Strengthening the Retentions Regime

30 October 2023

The collapse of Ebert Construction in 2018 highlighted the lack of protection in the then current retentions regime in the Construction Contracts Act 2002 (CCA). The Construction Contracts (Retention Money) Amendment Act 2023 (Amendment Act), which came into force on 5 October 2023, increases protection for subcontractors working on commercial projects by ring fencing their retention payments and creating reporting obligations. In particular:

• the retention is automatically held on trust as soon as an amount becomes “retention money” under the CCA
• the retention money is required to be deposited in a compliant bank account, and cannot be intermingled with the holding party’s trading funds or used as working capital
• the holding party must provide certain information to the subcontractor at least every three months until the retention money trust ends, thereby improving accountability; and
• there are hefty fines for non-compliance.

The Amendment Act strengthens participants’ reliance in the industry. Principals need to establish proper processes and update their construction contracts to ensure compliance and to avoid penalties. And, contractors need to ensure they understand their rights in relation to retentions that are held for their benefit.

Whether you are a principal or a contractor, if you are unsure of your position under the Amendment Act, please contact Nicole Warner for advice.