Construction Contracts Amendment Bill

It is with great pleasure that I rise to speak on Part 2 in the Committee stage of the Construction Contracts Amendment Bill. It has been quite a long time since we considered this in the Commerce Committee. In fact, it has been about 2 years, and it has been even longer since some of the changes in this bill were first considered.

The Government initially asked for a Building Act review in 2009. Subsequent to that, in 2010, there was a review of the Construction Contracts Act itself, and in that review two of the recommendations that originally were not put forward were specifically around the use of retentions and security of payment for subcontractors. Unfortunately, when the National Government initially introduced the bill it did not deal with the issue of retentions, and so 2 years ago in the select committee deliberation—which was, of course, in 2013, and not long after the issue with Mainzeal Property and Construction, which collapsed in February 2013—the issue of retentions became one of the biggest issues for submitters that we heard about during the select committee process.

Just for those who might be watching at home tonight, I will get to the issue of retentions, or an explanation of them. Retentions are a portion of the contract price that are withheld by the principal or head contractor and not paid until after the construction work is checked and found to be free of defects. What was happening was that we had principal contractors who were receiving payment from the client and they were withholding a portion of the payment that technically would belong to subcontractors who were meant to undertake the work, until they were certain that that work was completed and free from defect, except instead of holding on to that money, the principal contractors—many of them, some of them—were using it as cash flow on some of their other projects. Even though the money technically should have belonged to the subcontractors who had been engaged to do the work, who oftentimes had done the work already, they were not being paid.

We heard that there were significant problems with the late payment of retentions and the money being held back, and in cases where the principal contractor became insolvent—which happened, of course, to Mainzeal Property and Construction in February 2013—then the subcontractors missed out on payment for work that they had already undertaken. Although we were not meant to consider the issue of retentions because the Government had deemed that it was not going to deal with it in the Construction Contracts Amendment Bill as it came to the select committee in 2013, we heard from 14 submitters, and almost half of the submitters talked about how important it was to deal with this issue of retentions as soon as possible. It was unjust for the subcontractors that money that technically belonged to them was being used by principal contractors for cash flow and for other purposes, and then it was not always there as it should be, or at times it was being paid late.

Although we heard about this during the whole select committee process and the officials told us that they were considering options, initially when the bill came to the second reading there were no changes introduced and there was no intention from the National Government to introduce the changes to deal with retentions. So, obviously, the Labour Party came up with a solution and put forward Supplementary Order Paper 439. I put forward Supplementary Order Paper 446 myself. Mine was a little bit simpler than the one that the Labour Party proposed. I have it here. We will still be voting on it tonight. My Supplementary Order Paper 446 was designed in conjunction with people in the industry who were extremely concerned about this issue and the lack of action on the part of the National Government Minister at the time, Maurice Williamson.

The way that Supplementary Order Paper 446 works is quite simple. It simply deems that retentions must be held in trust. So the principal contractor has to be holding the money in an account somewhere. They do not have to set up a new or separate account for this; it just needs to be an account and deemed to be held in trust until such time that it is paid to the subcontractor. It is an elegant solution, and I am very, very pleased to see that the Government has, in fact, picked up something very similar to this Supplementary Order Paper 446 on its own Supplementary Order Paper 106, which is obviously somewhat more complex. It has worked through it with officials. I assume that it is for that reason that it has taken so long for this bill to come back to the House for its Committee stage—because the Government actually has listened to the industry and has succumbed to pressure and is going to do right by the subcontractors and ensure that their property, their earnings, are protected from this sort of abuse that was quite rampant in the building sector.

I congratulate the Minister in the chair tonight, Nick Smith, because I do think that he must have played a critical role in actually including the retentions issue in this legislation, because it did not seem that former Minister Maurice Williamson was intending to do so, and it was only after the change in portfolios that this change came forward. So we are very, very pleased tonight to be supporting the bill and supporting the Government’s proposed amendment, although we have not had the time to scrutinise it in the select committee. Looking at the Government’s amendment on Supplementary Order Paper 106, it outlines all the different changes, and new Subpart 2A is about retention money.

