Construction Contracts (Retention Money) Amendment Bill

I present a legislative statement on the Construction Contracts (Retention Money) Amendment Bill.

That legislative statement is published under the authority of the House and can be found on the Parliament website.

💬 Hon POTO WILLIAMS: I move, That the Construction Contracts (Retention Money) Amendment Bill be now read a first time. I nominate the Transport and Infrastructure Committee to consider the bill.

I am very proud to bring this bill to the House. It makes amendments to the primary legislation—

Order! Order! I’m just going to check with the member—what she’s just read out is not what I expected her to read out.

💬 Hon POTO WILLIAMS: I move that the Construction Contracts (Retention Money) Amendment Bill be now read a first time. I nominate the Transport and Infrastructure Committee to consider the bill.

All right. Does the member intend to move an instruction on timing?

💬 Hon POTO WILLIAMS: Ah, no, sir. No, Mr Speaker.

All right. OK. That’s fine. Carry on.

💬 Hon POTO WILLIAMS: Thank you, Mr Speaker. As I was saying, very proud to bring this bill to the House, an amendment bill to the primary legislation, the Construction Contracts Act. And what this deals with, is it builds on our work already to support small business in particular, and the building and construction sector. The legislation will reform part of the work that some of our small businesses—particularly our subbies—do in supporting them in the retention payments which are held by main contractors as a mechanism to, I guess, monitor and look to performance. So retention moneys are those moneys that are held by the head contractor, in this case, and they are allocated out to subcontractors during the course of a particular contract.

The regime around retention moneys is voluntary, currently, and what has happened in the past is that some contractors have allowed for those moneys which should be held for subcontractors at the end of a particular performance point within the contract. Contractors have used that as part of working capital, or other things, and that has meant that when they find themselves in difficulty, it means that the subcontractors are basically left holding the responsibility, they don’t get the retentions for work completed.

So what this bill does is it clarifies and strengthens the retention money regime as indicated in the Construction Contracts Act. What it does is it actually builds trust and confidence in the system for the sector, and it adds some clarity as well. As I said, the retention moneys scheme is voluntary when it’s held, but this bill indicates that it must be held in trust by the head contractor for the benefit of the subcontractors. So it’s very clear about how that’s held, whether that’s held in a separate account, or by some other mechanism which may be insurance. Under the current regime, there have been situations, as I’ve said, where contractors have used this as working capital, and that’s problematic because it becomes kind of comingled with other capital that the head contractors have, and it exposes our subbies to the risk that they will not be paid for work done. It is particularly relevant when a head contractor becomes insolvent and they are unable to pay out the retention money to that subbie.

This was highlighted when there were collapses of some major construction companies such as Arrow International, Ebert Construction, Stanley Group, and Tallwood Holdings. The main issues that were identified at the time was the trust requirement has contradictions that limit how effective it is for protecting retention money. There were few incentives to comply with the regime, and there’s limited information provided to subcontractors regarding the retention money held to them. This bill intends to deal with that, in particular the information provided to subcontractors. They will know—the head contractors will be required to notify how that money is being held, and exactly what is being held. The bill also addresses issues on details of how contractors can comply with the trust requirement, incentivising compliance with the regime, and increasing transparency for subcontractors.

We shared an exposure draft of the bill with key stakeholders in September 2020, and that included the Construction Sector Accord and the construction industry organisations most likely to be affected. I do want to thank the Construction Sector Accord—the partnership between Government and the industry has been very successful. It has allowed our ability to speak directly to the sector, and for the sector to speak directly back to the Government on a range of issues, and can I pass on my thanks to the Construction Sector Accord for all the work they did during COVID-19 to advise Government on how best to support the sector—who was, potentially, quite impacted when we went into level 4 lockdown. And, coming out of level 4 going into level 3, how we could then support the sector to be safe on site. Those mechanisms and procedures were used whenever our country—or even our cities—had to go into lockdown and come back out of lockdown. That’s been a very successful partnership, and I thank the Construction Sector Accord for all the work that they do in that regard.

I also want to thanks the Accord for the feedback that they’ve given us on this particular bill, and their suggestion of changes such as clarifying and strengthening the trust requirements as part of the regime, and their view on the offences and penalties for non-compliance.

This bill makes it really clear that the retention money must be held by head contractors on trust and, separately; not comingled with other assets for the benefit of their subcontractors. It ensures that money is available to pay subcontractors when payment is due, and that it’s not used to pay head contractors, other creditors in the event of insolvency.

I have just had a correction made to me in terms of the timeliness of reporting back to the House. Am I able to include that or shall I make that a—

If you do that before you sit down, that’ll be fine.

💬 Hon POTO WILLIAMS: Thank you, Mr Speaker. I shall do that. At least I can correct that. I thank you for your guidance on that, Mr Speaker.

This bill incentivises compliance with the regime—[Interruption] Thank you. It incentivises compliance with the regime, there is a strict liability offence for when the head contractor fails to hold the retention money separately. There is personal liability for directors when a head contractor company breaches the requirement to hold retention money on trust, and an offence for providing false information about retention moneys held.

Further to that, some of the changes that have been made during consultation will help support the Construction Sector Accord’s goal of catalysing longer-term transformation that builds resilience and helps the sector meet new challenges. The ultimate aim of this new regime is to enhance the efficiency of the construction sector by ensuring the risk it manages is fair across contractors, subcontractors, and clients, and if I can say before I resume my seat that at the appropriate time I intend to move that the bill be reported to the House by 11 November 2021. I commend the bill to the House.

Debate interrupted.