For reasons which remain hard to explain, the Government remains fixated on securing retention moneys, when the primary issue is securing payment - "cashflow", memorably described by Lord Denning MR in Dawnays case 5 decades ago as being the lifeblood of the enterprise.
This dive into a rabbit hole started with the collapse of Mainzeal, back in 2013, leaving a shortfall of $8 million in retentions. What the Minister at the time, the now departed Nick Smith, refused to acknowledge was that the collapse of Mainzeal left $130 million in unpaid unsecured creditors - mostly sub-contractors and suppliers. Further, had the retention scheme, introduced in the 2015 amendment to the Act, been in place at that time it would not have protected either those retentions, or more critically the unsecured creditors.
This latest amendment proposes a number of changes:
- retention money must now be kept in a separate trust account with a registered bank in NZ
- the party holding the retention money must give information on the retention money
- the retention money can only be released to rectify defects or to pay the party against whom the retention is made
- new offences and penalties for companies and directors for non-compliance
- providing for the liquidator or receiver of a company holding retentions to become trustee
The most worrying change is the introduction of an offence for failure to comply with the retention requirements. The definition of director is widely cast, which should be sobering for anyone in the construction industry in a management position, and not just those on a board of directors.
There is a whiff of fiddling while Rome burns about these amendments, which is discouraging in the context of the proposed construction industry reforms. The industry is in crisis, with the primary pressure points being the shortage of skilled labour, supply chain management, solvency of all participants in the industry and poor procurement practices. The failure to protect cash-flow down the supply chain, and to provide real payment protection for sub-contractors, is worrying.
Some pessimism for the wider industry reforms is warranted.
The Bill is available here.