The one question that I would ask the Minister to address is that although we have got the use of retention money in new section 18E, in proposed clause 8BC, which says “Party A must not appropriate any retention money to a use other than to remedy defects in the performance of party B’s obligations under the contract.” and that sounds very good, I am slightly concerned about new section 18F, which says that “Retention money may be invested by party A”—the head contractor—“in accordance with the Trustee Act 1956 …”. So it looks like the Government has accepted that the principal contractor does need to legally be held to account and hold the money aside in trust so that it is safe, but it looks like the main contractor is still free to invest the retention money in accordance with the Trustee Act 1956, and if they make a profit on that money, they get to keep the profit. They do have to pay interest on a late payment. I think that sounds good.

So, all in all, I would say that this has been a win for democracy because the bill that came before the select committee was not addressing significant issues that had been identified in the review. Because of the circumstances of the Mainzeal meltdown and the reverberations that it sent throughout the building sector, we did hear from a number of submitters in the select committee process about the retentions issue. I believe that Opposition parties like Labour and the Greens were instrumental in putting pressure on the National Government to actually take action when it was failing to do so by putting forward our own options, by asking questions of the Minister in the House, and by demonstrating to the construction sector that we took its concerns very seriously and we were willing to stand up for its rights.

We are very, very pleased to see from the changes tonight that, actually, our democratic process can work. This bill can be improved, even if it takes 2 years to deal with a substantial issue that is affecting people’s lives and that is affecting the subcontractors who are out there doing the dirty work out on a building site, by ensuring that they are not going to lose their money because the principal contractors have been misusing it. I invite the Minister to address my questions about section 18F—whether that is standard, and whether there are any concerns about what might happen if retention money is invested and, in fact, lost and it turns out that the principal contractor no longer has the money to pay back the subcontractor. Because that is really the issue here, right? It is that when the principal contractors lose money and go into receivership or insolvency, then the subbies who are out there doing the real hard work—not getting paid an enormous amount for it and taking a huge amount of risk for themselves—miss out. Thank you.

Because Supplementary Order Paper 106 deals with this issue of retentions, which was not in the Construction Contracts Amendment Bill that went off to the select committee, it is reasonable to take just a moment of the Committee’s time both to explain the history of these new provisions and to answer some of the questions that members have raised.

I think it is important, firstly, to put on the record that the genesis of the problems that have occurred in ill-disciplined construction contracts actually goes back to significant changes that were made in 1988 by the Labour Government in repealing, as one member mentioned, the Wages Protection and Contractors’ Liens Act. The liens legislation was a very powerful tool by which a subcontractor or contractor on a building site could register a liens against the title and so protect the considerable investment that that builder or subbie may have had in a particular building project. After the liens legislation was repealed at the height of Rogernomics, an increasing number of incidents occurred in the construction industry that I think made New Zealand and Parliament feel uncomfortable. I actually introduced a member’s bill in Opposition in 2001 to try to get action in this space—the Construction Contracts Act. I commend the work at the time that was done by Laila Harré in bringing that legislation to the fore.

Today we are dealing with this quite specific issue of how retentions can be dealt with fairly. I think David Cunliffe put his finger on the pulse accurately in that this is an issue about where the risk is carried. There are no free lunches here. No matter where Parliament chooses to impose the risk, there is a cost. The true question for Parliament is to try to ensure that our commercial law around construction ensures that the risk rests with the party that is best able to manage that risk. That, in my view, is where the public interest in what this Parliament does should be focused.

I do agree with those members who have said that in the current environment, where a main contractor is often in the position to have the most information about the bankability of the client—whether he is going to pay his bills or such things—the main contractor is not necessarily the party that carries the risk. We have seen a number of high-profile failures where good, hard-working small New Zealand businesses have lost out.

What we have attempted to do in Supplementary Order Paper 106 is to provide a practical regime that will address that issue, but we are also being cautious about not either wasting money or introducing compliance costs that overegg the problem and end up adding more cost than we save. So let me go through, firstly, the questions that Julie Anne Genter asked, which actually relate to one of the most beneficial elements of the changes in these retention provisions, and it is this. At the moment, if a large construction company goes broke and there are retentions owing, the subcontractors are unsecured creditors and they are at the back of the queue. The key change that is made in this bill is that those funds are deemed to be held in trust, and that means that those funds are, firstly, paid out of the circumstance—and I will take the high-profile example of Mainzeal, where there was about $20 million worth of retentions. All of those subbies would have got paid ahead of either the secured creditors like the banks or ahead of things such as the taxes, the wages, and the other things that normally occur when there is a liquidation of a company. So that is a big gain.

