Construction Contracts Amendment Bill

on behalf of the Minister for Building and Construction: I move, That the Construction Contracts Amendment Bill be now read a first time. I nominate that the Commerce Committee consider the bill. The Construction Contracts Act 2002 provides for the timely and cost-effective resolution of disputes in the construction sector. The processes in the Act are a lower-cost alternative to going to court. The building and construction sector is vital to our economy. It employs around 8 percent of our workforce and contributes around 4 percent of our gross domestic product. This House has already considered amendments to the Building Act 2004 over the past 2 years. In speeches on the Building Act amendments the Minister for Building and Construction, Maurice Williamson, has referred to the wider context for the proposed amendments. That context is also relevant to the Construction Contracts Amendment Bill, so it is worth repeating some of that information.

The National-led Government reviewed the Building Act 2004 during 2009 and 2010. The review was carried out in an environment where productivity in the construction sector was low, and some of the criticisms for low productivity were being directed at legislation and associated compliance costs. The review found that current regulatory systems were not broken, but they were more costly than necessary and less efficient than they could be. This was having an impact on productivity. This Government is committed to regulatory reform, but not at the expense of quality. It is vitally important that we get the balance right between reducing compliance costs and providing adequate assurances that building work is up to standard. The amendments to the Building Act 2004 that have been considered by this House seek to achieve that balance.

To support the amendments to the Building Act, a package of other changes and initiatives is necessary to achieve the Government’s goal of a sector that has the necessary skills and capability to build it right the first time and that takes pride in its work, and a sector that delivers good-quality, affordable homes and buildings and contributes to a prosperous economy. The goal is a well-informed sector that shares information and quickly identifies problems, where everyone involved in the building work knows what they are responsible for and what they can rely on others to do, and where consumers can make informed decisions and understand the risks and consequences of their decisions. Some of these changes are non-regulatory, and the Ministry of Business, Innovation and Employment has a significant programme of work under way addressing matters such as consumer education and advice, maintaining the skills of licensed building practitioners, and making the building code more accessible.

The Construction Contracts Amendment Bill is one of the regulatory changes that supports the amendments to the Building Act 2004. This bill will support the Government’s goal of achieving a more efficient and productive construction sector that stands behind the quality of its work. A detailed review of the Construction Contracts Act was carried out in 2010 and was reported to Cabinet in early 2011. Like the findings of the Building Act review, the review of the Construction Contracts Act found that the system was working well but could be improved by reducing some costs and clarifying some processes.

I will now outline the key changes contained in the Construction Contracts Amendment Bill. The bill will remove the distinction between how the Act applies to residential and commercial construction contracts. Currently, the Act is unclear about the jurisdiction to deal with disputes under residential construction contracts. This is a barrier to parties to residential construction contracts accessing and using the processes under the Act. The bill will consolidate the processes in the Act so that one process applies regardless of the type of work the construction contract is for.

One distinction will be retained in relation to residential construction contracts. Obtaining a charging order in relation to a dispute under a residential construction contract will not be possible, because a charging order may create inappropriate risks for a homeowner, such as possible default on mortgage obligations. The bill will also remove the distinction between the two different types of decisions that can be adjudicated under the Construction Contracts Act 2002. Current decisions on payment disputes can be more readily and easily enforced than decisions on disputes about rights and obligations. The bill will streamline the enforcement process so that it is the same, regardless of the subject matter of the dispute.

The scope of the Act is currently limited to contracts relating to construction work. The definition of that term in the Act is limited to ordinary building work and does not capture related services such as design and quantity surveying work. The bill will expand the scope of the Act to include construction-related services. Parties to contracts for the performance of these services will then be able to access the payment and dispute resolution processes in the Act. This amendment will be of particular benefit to consumers, helping them to hold architects, engineers, and quantity surveyors to account for their work, and will also benefit designers and quantity surveyors in enabling them to use the payment provisions under the Act to ensure that they are paid for their services in a timely manner.

Resolving disputes can be a lengthy and costly process. This is particularly the case in the construction sector, where issues can be technically complex and involve multiple parties. In response to the Construction Contracts Act 2002, the private adjudication market has developed the skills and experience to effectively and efficiently resolve construction contract disputes. It is working well. The Government does not need to intervene significantly in this market. What the Government needs to do is to continue to ensure that the legislation is fit for its purpose and does not create barriers or impediments for a well-functioning market. The Construction Contracts Amendment Bill will fulfil the Government’s obligations in this regard.

I should also inform the House that the bill contains some other less significant amendments to the Construction Contracts Act 2002 to streamline processes and reduce costs. These include reducing some of the time periods in the adjudication and enforcement processes; clarifying some procedural steps, such as how to seek an extension of time; a new power for the Chief Executive of the Ministry of Business, Innovation and Employment to obtain information for research and monitoring purposes; and consequential amendments to the definition of “residential occupier”. Also, there are amendments requiring a pre-adjudication conference to be held to deal with process issues, if there are any, and amendments clarifying how an adjudication order can be appealed, contested, or reheard.

This bill will speed up dispute resolution in the construction sector, support the Building Act reform programme by making improvements to accountability in the construction sector, and maintain efficient functioning of the private dispute resolution market. Thank you.

I rise to take a call to support the Construction Contracts Amendment Bill, which is to be referred to the Commerce Committee. According to Statistics New Zealand, from 2000 to 2008 the building and construction industry contributed around 5 percent to New Zealand’s GDP, comprised over 50,000 businesses, and employed around 7 percent of New Zealand workers. All these indicators will trend upwards with the Christchurch rebuild. Labour supports the referral of this bill to the select committee because it is important to listen to any concerns that submitters may have about the bill at the select committee.

This bill provides an opportunity for Labour to highlight that it is already taking steps to ensure that in the event of a construction company collapse, subcontractors are protected and paid for the work they have done. From the departmental report on the Building Amendment Bill (No 4) we have learnt that the building sector’s failure rate is higher than the rate for all businesses before 2003 and after 2008. As we have seen with Mainzeal Property and Construction, it is the subcontractors who are hit the hardest when a construction company fails. Subcontractors are nearly always last in the creditor queue, and often miss out on money they are owed. That is not fair. We need to take action so that it does not happen again.

