, and state that:
Funds must be held in trust, without mixing it with other money or assets.
Any retention money held as cash must be held separately in a bank account with prescribed ledger amounts.
Retention money can only be used to remedy defects in subcontractors’ work if they are given 10 working days’ notice.
Quarterly reports must be provided to each subcontractor from whom retention money is withheld.
Contractors must provide each subcontractor with a report after each transaction with their retention money. The report must be provided promptly and free of charge.
Retention money must be paid when owed.
In general, Pedersen welcomed the changes but questioned the culture surrounding retentions.
Although her company’s retentions have always been paid out as per the specified process, she finds them to be quite the headache. In her ideal world, there wouldn’t be a need for retentions, as contractors would ensure the work was done correctly and in line with expectations.
“Most larger commercial projects – where retentions tend to be used – have a tender process with specifications and detailed plans, which clearly outline the expected standard of work and construction/soft landscape detail – and project managers are engaged to ensure projects meet those specifications,” said Pederson. “We provide a price based on the specifications, so if we're not meeting requirements then we should be held accountable for that – but I question whether we need retentions to enforce it.”
However, if retentions do need to be used, Pederson believes that, if followed, the changes do help level the playing field and protect the subbies in the case of receivership or liquidation.
Retention headache
Top Garden director Louis Wu said that, despite the changes to protect subcontractors, he doesn’t like doing work that involves retentions.
“Every three or four months, we’ll contract to a construction company that wants to withhold retentions from us. Most of the time we’ll refuse the job, because it disrupts our cash flow too much, but sometimes, if the job is right, we’ll try and negotiate them down to 5% of the value of the contract.
“Which jobs will feature retentions is hard to predict, as often it has nothing to do with the size of the job – it’s entirely up to the companies’ processes.”
Additional sense of comfort
Euan Milne, Contracts Manager – Commercial for Nelmac, regularly deals with retentions for projects and said he welcomes the new protections, despite never personally having experienced a bad retention outcome.
“The new regulations give us a bit more comfort, but we’ve never had an issue with money not being released back to us.”
Nelmac, which began as a council-controlled trading organisation,now works across commercial landscaping projects, greenspaces and conservation. The majority of its contracts are worth over $1m, which Milne says means a lot of retentions.
“Generally, our retentions are 10% for the first $200k and then 5% for the next $800k. Beyond $1m, retentions are generally 2.75%. We feel protected by the law, but it’s also fair to say the contractors we’ve dealt with are well known and financially stable.”
Protection required
The Construction Contracts Act (2002) was originally amended in 2015, following the collapse of construction company Mainzeal in 2013, which saw subcontractors lose an estimated $18m.
The amendment included a requirement for protecting retention money and was amended again in 2017 to specify that retention money must be held on trust in the form of cash or liquid assets readily converted into cash. It also removed the difference between residential and commercial contracts and included design, engineering and quantity surveying work in the Act.
Retentions for residential
While Section 5 of the Act defines commercial work as “a contract for carrying out construction work in which none of the parties is a residential occupier of the premises that are the subject of the contract”, it doesn’t mean that landscapers doing work on residential jobs aren’t protected.
In practical terms, that means a landscaper who works directly for a homeowner will not have their retentions covered by the Act, should a homeowner choose to use them. However, a landscaper working for a main contractor will be covered. Additionally, it would apply between a developer and a main contractor.
Increased fines intended to ensure compliance
Failure to comply with the new amendments could result in a fine of up to $200,000 per breach for companies, or a fine of up to $50,000 per breach for directors. There can also be a fine of up to $50,000 per instance of false information being provided to a subcontractor.