The second provision, then, is how we ensure that these moneys are, firstly, transparently reported, and also that there is not a waste of money. So what we have done with these provisions, starting with section 18A, is set out those trust obligations that rest with the party holding the retentions. We have set out that there will be a default rate of interest set by regulation in the event that they are not paid on time, and we have set out when that trust obligation concludes either they are either paid out to the subbie, the substandard work is fixed, or there is some other legal means. These provisions also enable the party that holds those trust funds to not just have the moneys sitting loose, and to not have to have a separate lawyer’s bank account. It is true that in some jurisdictions they require that. In my view, that would be overstretched. That would make the compliance costs excessive.

We also need to be honest about what these provisions will do in terms of the bankability of development in construction projects. There is no free lunch in terms of improving the security of the payments for the subcontractors. It does mean that there are projects that may have gone ahead and would have been bankable that now will not be, because the trust imposed by this law means that there will be banks and other parties that are more cautious about a particular construction project proceeding. It is also true that it significantly changes the cash-flow position for a number of projects, and that is why the provisions in the Supplementary Order Paper give a reasonable time of transition over to these new arrangements for the construction industry.

The last point I would make is that I have had contact from a number of people in the construction industry who would prefer to have alternative arrangements that are common in the United States—bond arrangements, and those sorts of things. I want to emphasise that no matter what we have in our construction law, this is in the area of contract, and if people want to enter into arrangements for performance bonds, they are free to do so. Equally so, no amount of good construction law will ever save somebody from contracting with parties that are not bankable, and parties entering into construction contracts do still need to show caution about who they are doing business with, to ensure that they are bankable, and to show the normal due diligence, because this Parliament would be misleading subbies if it said that any law is going to provide them with absolute protection of payment.

In my view, these are pragmatic provisions. I do note that some members have claimed that their Supplementary Order Papers were tabled first, prior to the Government’s, and I would simply point out, actually, that the Government noted last July, in fact, that we intended to make these changes and to provide for increased protection for these retention payments because we do believe that it will provide for a more disciplined and sensible way in which retentions are managed in the construction industry.

I thank the Minister in the chair, the Minister for Building and Housing, for his contribution, for his substantive comments on Part 2 of the bill, and for the explanations that he has given. I would like to make a few points. I preface the points by saying that, in the main, Labour finds itself in the position of agreeing with the Minister on many of the points that he has made tonight.

But the main point I want to make, and I think that my colleague Julie Anne Genter has made this point as well, is that it is better late than never in coming to the party on these substantive changes to this piece of legislation. Can I say that Part 2 looks completely different from the bill that went through the Commerce Committee. Although it is better late than never, these substantive changes around the retentions part of this bill, which the Opposition parties argued very strongly for during the select committee hearing—they were argued for by many of the submitters. There were arguments with officials. There were pleas. There were letters written to the Minister. And there was no response—no response at all.

I would like to acknowledge that it was not the Minister sitting in the chair tonight, but it was Maurice Williamson who happened to be the Minister at that time. There were sensible, pragmatic, reasoned arguments following the collapse of Mainzeal, which was the major company that collapsed and that was on everybody’s mind when this bill was before the select committee. There were compelling reasons to consider making changes to the retentions, where subcontractors would end up being paid and not being left floundering, with some of them ending up going out of business—but, no, there were none.

So what we have now is a substantive part of this bill that has been added in after the select committee process, with no ability for there to be discussion with those submitters or to seek more submissions from the industry and from other independent interested parties about how well this will work. We have had no ability to do that, and we are having this debate in the Committee of the whole House stage tonight, which is just not acceptable for how the legislative process should occur. I cannot hold the current Minister in the chair to account. He has actually done the work of bringing some substantive changes to the Committee tonight. But the problem is that it has not been tested, so all we have is the Minister’s word that he has done the consultation. In fact, during his contribution we did not hear what consultation there had been and where these changes came from and what lies behind them. If the Minister does address this part of the bill tonight again, it would be useful for the Committee to hear what input there has been and what assurances he has that this is the best way forward and that there are not others.