Labour leader, David Shearer, and commerce spokesperson for Labour, Clayton Cosgrove, have been looking at sensible, cost-effective options that offer a fair deal without loading costs on to the sector. Clayton Cosgrove has been undertaking a series of visits throughout the regions to discuss these proposals with those at the coalface and with industry associations. We have developed two options, contractors’ liens and statutory construction trusts, and are taking these options to the industry for assessment and comment. The first option, contractors’ liens, means that contractors would be required to retain a portion of money they owe. The second option is statutory construction trusts, where money would flow through a trust to ensure that subcontractors get paid first, should a construction company collapse.

Our solutions will apply to significant commercial construction projects and will not interfere with contractors’ arrangements. We will also clarify and tighten the law to ensure that in the event of a construction company failure, subcontractors can get access to their tools as fast as possible, so that they can get back to work and earn a living. Labour MPs have written to trade industry workers to seek their feedback on the options, and have asked them for ideas on any other options that could benefit and protect the industry.

Back to this bill, the Construction Contracts Act 2002, the primary Act, creates default progress payment provisions for construction contracts, provides an adjudication framework for disputes involving construction contracts, and provides remedies for recovering payments under construction contracts. In 2009 the Government undertook a review of the Building Act 2004. The building review was initiated by the Labour Government and won cross-party support. Submissions on the review indicated broad support for the adjudication process under the Construction Contracts Act 2002 for resolving a range of building disputes. However, submitters identified areas in which the Act could be improved to help parties to resolve disputes, particularly in relation to residential construction contracts and disputes over the quality of work or rights and obligations under contracts.

The building and construction sector is vital for New Zealand’s economic performance and prosperity. The Government is making changes to legislation across the sector to provide incentives for building professionals and tradespeople to take responsibility for the quality of their work—changes that are expected to deliver a productive, efficient, and accountable building sector. Improving the adjudication process under the Act is important in the context of these changes. The amendments in this bill aim to make the existing adjudication process a faster, more cost-effective, and efficient option for people with disputes under construction contracts.

The amendment bill, as outlined by the Minister, will remove most of the distinctions between how the Act applies to residential and commercial construction contracts, except in relation to the use of charging orders as a remedy for non-payment. The Government has also widened the definition of “construction work” to include design, engineering, and quantity surveying work, and has removed the distinction between enforcement of payment determinations and rights and obligations determinations. Also, the amendment bill will speed up enforcement processes by reducing the amount of time a defendant has to oppose an application to have a determination entered as a judgment.

As I said, we are talking to the industry about options, and we are keen to hear its ideas as to how we can ensure that contractors’ incomes are protected without adding to Government red tape or an additional administrative burden to hard-working businesses. Under a trust fund model, the process is relatively simple. Instead of payments going to the head contractor, they go to the trust, which then makes payments. No other contractual terms are affected. Head contractors should be passing through progress payments to fund subcontractors. Any profit over and above what is owed to subcontractors is paid out to the head contractor. The construction trust, or a liens model, will ensure that any risky behaviour does not occur. Under a trust fund model, the flow of the payments being passed through occurs at the same speed as it currently does, it just goes through different players to ensure that a portion of the funding owed to the subcontractors is protected.

As to who would run the trust, who would be the trustees, and what it would cost to set up and run a trust, there are a range of options that could be investigated. For example, the Public Trust is a well-respected and safe institution. The trustees could be independently selected from a range of professional trustees. The trust would be self-funding from the interest received. For example, if the trust invests its funds into safe bonds, a percentage of the interest earned would be used for the day-to-day running of the trust. We will also investigate options to ensure that if the head contractor goes into receivership, subcontractors are able to go on-site to retrieve from the site any tools and materials they own. If the law is ambiguous, we will clarify the process through legislative change.

The construction industry has a high level of vulnerable subcontractors compared with other industries, and the problem of a payment to subcontractors in the case of a head contractor going into receivership has been most apparent in the construction industry. I commend the bill to the House. Thank you.

Although the previous speaker, Raymond Huo, proposed some very interesting ideas, I do suggest that this is a very complex area, and one of the difficulties that a contractor has if they do not receive payment is that the value of what they have contributed is often built into a building, and you cannot retrieve it. If somebody sells a motor vehicle and does not get payment, certainly they can go and repossess that vehicle. So there is a lot of complexity around this, and there is a lot of complexity around retentions.

We know, as the previous speaker raised regarding the major construction company collapse at the beginning of this year, that this issue has caused a lot of pain. But it is a very complex issue and a very complex area, and if it could have been easily fixed in the past, it would have been. So although these ideas have a sense, a resonance, of logic to them, I think the working-out of them is quite difficult, otherwise they would have already been worked out, I am sure. However, it is good to think on these things. I think that what is needed, particularly in the construction contracts area, is as much certainty as possible. You can never take away business risk, but certainly having a contract in place creates certainty for not only the contractor but also the consumer, so that everybody is getting a fair deal.

This is what this bill, the Construction Contracts Amendment Bill, is about. It is about removing uncertainty, and it is about creating some clear understandings around jurisdictions in order to deal with disputes under residential construction contracts. What this bill does is remove the distinction between the two different types of decisions that can be adjudicated under the Construction Contracts Act. Currently, decisions on payment disputes can be more easily enforced than decisions on disputes about rights and obligations. The bill will streamline the enforcement process so that it is the same regardless of what the dispute is over.

So I think that this is a bill that is timely, and I do congratulate the Minister for Building and Construction, the Hon Maurice Williamson, on bringing it to the House, and I do trust that we can have good progress through the House and Committee stage so that we get the sort of certainty that will bring confidence into the construction industry around disputes. Thank you.