I would like to refer to my colleague Clayton Cosgrove’s quite comprehensive Supplementary Order Paper 439, which was put forward quite some time ago to try to address this after we came out of that select committee process without the retention process. That Supplementary Order Paper called for the retention money for commercial and industrial developments to be held in trust for the subcontractors entitled to the money, which is where the Minister has gone, but also it added another clause that required the head contractor, who holds the retention money, to pay the money into an independent trust account, which was the retention money trust account established and operated in accordance with the regulations.

I suppose, given the fact that we are unable to have a discussion with officials as to how that money gets paid out, what the assurances are that there will be adequate transparency and good process around that and accountability back to the industry and to Parliament, and given that we are passing this legislation, that those are the things that we want to know more about tonight. I hope that there is the opportunity for there to be some more information provided to this Committee tonight as to what process the Minister has gone through to come to the conclusions that he has, to put in these quite substantive provisions in new Subpart 2A in proposed clause 8BC in Part 2, new section 18A right through to section 18I, which make those changes.

I do want to take us back to the reason for the main debate in this Committee tonight on this bill, and it was the collapses of companies—the collapses that shocked the nation, and the severity of them. Of course, Mainzeal Property and Construction has been held up. In 2013 it affected 486 workers, and was a severe shock to the construction industry that sent those shock waves right through all those subcontracting parts of the industry. But, more than that, it was preceded by Alliance Construction in Auckland in 2012, Gremara in the Waikato, the Pothole People in Christchurch, Canbuild Construction Ltd, Tectonic Construction in Christchurch, Abode Design and Build in New Plymouth, and, in 2015, Phil Rouse Ltd in Tokoroa—so it is still happening, and the need for these clauses, for this legislation to be passed, is critical so that there is that ability to protect that subcontracting part of the industry. There are also Williams and Co. in Christchurch, Strongline Buildings Ltd, and NZ Premium Construction, also in Christchurch.

This issue has been around for a long time. This legislation has taken such a long time to get to get this point, and yet, despite the calls from submitters, despite the calls from the Opposition, despite a strong Supplementary Order Paper from my colleague Clayton Cosgrove and another one from the Greens’ Julie Anne Genter, and despite the knowledge that there were some simple solutions that could be put forward, it took this Government 2 years to actually get to that point. Yes, it was signalled. It was signalled just before the election, actually, and I wonder why—because all of a sudden the Government woke up and realised that it should really be paying attention to this. It had gone to sleep in the select committee, but it woke up and decided that it needed to do something about it, but it has taken this long to actually get these clauses back to the Committee stage with an explanation of how this retention scheme will work to protect those subcontractors.

Unfortunately, there has not been the ability for there to be independent input into that process. So I am asking for the Minister tonight to give us some indication of what process he has gone through to assure himself and this Committee that this is rigorous and that these clauses will stand up and will be able to be enacted in a way that will provide that protection to subcontractors in the building industry.

I am pleased to rise on behalf of New Zealand First and take this call on the Construction Contracts Amendment Bill. I have trawled through Hansard and I have read the Supplementary Order Papers. This was in order for me to completely understand that the intentions of the bill are clear, what it is hoping to achieve, and also what effect the Supplementary Order Papers may have in improving this bill. I found the commentary from the Commerce Committee very informative—in particular, the commentary regarding retentions; and this has been a real concern. I would like to quote the commentary: “We were concerned to hear that many head contractors may be misusing retentions as working capital, delaying payment, or holding retention amounts disproportionate to the contract prices. This behaviour undermines the sector’s growth and productivity. While it is outside the scope of this bill we are encouraged to hear the Ministry of Business, Innovation and Employment is giving priority to addressing these issues. We urge the ministry to continue to work with industry players and look forward to policy solutions in legislation in early 2014.”

Then I read the debate pack provided by the Parliamentary Library, and in the legal commentary—which, again, I will quote—it says: “It is long-established practice in New Zealand and internationally for retentions to be held under construction contracts to ensure that, if there are defective works, the head contractor or principal is able to recover the cost of fixing these defects. In the wake of the Mainzeal collapse, where subcontractor’s retentions were unsecured debts in Mainzeal’s liquidation, amendments were seen as necessary to protect payment of retentions to subcontractors and head contractors.”

What these two commentaries tell me is that the biggest losers here were, in fact, the subbies—the plasterers, the painters, the bricklayers, the drainlayers, the plumbers, and the electricians. Where has their protection been these past 2 years? It is the subbies who have been shafted and left out of pocket, all because developers and contractors withheld the retention money and moved it to other projects. This placed even further risk on that money, because they actually turned round and used it as working capital. As I mentioned earlier, the millions of dollars lost in the collapse of Mainzeal and the subcontractors having no legal protection whatsoever was of real concern. We have seen with the Canterbury rebuild that homeowners have had two options available to them: one, to go through the Earthquake Commission and use the Government contractors, or, two, to opt out, do their own research, and select a private contractor or company.

Another issue that this bill does not address is the substandard work that has been carried out that has, in fact, left some homeowners unable to seek a remedy from the contractors or companies, because they have disappeared. They have been struck off the New Zealand Companies Register, but then the next day, like a pop-up shop, they come along as a new company, with a new name, and open for business, subjecting more homeowners to be left with no apparent way to take possible legal action, because not only the contractors but also the companies have avoided responsibility.

This bill has taken 2 years since its first reading in June 2013 to get to the Committee stage. My question to the Minister is: why has it taken so long? Everyone knows that for small to medium sized businesses, time is money—time is money. Perhaps spending more time on a real issue, such as this bill, and not changing our flag would have—

The CHAIRPERSON (Lindsay Tisch): Order! That is not part of the bill.

Sorry, Mr Chair. I am pleased to see that the Minister has sought further advice and has listened to the concerns raised earlier this year by members of the House. New Zealand First is pleased with Supplementary Order Paper 106, introduced to amend the Construction Contracts Amendment Bill. It replaces Supplementary Order Paper 52. This will make provisions in the Construction Contracts Act 2002, the principal Act, for retentions—that is, money withheld by one party to a construction contract from money payable to another party to the contract as security for the performance of obligations under the contract. New Zealand First supports this bill.

In my last contribution I strayed into Part 2 of the bill, and you, Mr Chair, quite rightly turned me back to Part 1. I am now going to address, on a clause by clause basis, several of the issues in Part 2, but recalling first the purpose of the bill, which is, of course, to solve two problems: to make access to justice more evenly and readily available across the industry, and, secondly, to avoid a cascade of risk down on to subbies, which the Minister has very aptly described as a problem that has been rife in this industry for too long.

What is really interesting, when you go through the clause by clause analysis and the amendments that the Commerce Committee has very thoroughly addressed its mind to—and I will say it again. This is one of those bills where the hard slog has gone on in the back room, and the public do not see, I do not think, the amount of cooperation that has occurred between the parties to get to where we have got to today. But it is intriguing, the level of prescription that is now contained in the drafting, which the committee, if anything, has added to on the basis of submissions, and fair enough. This is clearly against the background of an industry where end runs occur, shady things happen, people get cheated, and bad practice does occur. So the law has to be robust and provide remedies for that.

One matter that the committee turned its mind to was the issue of so-called ambush claims—a claim is very quickly brought and the defendant does not have sufficient time to prepare a defence. So in new clause 13A the committee has recommended that the time frame for selecting an adjudicator be shifted—there is actually a typo in the committee’s report; the commentary—from 2 to 5 working days after the notice of adjudication has been served.

💬 Clare Curran: Well spotted.

Thank you. Likewise, in new clause 14A the committee has recommended adding a new clause to require the information in a notice of acceptance to be prescribed by regulation. As I say, fair enough. The Minister of the day, whoever that is, should have the power to be very explicit about what information needs to be provided, because by definition this law has to be robust to a conflict situation where the parties do not agree. If they cannot agree, and they cannot even agree on what information they are entitled to have access to and needs to be provided to the adjudicator, they will not be able to solve the problem. The adjudicator then cannot do his or her job. So we support the addition of that power. There are a number of sub-points under new clause 14A, but I do not think we need to trouble the Committee with the sub-points.