I take this call on the Construction Contracts Amendment Bill and I make the point, in light of what the last speaker, Jonathan Young, has just said, that he said there is actually a case for doing nothing in an area that is crying out for attention. It is very easy to say that this is all too hard and it is all too complex, that there is business risk wherever you look, but, actually, what is happening in this industry today is that good people and good businesses are being ripped off by the shysters, the snake oil salesmen, the shiny arses—if I can use that term, which is well known in the industry—who are not interested in a good-quality industry but are interested only in ripping people off.

The only challenge for this Government when considering this bill is whether it has got the cojones to stand up to that type of conduct and do something meaningful that is going to be good for the trades, the tradespeople, the trades businesses, and the small subcontractors who at the moment are the victims of the ever-rapacious corporate shysters who are operating in this industry day in, day out.

There is only one rule that counts, and it is not about business and about business risk. It is called the “golden rule”, and it is very simple: who has the gold makes the rules. That party, if any, knows it, because it lives it and breathes it every day: who has the gold makes the rules. Tau Henare has woken up now, because he understands that rule. If you have got the money, if you have got the dosh, you decide what happens. That is what it comes down to.

That is why small-business people, tradespeople who work their guts out, work to get their trade and go off to set up their little business. They want a slice of the action, and they want to help out. They want to do good things. They love their craft, they love their trade, they love making stuff, especially when it is a building. They like to know that what they are doing is helping business or helping families. But, hey, go into business and they then cannot get paid the contractor price. That is what is happening.

When we have a look at Mainzeal Property and Construction, we see a symptom of a bigger problem. It is a giant corporate business run by shysters. The directors, we know, are National Party acolytes from way back, and they care not what happens to the small man. They do not care what happens to the little man, but I, in name and in deed, stand for the little bloke. That is me, and that is what the Labour Party is.

💬 Hon Member: That’s why they call you Mr Little.

That is right. They call me “Mr Little for the little man”—not just across New Zealand but in Taranaki especially.

In fact, it was only yesterday that I received a letter from a Wanganui businessman who at the age of 23 went out and set up his own business. He got his trade, and at the age of 23 went out and set up his own construction-related business. He has done very well, but the big complaint, he says, is that when it is time to send the invoice and get paid, what do the big construction companies do? They say “Oh, no.”, and they will nit-pick and fiddle around. They will fiddle-faddle, and they fudge, and they will mudge and say: “Oh, no, we’re not going to pay the full price, because you were 1 hour overdue or because you did not use this particular material.”

Never mind that the job is perfectly good, a good-quality job, and never mind that he and his employees have put their hearts and souls into it and got the job done; the big companies will fiddle-faddle around, nickel-and-dime it, and try to squeeze down the price. The small-business man knows he has to pay his staff and pay his bills and he wants to get the cash as quickly as possible, so he is forced, compelled, stood over, to discount the job just so he can get the cash going. That is how the industry operates.

We are left wondering whether there is anything in this bill that is actually going to fix that problem. More adjudication in the existing system is not going to help that problem. What needs to happen is that control needs to be taken over the cash for the job, so that it is held independently and so that if there is dispute, the owner of the job, or the developer, or the head contractor does not have an interest in holding on to the cash for as long as possible—because they will not have it. Likewise, if there is a genuine dispute over the quality of the work, let the holder of the cash—an escrow account holder or a trustee holder—determine it. They have no interest in holding on to the cash unnecessarily, so let them become the referee.

That is what the Labour Party is proposing. Labour members will vote for the bill to get it in front of a select committee so we can have this debate and hear from all the businessmen from Wanganui and all the small-business people—the little people whom I represent. We will call them all in to let them have their say and be part of that debate. Let us hear from them. Let us hear what they want to see happen so they can get access to the cash that is properly owed to them, and so that when they tender for a job with an acceptable margin on it and employ people as a result, with confidence they are going to get paid for the job, they are not then held over a barrel and made to negotiate after the job is done from a position of weakness because you have got shysters and shonky head contractors who operate in this business, as they do at the moment.

That is the answer to the problem: follow the money. Follow the golden rule—who has the gold rules—and hand over the contract of the cash for the job to an independent party. If the developers are bold enough to enter contracts and get into the job, it means they have got the credit lines open. It means they have got their money sorted out or they can draw down on their credit lines and place the money into an escrow account. Let the job get done and then, if there is an argument, have an argument with a genuinely independent third party who has got control of the cash and can make sensible decisions in the interests not only of the developer, the owner, or the head contractor but also of the subbie as well.

The thing about the Labour Party is that it wants to see good business. The members on the other side always talk of Labour not being the party of business. Labour is a party of business. The difference is that Labour is the party of ethical business, of good business. Labour is not opposed to the market, but it reserves its right to criticise bad practices in the market.

The construction industry at the moment is full of bad and shonky practices, and Labour wants legislation that is going to address that and is going to give the little guy a chance to get into their business, get started, and enter contracts with confidence, reliably understanding, knowing, and being sure that they are going to get paid at the end of it—paid a fair price for the work they do. That will help to give confidence in the industry. It will help to lift quality in the industry, and nothing less than that is needed.

We have had the experience—up to 1987, when the then Labour Government changed the law at the time—of the contractors’ lien, and the lien over work and over labour. It was honoured in its breach. Head contractors were meant to reserve a part of the construction price and keep it aside. In reality, it simply became a cheap way of head contractors funding their own cash flow and it did not work. Many subcontractors were critical of it at the time—funny how many of them are not so critical today. But, actually, it was a provision in the old legislation—from 1947, I think it was—that simply was not utilised extensively and was, if anything, honoured in its breach, and so it was repealed at the time.

It was thought that that was a good idea. We, in our party, have revisited that, and we know that problems still exist and that something needs to be done about them. Having a piece of legislation that adds to or creates some special avenues in relation to adjudicated disputes, as this does, does not go far enough, in our view. But we have a Minister for Building and Construction who at least appears to be open to new ideas—less so on plumbers and gasfitters, as we see. But perhaps when it comes to the broader construction industry, he may be open to more radical ideas. And let us face it: the Minister for Building and Construction is a man of radical ideas. He does not get them through his own caucus very often, but here is an occasion where he has got the bill up this far, and he may well be open to ideas that are actually going to help the small players in the industry, help the small subcontractors make a difference, keep the cash flowing, and keep people in work.

This is at a time where our construction industry needs every bit of help it can get, in terms of a good-quality regulatory framework. We have massive construction now under way in Christchurch, and construction now picking up out of Auckland and across the country, but the businesses, the enterprises, and the workers in the industry need to know that this House takes seriously having in place a regulatory framework that will keep the cash flowing, give integrity to the system, and give people confidence, so that we can all proceed to know that we have a construction industry that is good for the economy at large.

Tēnā koe, Mr Speaker. Tēnā koutou e te Whare. I rise to speak on the Construction Contracts Amendment Bill in its first reading. The Green Party will be supporting this bill, at least to the Commerce Committee. I would like to note that most of the changes in the bill are actually relatively minor. Many of them are neutral. Some positive changes in the bill include the requirement for adjudicators to hold a pre-adjudication conference to answer questions about the process, and a requirement for all adjudication notices to contain a statement of the respondent’s rights and obligations, and a brief explanation of the adjudication process. These measures will make the process more transparent and understandable to participants. We think that is a desirable and good outcome.

One negative change we are concerned about that we will be exploring in the select committee is the move to shorten from 15 working days to 5 working days the amount of time defendants have to apply to the District Court to oppose a plaintiff’s application for a determination to be in force by entry as judgment. Although the clause would require adjudicators to give a respondent additional time to serve a written response on the claimant, if additional time is necessary owing to the size and complexity of the claim, the shortening of time could have negative impacts on the fairness of adjudication, and that is what we are concerned about, particularly where a claimant is unable to hire a legal representative for financial or other reasons.

One of the things I would like to bring up is what is not in this bill. Back in 2010 the Government undertook a review of the Construction Contracts Act 2002, and there were two significant recommendations out of that review that have not been taken up by the Government for legislative change. Those two exceptions were strengthening remedies for non-payment and ensuring a mandatory scheme for security of payment. Both of those actually became very relevant earlier this year when Mainzeal Property and Construction went into receivership. Of course, one of the reasons that Mainzeal Property and Construction went into receivership was poor corporate governance by people like Dame Jenny Shipley and other friends of the National Party. It turns out that it looks like annual reports had not been sent to shareholders for several years, and there are certainly none publicly available, so it is impossible to know what sorts of directors’ fees the board of directors were receiving right up until the time that they exited the board. That was right at the end of last year or early this year.

Another reason for Mainzeal Property and Construction’s problems was the leaky buildings. Of course, that is as it should be. It was involved in a number of buildings that turned out to have significant problems. But I think that is worth pointing out, because this Government seems to be opposed to all types of regulation and seems to be on the side of “Oh, well, less regulation is always going to get a better outcome.” The leaky building problem, which has been enormously costly to taxpayers and to homeowners, is a perfect example of where light-handed regulation actually ends up costing society and the economy quite a lot more in the long run. So it is much better to have that regulation in place to ensure that the problem does not start, rather than to say: “Oh, well, look, we want to reduce compliance costs and we want to free up red tape.” It is like the Housing Accords and Special Housing Areas Bill, which is currently before the House. The Government wants to get rid of any oversight by the Resource Management Act and wants to remove any requirement to comply with district plan regulations in order to get houses built cheaply and quickly, with no consideration of what the long-term impacts will be, and there will be long-term impacts.

The Green Party is not supportive of regulation for the sake of regulation, but let us be honest: it does serve a purpose, and it serves an important economic purpose. It is not just a cost imposed on business; it actually can be there to ensure that there are better long-term outcomes. In the economy as it currently exists there is a huge incentive for players to maximise their short-term profit, with no consideration of the long-term impacts on people, the environment, or, indeed, the economy. It is really the role of Government to have that oversight. When Government gets too close to vested interests—as we have here in New Zealand at the moment; we have a Government that is very clearly looking out for its mates and a number of vested interests—then the lawmaking suddenly is not providing long-term oversights in the interests of “New Zealand Inc.” but rather is under pressure from vested interests to remove regulations that in many cases might be useful and important, economically important, in order that those vested interests might make another big profit this year, and never mind what is going to happen in the future.

So, to go back to Mainzeal Property and Construction, the problem with Mainzeal is that we have subcontractors, hard-working tradespeople, who are likely not going to be paid, because of that company going under. This was flagged as a problem during the review of the Construction Contracts Act 2002. The Building Research Association of New Zealand commissioned market research in September 2010 to scope the nature and extent of contractors not getting paid. The key findings of the research included that 61 percent of respondents had instances of non-payment in the previous 5 years. That is pretty significant—61 percent of respondents had had instances of non-payment in the previous 5 years. Most respondents indicated that the total amount of non-payments was under $50,000, but there were cases of non-payments of over $500,000. Here in this Construction Contracts Amendment Bill we have the opportunity to ensure that there are mechanisms available to address this problem.

One of these could be a mandatory security of payment scheme. The Government came back and said: “Oh, well, security of payment measures are already available in the market, and people can freely engage in them or not.” But that really misses the point that the purpose of a mandatory scheme would be to ensure that nobody is disadvantaged by other people being willing to not accept security of payment. If one were a subcontractor and going for a job for a big construction company like Fletcher’s, which is pretty much a dominant player in the market, that company could say to the subcontractor: “Well, there’s someone else who will do your job without security of payment.” We do not want to have to go in for that, because it is going to cost us more money. So the competitive incentive means that people are less likely to choose to have the security of payment measure, and that is the purpose of making that mandatory. We need some insurance, because it is simply not fair that when large property management construction companies go under, subcontractors do not get paid. They are the guys who actually have to feed their families. They are not the guys who are jet-setting around like the corporate boards of directors, hanging out in the Koru Club.

The Green Party would like to see what comes out of the select committee submissions process, in terms of what the public has to say, what the stakeholders have to say, and whether, indeed, the stakeholders do feel that there is scope within this bill to address this issue of non-payment. We would then like to see some amendments to the bill to deal with that problem, because it has been a problem this year, in 2013, and it will doubtless continue to be a problem in the future. We need to look after the workers and people of New Zealand. Thank you.