Let me flick back quickly to the start of Part 2, new clauses 8A, 8B, and 8C. It is quite interesting because the committee has both narrowed and widened the scope of the bill. It has narrowed the scope by excluding second-hand assets in property management contracts under certain circumstances, but it has widened it, in respect of the claimed amounts, to include liquidated damages, breaches of implied warranties, and construction work already carried out. The committee has made it a little more flexible by allowing the parties to agree on single payments as well as part payments. The committee has then tightened new clause 9A to replace the word “indicate” with the word “state” in sections 20(2)(d) and 21(2)(c), thus requiring the amount of the claim to be specified exactly. The combined effect of those clauses is, as I commented in relation to the regulation-making power, to accept the fact that this is a conflict situation by definition, to ensure that the law is clear about its boundaries and scope, and, within that scope, to drive quite definitely and clearly to a solution, which is what it is seeking to do with those amendments.

Clause 15 had proposed mandatory pre-adjudication conferences. The rationale was to require the parties to go through a low-cost, low-legality step in the process, and escalate gradually. The committee reached the view, after hearing submissions, that that was likely, in fact, to add time, cost, and delay because it was a requirement, not an option. So the committee has removed that requirement by amending the clause that had required pre-adjudication conferences—clause 15.

In clause 16 the committee has recommended inserting a new subclause (2) that requires an adjudicator to allow a respondent additional time if the adjudicator believes the claim has been served with undue haste and the respondent has had insufficient time to prepare a response. That is a further measure against ambush claims, and we think it is a reasonable step to take. The right of reply is strengthened in new clause 16A, which is amended by the select committee. It allows claimants a right of reply in response to an adjudication response. Adjudicators are free to ignore those replies, but they may raise new issues and material, and it would be proper, then, for the adjudicator to address those matters.

Coming towards the end of Part 2, in clause 18 there is an amendment recommended to require an adjudicator’s determination to be dated. It is a small thing in itself, but I think it is another example of the Commerce Committee’s focus on bombproofing these rules so that people cannot do an end run around them. It is a shame when that has to be written into the law, but we accept that that is the world we are in with a conflict situation that has led to these types of claims, and it is an industry where those issues are, shall we say, not unknown.

There is an amendment to clause 28(3) to remove the distinction between payment and other types of determinations—that is, to ensure that an adjudicator’s determination is enforceable, whether that is payment related or not. That has got to be a good thing. Finally, the defendant may oppose entry as a judgment. That is to preserve the defendant’s right in relation to any subsequent District Court action, and we think that is reasonable.

Summing up, it is clear that the select committee has turned its mind, in some detail, to the drafting of this part, and thank you, Mr Chairperson, for allowing me the time to mention most but not all of the select committee’s amendments on a clause by clause basis. The select committee has also worked hard, and the Government has worked with it, to look at issues such as a trust or contract payments that get around the problem of the risk passing to subcontractors. We are supporting this bill because we think that with the Supplementary Order Papers on board, we have got to a reasonable place.

It will be instructive to see, once this bill has been passed—as I am sure it soon will be by the Committee stage—how it beds in, and, from a Regulation Review Committee point of view, we will be interested to see what regulations are promulgated by the Minister for Building and Housing under the bill. I wonder whether the Minister would take a short call, perhaps just to provide a short outline to the Committee as to the regulation-making process that he envisages and the scope of those regulations under the relevant clause. I think that would help the Committee’s consideration, because regulation-making powers are never to be taken lightly. They have to be prescribed in legislation, and the conduct of that regulation making must occur within the scope and ambit of the empowering provisions. We are hopeful that it will be, and we have no reason to think otherwise, but I think it would assist the Committee if the Minister could give us a brief outline to that effect. Thank you.