I want to talk about the punters, the real punters—that is, the mums and dads who get a house built—

💬 Sue Moroney: What if they haven’t got children? You’re not worried about them; only mums and dads.

Oh, here we go. Goodness gracious me, would the woman just be quiet, for just once—for once in this House could she just be quiet and show the House a bit of respect. That is what we did for Mr Little, and Mr Little gave a good speech about workers, about workers’ rights. If I had closed my eyes, I would have thought I was back in the 1970s. But that is OK—but that is OK. He talked about the big corporations, and Julie Anne Genter, she talked about Mainzeal Property and Construction. Both of them sort of let out the obligatory dog-whistle politics of the left: “Blame it on Jenny Shipley. Blame it on National’s mates.” That is what they did. That is fine, that is their politics. People can buy into that if they want to.

But who talks on behalf of the person, the mum and dad, who actually has a building project, either a house or an extension to that house, and is in a bit of a dispute with the contractor? That is what this Construction Contracts Amendment Bill does. To the punter, what they want in the building industry is trust from their builder, whomever that builder may be. So this is what this bill does: it protects the punter and it also protects the builder. That is why I cannot wait for this bill to get to the Commerce Committee. I commend this bill to the House.

I take a call on behalf of New Zealand First on the Construction Contracts Amendment Bill. We will be supporting this through to the Commerce Committee. We do see merit in some aspects of the bill. However, we do have some reservations in others.

Certainly where the bill says that amendments will remove most of the distinctions between how the legislation applies to residential and to commercial construction contracts, it is, we believe, sensible. There are some grey areas between the residential and commercial construction sectors, and often there are loopholes there that could be closed up. The bill also widens the definition of “construction work” to include the design or engineering work and the quantity surveying work. Again, often there are those other contract elements of any construction project that perhaps are not necessarily deemed to be part of the project. However, they provide a vital component in a good outcome of the particular construction in question, and therefore we do believe that that has merit too, to include the design and quantity surveying.

It also mentions here that it would be “reducing the amount of time a defendant has to oppose an application to have a determination entered as a judgment:”. I guess in some respects we have some reservations about that—whether reducing from 15 days to 5 days is a good thing—because it does perhaps limit the opportunity to have a proper defence and proper legal advice on the matter, and to have the correct professionals able to have input into it. That will be something that I guess will be fleshed out at the select committee level, and we will have an opportunity to see whether reducing that to 5 days is a practical, workable solution.

The requirement for adjudicators to convene a pre-adjudication conference is a good thing in many of these areas. If it can be worked through in pre-adjudication meetings and conferences before it gets into the thick of legal wranglings, then that is very positive. Certainly, in many areas, and indeed with other Acts such as the Resource Management Act and other areas of the Local Government Act and various things, if there can be pre-adjudication conferences, often some of the problems can go away before it actually gets into the final negotiation.

In this respect we also would like to see something considered in all this, and perhaps we will be putting forward a Supplementary Order Paper in this regard at a later date. We believe that it is time that New Zealand had a proper construction bond system. Perhaps that would be one way of working through this. It does occur in many other jurisdictions around the world where there is a requirement for a performance bond.

In terms of that, a performance bond is a surety bond issued by either an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. Perhaps that would be a good way through so that you do not have the situation, as has occurred in the recent past, where people register a company as, say, Joe Bloggs 2010 Ltd, and as soon as the project is finished, Joe Bloggs 2010 Ltd is wound up and they move on to Joe Bloggs 2011 Ltd, and then nobody can actually find the original company in order to go after it. If there was a system that included performance bonds that are tied directly back to the directors and to those who have signed the bonds, there might be more certainty in the market and we would not have some of the cowboy activity that has been seen in years gone by. That particularly relates to many instances with leaky buildings and leaky homes, where now the last man standing often tends to be the local authority and council, simply because the original builders can no longer be found or are no longer in business under the particular name they had when they built the building.

I also note that in this Construction Contracts Amendment Bill clause 13 will insert a new section 31, which will also prohibit charging orders where a construction site is owned by a family trust and occupied by a beneficiary of the trust. That is an interesting one. I think in recent times it has been noted that the large mansion being built by the Hotchins on Paritai Drive in Auckland, I understand, is under some form of trust arrangement. Again, there have been great difficulties in terms of many of the contractors and others completing the work there and completing payment, because it has been done through other mechanisms and through other trust mechanisms, and now the trustees themselves are trying to get money out of the trust to the tune of very significant amounts and are hiding behind that particular guise. Therefore, if this bill does include making it more difficult for people to have some of these smoke-and-mirrors trusts to hide behind in terms of construction projects, then that would also be a good thing.

New Zealand First sees a great deal of merit in this bill. This tidies up aspects of the original 2002 Construction Contracts Act. It received quite a bit of input over the last year or so while the Government drew up this amendment bill. It has had significant input from all sorts of sources. There is some very good merit to many aspects of it. New Zealand First will support it through to the select committee stage, and we hope that as a result we will get some good legislation coming out of this.

It is highly appropriate that we are considering this bill, the Construction Contracts Amendment Bill, in light of how important the construction industry is to New Zealand. It is also very important when you consider the number of people who can be affected parties. We have had that canvassed this morning during the first reading speeches of other members, but, again, generally underpinning this whole process is the level of uncertainty that can exist around what is a suitable solution or a suitable setting for a resolution around an issue.

One is often touched, as a member of Parliament, by people who are affected in a negative way when somebody fails in a business sense, and we have heard Tau Henare talking before about the punter—“Joe Public”. Sure, you have subcontractors, and probably the most highly profiled side of things when it has been in the media is when a company fails and is unable to pay its subcontractors. But, again, we have all had related to us situations where a building firm has failed and then there has to be the process of having a new contractor come in to complete a job, and there is that level of uncertainty that surrounds the whole matter. So it is highly appropriate that this bill is here and that it is going to further clarify the distinction between the residential and the commercial construction contracts. These things have been barriers to speedy resolution and completion of situations. So it is a very, very broad subject, a very critical subject, and it is one that is close to the hearts of us all.

Likewise, the distinction between the two different kinds of disputes around payments, the rights and obligations, means that decisions on some disputes will take longer than decisions on others. However, the purpose of this particular bill is to improve what is there already. It is an amendment bill. We have a disputes resolution process, but it needs further clarification. The building industry is such a large part of this country’s economy, and it is just so crucial at this time that we have a very clear understanding of what everybody’s responsibilities are, and that the process is resourced well enough and given a successful framework so that people understand the situation clearly. This will only go towards improving the situation.

It gives me great pleasure to support this bill during the first reading, and it is good to see that across the House—

💬 Dr David Clark: What does it clarify?

—there is wide support for it, even from the member from Dunedin. You can hear him there just salivating over the qualities of this bill. Thank you very much. It is a pleasure to support this bill.

Well, “salivating” may be an exaggeration, I fear, from Colin King, the member opposite, but it is a pleasure to rise to speak to this bill, the Construction Contracts Amendment Bill, which is an attempt to accelerate the adjudication process. It falls woefully short of what is possible, and members opposite know that. They know that this is not a strong bill. We heard from the member Colin King that they need to get a grip on how to do this better, that it is an important issue, and so on. He did not say how they were going to do it, because that is lacking in this bill. It is not really there. He has got nothing much to talk about. I feel a bit sorry for him being asked to stand up and speak on this bill when it is a bill that does not really get to where we need to go.

New Zealanders are paying far too much for power at the moment—New Zealanders are paying far too much for power.

💬 Hon Tau Henare: So what’s that got to do with this bill?

This member may ask what that has got to do with this bill, and that is the right question to ask, Mr Henare. That is the right question to ask, because that is where I am going and that is what I want to talk about. This bill does nothing to correct that. In fact, it is going to make the problem worse—it is going to make the problem worse. John Key is on the side of the big energy companies, New Zealanders are paying too much for power, and what is this bill going to do?

I want to take you through a thought experiment. Imagine a construction project—let us say a major dam—for building more energy capacity for our country. What happens when we build a major dam? Of course, there is a principal contractor—

💬 Hon Tau Henare: Oh, I don’t know. Do you add water?

Mr Henare says we add water. Well, you know, that is an enlightened contribution. We might leave it at that for the moment, but we add water. We add water—we certainly do. But we have got a main contractor when we build a dam. We also have many, many, many subcontractors, who hire employees, and who set out to put their backs into a major construction project, believing that they are making a difference for New Zealand because we know that energy is essential to run so many businesses and that we cannot afford to have blackouts in this country. They are doing something because they think they are making a contribution.

The sad thing is that those energy companies are still going to charge too much, because the model is broken, because this Government has done nothing to correct for the rising power prices. When the rest of the world’s power prices have remained flat since the recession, they have been rising in New Zealand, rising faster than inflation for a very long time, and this Government is on the side of the energy companies. John Key says that we are paying what is appropriate for power. Well, no New Zealander thinks that is true. No New Zealander believes that. Power prices are rising too fast.

This bill attempts to speed up adjudication processes. So let us say that there is a dispute while the Government is building another power plant to charge New Zealanders too much for power, because that is what it likes to do. By the way, I should mention that the Labour Party has an excellent solution to this rising power price problem, called NZ Power. I would encourage members opposite, and also any members of the public at home watching, to look up the Labour Party website, search for NZ Power, and see just how their power bills will come down—by between $230 and $330 per family, per year—under a Labour Party policy. We care that New Zealanders are paying too much for power. We care that New Zealanders are paying too much for power, unlike them opposite.

So let us go through this thought experiment. Come back to the building of this construction project, which is a dam, as it happens—Mr Assistant Speaker, you are reminding me to come back to that point, and I will. What happens when there is a dispute? Well, currently—there is silence opposite. Many of the members opposite do not understand what would happen.

💬 Hon Member: They’re wondering what would happen.

They are wondering what would happen. They know that the power prices will go up; they are embarrassed about it. But what actually happens is that there is an adjudication if there is a dispute, and, currently, the small players—the subcontractors—end up settling because they cannot afford to be without cash. This is a very real problem in our economy. The little guy always gets squeezed. We have seen it with Mainzeal Property and Construction, and several speakers referred to Mainzeal before. This bill is an attempt to address a serious problem, and that is why the Labour Party will be supporting its referral to a select committee.

The adjudication of disputes is the material covered in clause 11 onwards in Part 2 of the bill. It lays out the compliance with the Act. It lays out the appointment of an adjudicator, how a pre-adjudication conference would work, how the response to the adjudication claim would work, and how the special provisions for adjudication—if approved—for charging for an order sought by a claimant would all work. You know, there are serious matters dealt with in this bill under these clauses, but it will not work. That is the point. That is what is wrong with this legislation. It needs some serious work. That is why we are sending it to a select committee, so that it can have the serious work it needs to actually make a difference.

We have proposed a solution to these issues. Labour is consulting on two options. Clayton Cosgrove has done some very good work on this—my colleague the Hon Clayton Cosgrove. One is contractors’ liens and the other is the statutory construction trusts proposal. We are taking these options out to the industry for assessment and comment. We, as Labour Party people, can see that the solutions—so-called—proposed by this Government are not going to work, so we are developing a response from the Opposition.

We are trying to help those guys opposite out. They cannot seem to find a way through. Maybe they do not want to. Maybe they are actually incredibly happy with the rising power prices and with the inefficient system for solving disputes, because they are not on the side of the little guy. They do not care if the little guy gets beaten up in the disputes. Maybe that is what really sits under it all. Those members are quite happy with the situation where the little guy gets squashed and the big company powers through—excuse the terrible pun—because they want to see the big guys get ahead. We have seen that with the way they have done their tax policy, where all of the value of the 2010 tax cuts went to the top earners, and very little went to those at the bottom—40 percent went to the top 10 percent of earners in those 2010 tax cuts, and just 2 percent of the value of them went to the bottom 20 percent of earners in New Zealand.