It is a pleasure to rise and speak on Part 2 of the Construction Contracts Amendment Bill, a part that appears to be significantly amended by the Minister for Building and Housing’s Supplementary Order Paper 106. Can I say at the outset that on this side of the Chamber we acknowledge the interest and enthusiasm from the Minister in the issues addressed by the Supplementary Order Paper. I understand from speaking with colleagues who were on the Commerce Committee that the interest in this issue of retentions and this issue of trying not to give a cast-iron guarantee but to provide more security of payment to small-business people, and to tradespeople in particular, is something that this Minister has picked up. That enthusiasm was absent before the current Minister took over the role, so I want to acknowledge that the Minister has decided to pick this up. That is probably why it has been a long time between drinks as far as this legislation’s progress through the House is concerned, as the Minister has been working on this Supplementary Order Paper with officials. So we appreciate that that has taken some time.

I agree, though, with Ria Bond that time is money, and we are talking about people who are not big-business people. They are not people with large accounts. They are people who are going from one contract to the next, and it is money in, money out for most people. So the fact that this has been something that has taken considerable time for Parliament and the Government to reach this point on will have been concerning and devastating for a lot of people who were affected by some of those high-profile collapses, and for other people who have not had their stories told in the media and who have had to face the issue of not being able to recover payments from principal contractors.

These changes are significant, though. It is a shame that the changes have not been put before the select committee and that the Minister has not assured us that he has consulted. We do not know exactly the scope of that consultation and with whom it has been carried out, but I think that with this level of amendment to the legislation we are almost, in Part 2, dealing with an entirely different piece of legislation from what the select committee considered. It is shame that the amendments have not had a chance to go back to the select committee.

I want to look at new Subpart 2A, in proposed clause 8BC, which relates to the retention money. This sets out in quite some detail how retention money is to be dealt with and how parties have to put that money into trust and what they can and cannot do with that money. One bit that was of interest to me—and I would appreciate the Minister in the chair, the Hon Nick Smith, taking a call on this—is new section 18F, under Subpart 2A, which deals with the investment of retention money. This may be something that has been addressed, but new section 18F(1) says: “Retention money may be invested by party A in accordance with the Trustee Act 1956 …”.

I have to be honest. I do not know what limitations the Trustee Act 1956 places on the types of investment that money can be used for. But then 18F(2) concerns me a little bit. It says: “If, upon the realisation of any investment, the amount received is—(a) less than the amount invested, party A must make up the difference between the amount invested and the amount realised:”. In other words, it envisages the possibility that party A could invest that money into something that actually leads to a loss, and some of that retention money is lost as a result of that. Of course, in the legislation there is an expectation that that loss would be made up when any payment to party B had to be made. But in the event that party A meets some unfortunate circumstances and finds it difficult to make their payments to party B—which is exactly the type of situation that we are envisaging here; it is exactly the reason why money should be set aside in trust so that there is some more security around those payments to party B—or if party A finds themselves in financial difficulty, they may have some trouble making up that difference between what they actually put in trust and what they are able to recover from it if there is a loss as a result of investing that money.

So I would appreciate some clarification from the Minister as to exactly what restrictions and limitations are placed upon the types of investment that that money can be used for. If there are no limitations—and, as I said, I do not know what the Trustee Act 1956 says about this—then there is the potential there for that money to be invested in something that is high risk and that could result in exactly the opposite of what this part of the legislation seeks to achieve, which is to have money put aside securely so that it is available for payment to be made. So I would appreciate some advice on that from the Minister, or from any member opposite who has some knowledge about how that is potentially going to work.

The other provisions under section 18 do appear to be all about protecting the money. There is interest on late payments. That is to be expected under any contract. There is protection of retention money under section 18H, which says that “Retention money—(a) is not available for the payment of debts of any creditor of party A (other than party B): (b) is not liable to be attached or taken in execution under the order or process of any court …”, and section 18E(1) talks about the use of retention money and says it cannot be used “other than to remedy defects in the performance of party B’s obligations under the contract.” So the purpose of that money is quite clear in other parts of Subpart 2A. But I just wonder whether that ability to invest that money is really in line with those—

The CHAIRPERSON (Lindsay Tisch): I am sorry to interrupt the honourable member, but the time has come for me to report progress.

House resumed.

The Chairperson reported the Accident Compensation (Financial Responsibility and Transparency) Amendment Bill without amendment, the Passports Amendment Bill (No 2) with amendment, the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill without amendment, and progress on the Construction Contracts Amendment Bill.

Report adopted.

The House adjourned at 9.56 p.m.