But this bill provides an opportunity for Labour to highlight that we are already taking steps to ensure that subcontractors are protected and paid for the work they have done, in the event of a construction company collapse. We have seen it with Mainzeal. It is the subcontractors who are hit the hardest when a construction company fails. Subcontractors are nearly always the last in the queue. They are the last in the creditor queue, and they often miss out on the money they are owed. So this process, where they are trying to reach an agreement so that they get some of the cash as quickly as they can, and they settle because they cannot do the court costs—all of those things—really does not solve the problem. This is a halfway measure. It is a halfway, kind of typical National Party solution. Those members want to be seen to be doing something. They want to be seen to be doing something in this area because the public recognises it is a problem. It is typical, timid National Party policy.

We can look at the Labour solutions. The NZ Power one I have already talked about—the way in which the rising power prices will be tackled by Labour. Again, you see the same thing in the housing affordability area. You hear Nick Smith talking about a big gain, but only Labour has a plan to build 10,000 houses a year to address this housing problem.

💬 Hon Tau Henare: I thought it was 100,000.

Yes, it is. Mr Henare says that he thought it was 100,000. It is 100,000 over 10 years, Mr Henare. It is an excellent policy, and I hope he will consider crossing the floor to support it, because I know that deep down he is concerned about housing in New Zealand. He is concerned about it. There are members opposite, earnest backbenchers, hard-working backbenchers, who are embarrassed to support these halfway measures because they realise that this is about an issue of fairness. It is about fairness for the little guy, making sure those subcontractors are not the last ones in the queue and are not the ones who are missing out.

The thing I would say to them—those ones who share that concern—is that it is a real concern to share. But there are ways of doing something about it. There are ways of doing something about it, as the Labour Party has demonstrated—the contractors’ liens and the statutory construction trusts. We are going around the country, talking with the industries, actually engaging with them, and asking: “What would work for you? How do we make sure that the little guy is looked after? How do we make sure that you get the money that’s owed to you and you’re not done over by the major contractor who secures the big end of the deal?”—the ones who are making all the money, the ones who are charging the high power prices that Mr Key thinks are just fine for New Zealanders.

We are on the side of those small businesses that are trying to grow, because they are the heart and soul of our economy, those small businesses. They are ordinary New Zealanders, working hard every day because they think it is the right thing to do and because they want to improve our economy. But this Government will not even address the fundamentals. It will not put pro-growth tax reforms through. It will not look at having a universal KiwiSaver. It will not address monetary policy. Everything is stacked against small business—those exporters who want to help address the balance of trade deficit that New Zealand suffers under. It is the worst current account deficit in the developed world. It is worse than that of Greece now, and it is projected to be worse than Greece for a long time to come.

These things all hurt small businesses, because the cost of borrowing goes up. Then we have this halfway measure of legislation put forward by this Government, which will not speed up adjudication processes in any kind of meaningful way. What we see is people wanting to be seen to be doing something but not actually doing anything. They do not want to do anything, and that is the problem with this Government. It is not prepared to tackle the big issues. It is not prepared to tackle power prices, which are crippling businesses. It is not prepared to tackle housing affordability. And here it is not prepared to attack the issue of proper adjudication processes.

💬 Dr Cam Calder: What a pleasure it is to rise—

The ASSISTANT SPEAKER (H V Ross Robertson): Hang on. I have not called the member yet. The member must wait to be called, but the member can stand and seek the call.

💬 Dr Cam Calder: Mr Assistant Speaker.

The ASSISTANT SPEAKER (H V Ross Robertson): I call the honourable member Cam Calder.

What an absolute pleasure to rise and take a brief call, after Dr David Clark’s at times electrifying address—not often. It was more low voltage and low energy. He tried to cast a light on, of all things, electricity energy. In fact, his speech reminded me of a moth circling around an electric light bulb, as it weaves its way around, trying to find a purpose. But the purpose of this debate, in fact, is the Construction Contracts Amendment Bill.

The previous speaker said: “What does it do?”. Well, it amends the Construction Contracts Act of 2002 to clarify the jurisdiction of the Act and streamline the disputes process. This is it, in a nutshell. It is a matter of amending the Act to remove the distinction between how the Act applies to residential and commercial construction contracts. The Act is currently unclear about the jurisdiction to deal with disputes under residential construction contracts. So we are trying to clarify that, and this bill will do that. It will remove the distinction between the two different types of decisions that can be adjudicated under the Act. Currently, decisions on payment disputes can be more easily enforced than decisions on disputes about rights and obligations.

We are going to expand the scope of the Act to include construction-related services, and these include design, engineering, and quantity surveying. There are three main areas of clarity that will be provided by this bill. I commend it to the House.

I rise to take a call—

The ASSISTANT SPEAKER (H V Ross Robertson): It is a split call. I am sorry to interrupt the member. It is actually a split call.

No, it is not a split call.

The ASSISTANT SPEAKER (H V Ross Robertson): It is not a split call. Thank you.

I am pleased to take a call on the Construction Contracts Amendment Bill. As my colleagues have said, we will be supporting this bill and voting for this bill to go to the Commerce Committee. However, I also agree with my colleagues when they say that this is a weak bill. It does very little. But we think that during the select committee process there will be an opportunity to canvass a range of issues in the construction industry, because, frankly, the construction industry is in a bit of a mess. It is in a bit of a mess and we see that no more clearly than we do in Christchurch at the moment, where the failure of this Government over several years to train skilled workers, to provide for trade training, is coming to a head in Christchurch, where we are going to need something like up to 18,000 workers in the next few years. We are going to be relying on bringing in skilled migrants from overseas, and that has already begun.

I think that what we will hear in the select committee process are the many disputes that are coming out of the Christchurch construction process. We are already hearing some of the stories where large companies are employing contractors, subcontractors, and sub-subcontractors, and about abuses of migrant workers, where they are being put into accommodation where 12 of them are supposed to live in four rooms and there is no attention to their rights, as far as I can see. As far as I can tell, the Ministry of Business, Innovation and Employment has not put any extra resources into the enforcement of workers’ rights around the construction projects in Canterbury. It is not just workers who are employed in employment relations; it is workers who are employed as contractors. We all know that there is a huge problem there that needs a lot more work. Labour is committed to doing a lot more work around the small guy—whom Tau Henare says he is standing up for—to make sure that they actually have some protection, because, quite frankly, at the moment they have very little.

When a company like Mainzeal Property and Construction fails, it is, as David Clark said, the little guy at the bottom of the chain who ends up getting nothing. Let us remember what it is like to be a sub-subcontractor. You are not an employee. You do not have rights to holidays or sick leave. If a family member is sick, well, you just have to take a day off and go without pay. You do not have the rights that other employees do. At the bottom of the construction chain we are talking about some very vulnerable workers. I think those issues need to come to the fore as well in this select committee process.

The other disgrace going on in the construction industry is health and safety. Look, I give credit to the Government for its Independent Taskforce on Workplace Health and Safety, but we do know that one of the high-risk industries is the construction industry. Why is that? It is because of the deregulation that has gone on over the last 20 years. In fact, the taskforce pinpointed the deregulation of the labour market that happened in the 1990s as the beginning of the problem that we have with health and safety. Construction workers get killed. They get injured. They get killed and injured in numbers that happen only in other high-risk industries like forestry. The Government is saying that it has a code around that and that it is going to work. Well, the truth is that we are going to have to do an awful lot more in construction. It goes to the heart of the little guy and the relationships they have, the pressure on them to earn a living, and the pressure on them to work when, perhaps, they should not, and to take risks. That is the heart of the problem in the construction industry as well as in other industries like forestry.

The other thing about contracting, of course, is that it is full of rorts. It is full of rorts. It is good that this bill is going forward and that there will be some mild—very mild—amendments to provide for dispute resolution, but, as we have seen with Mainzeal Property and Construction, there needs to be a lot more done as well. It is not only just what happens to the sub-subcontractors and their rights and what happens in health and safety; it is also how they are protected. It is the subcontractors and the ones at the lowest level who are hit the hardest when a construction company fails. They are always last in the creditor queue. They often miss out on money they are owed. If you take that in conjunction with the fact that they do not get holiday pay, they do not get sick leave, and they have no savings, mostly, because they are working from job to job, often on jobs that go for a couple of weeks or that might go for a month, and then their company goes bust and they end up with nothing—

💬 Hon Christopher Finlayson: You’re off on a tangent again. Concentrate.

Chris Finlayson will not know anything about that, because he has never been near a construction site. He would not have—

💬 Hon Christopher Finlayson: I was the Acting Minister of Labour and did a great job.

I beg your pardon?

💬 Hon Christopher Finlayson: I was the Acting Minister of Labour and started the report.

Oh, you were Minister of Labour for about 2 weeks, and what did that Minister do? He defended health and safety in the forestry industry and a code of practice that is hopeless—that is hopeless, absolutely hopeless. But as I was saying, the subcontractors are almost always last in the creditor queue. They miss out on money. When you put that together with the fact that they have so few rights, they are trying to run their business, they do not even get a holiday, and they do not even get holiday pay or sick pay or any of the other things that employees get, it is not fair. It is not fair, and that is why Labour has been doing something about it by talking to the industry to look at some sensible, cost-effective options that offer a fair deal without loading cost on to the sector.

As we heard, a lot of people were dismissive of the fact that the Hon Clayton Cosgrove has been going around the country, but may I tell the House that he has had an excellent reception, as have all of us in Labour who have reached out to contractors, who have actually met with them and spoken with them, had meetings, had breakfast meetings, and talked about the issues. There has been a very good reception. It has been interesting because they have said to us: “Well, at least someone is listening.” At least someone is listening, because that Government is not listening to the issues that are going on in the construction industry and the issues that are going on for contractors. So we have done a whole lot of visits around that, and we have looked at some proposals: one is contractors’ liens, and the other one is statutory construction trusts. We are taking those options to the industry for assessment and comment.

We are being constructive about this. We are being constructive in that we are supporting this bill to go to the select committee, but there are many issues that need to be canvassed, apart from the very narrow purpose of this bill. There are very many issues that need to be canvassed. One of the other ones that I think may come through—and I have talked about the immigration issues in Christchurch—will be other immigration issues that come through as well. Once again, I was pleased last week that Simon Bridges took the credit for the fact that we are seeing more abuses of migrant workers being dealt with, but I have had construction workers come to see me. They have talked to me about the fact that they have been lured to New Zealand and they are stuck. They are stuck on a work permit that is tied to a job. They are being exploited. They are not even getting their entitlements—they are not even getting their entitlements. So I think those issues will come through too. Yes, let us hear about the issues in the bill, but let us also talk about what is really going on in the construction industry. Let us talk about what it is really like for contractors and get some more protections for them. Let us talk about health and safety. Let us do something real for a change.

I am pleased to take the final call from this side of the House on the Construction Contracts Amendment Bill. One of the things that is really rewarding as a member of Parliament is being able to deal with constituents who have problems, which you are able to then see eventually in a piece of legislation. So if that is not listening to what the public are concerned about, I am not sure what is. The important thing, if we look ahead with our two largest cities, Auckland and Christchurch, is that construction will be the significant boom there for many years to come. What we want to make sure is that those who are in the construction sector can focus on building and focus on getting the job done, and not have days and weeks and months tied up in disputes.

This nice, tidy piece of legislation just basically clarifies how that dispute resolution process works and speeds up the enforcement. We know that, for small businesses, cash is really important to them, so if there is a dispute, they want to make sure that any enforcements and any payments associated with that are received quickly and promptly. All of those things enable those working in the construction sector to get back on to the job. So this is just another example of a significant piece of work that this side of the House is doing to improve the building industry and the construction industry, and to make sure that businesses are efficient, are effective, and are getting on with the job. Thank you.