Construction Contracts (Retention Money) Amendment Bill

Point of order. The Minister has indicated that they’ll be seeking a shortened report-back time. Standing Order 295 says, “(1) The member moving the bill’s first reading must, on the commencement of that member’s speech,—(a) nominate the select committee to consider the bill, and (b) if it is proposed to move for any special powers or instruction in respect of the committee’s consideration of the bill, indicate the terms of that proposed motion.” That was done just at the very tail end of the speech; not at the commencement of the member’s speech. The Speaker of the House, essentially, invited the Minister to move at the start of the speech. She declined to do so—I think on a couple of occasions—and can’t do it towards the tail end of the speech.

I’ll seek advice on that, thank you. On a number of occasion when I’ve been in the House, the House has been informed during the speech on—

💬 Hon Scott Simpson: When?

As I’ve said, a number of occasions—

💬 Hon Scott Simpson: I don’t recall it.

Well, that’s my ruling and as long as the Minister tables that with the Clerk, then at the appropriate time she can move it.

Point of order. Mr Speaker, the Standing Orders—this is not a Speaker’s ruling—the Standing Orders says “must, on the commencement of that member’s speech,”. It was not done at the commencement; it was done 8½ minutes into the speech when the Minister got a note, presumably from the whip, indicating that she had not complied with the instructions, which the Speaker himself, actually, asked the Minister to do, because it was in the drill sheet, presumably. The Minister chose not to do that. We’re stuck with—

💬 Hon Poto Williams: Speaking to the point of order.

I’m still speaking.

💬 Hon Poto Williams: Speaking to the point of order.

I’m in the middle of saying something.

💬 DEPUTY SPEAKER: Order! Chris Bishop can carry on.

The Speaker invited the Minister to move at the start. The Minister chose not to do so. The bill has to go to the committee—if it, indeed, passes its first-reading vote—for the full time. It’s as simple as that.

Speaking to the point of order. Mr Speaker, I did seek clarity from the Speaker in the Chair and, as I understand, the House can determine whether they accept that or not—and I suggest perhaps that’s a way forward for the member.

Well, this is not the appropriate—the appropriate time will be at the end of the debate, so we’re going to carry on.

Well, no. Point of order.

💬 DEPUTY SPEAKER: Are you saying we’re not going to carry on?

I’m seeking a recall of the Speaker on this.

💬 DEPUTY SPEAKER: I am the Speaker.

No, well—yeah, fair enough; fair point. You are in this instance—you’re right.

Thank you, Mr Speaker. Certainly an interesting way to commence this relatively—

💬 Hon Member: Is it?

—straightforward bill. It is absolutely an interesting way to commence it. It’s not the way we would normally commence a new piece of legislation in this House.

Now, the Construction Contracts (Retention Money) Amendment Bill does have a number of beneficial aspects to it, and despite the rather late notice there of the desire to move a special instruction, I think the content of the bill, if we’re focusing on that, has some really good aspects to it, and, on that basis, we are supporting it through to the select committee stage. It actually builds nicely on a piece of work started by the Hon Dr Nick Smith back in 2015, when he was Minister for Building and Construction, which looked to address this issue around the retention funds and having certainty, or increasing certainty, for subcontractors that they will be able to source those funds, assuming their work is considered or found to be acceptable. At the end of the retention period, they would then duly receive their funds.

Of course, what we had seen, as in a number of instances where the head contractor or a large company fell over, those funds were, unfortunately, no longer available and had been used for some other purpose—working capital, for example. Even with the legislative changes that Mr Smith brought in, there were at that point still, unfortunately, not enough safeguards to prevent some of the issues that we have seen. So this bill takes that to the next level and actually makes it a requirement that that retention money be held in trust for the particular subcontractor via a separate bank account, which is especially named as such, for that subcontractor, or it may be for several contractors depending on the nature of the contracts in place. Or, alternatively, they can have some other compliance assurance such as an insurance policy or a bank guarantee, for example, that would provide confidence that whilst they don’t have to have their physical cash sitting in a bank account, they have the ability to meet the obligations required of those retentions when they fall due. So that’s all good stuff.

What I hear from a number of building and construction companies, as I travel the country in that role for the National Party, is a lot of concern around this area. It’s about certainty and confidence. Those are two of the key things that we can really add to any industry, but the building and construction sector in particular, if we can provide them with greater certainty, with greater confidence, then that will be a massive boost for the sector. Any time a business has those aspects, then you can see they will be more likely to invest, more likely to take on another opportunity to grow, to expand, and all those positive spin-offs around employment, around economic growth, that come from that are absolutely worthwhile. So it’s encouraging to see that will be improved under this proposed bill.

One of the other concerns, though, that I do hear on those visits is also around the level of retentions, in terms of the percentage held back. We see that varies anywhere between, sort of, 2 percent at the lower end up to 10 percent of the contract value, which is quite significant. So there’s a bit of concern around whether that’s appropriate. And also the time frame for which retentions are held—there’s been discussion around whether that is appropriate, based on the varying types of contracts that may be entered into. I guess I’d just say it’s, perhaps, a bit of a missed opportunity that this piece of legislation doesn’t actually address either of those concerns that I do hear raised from a number of construction businesses around the country. So that is a bit of a shame that we’re only dealing with part of the challenge around retentions here.

But also, more broadly, there is the other issue as well around companies not just with retention money that has previously been lost through insolvencies but also access to assets that subcontractors may have on site, even their own tools. In instances where they haven’t been able to get back on to the property due to the collapse of the head contractor, particularly around the tools aspect, that has meant in some instances these subcontractors not only have been out of pocket from the work they were doing but they have simply been unable to then go on and do other work, because their tools are all locked up on this construction site. So, again, that’s an area that I really would have liked to have seen addressed by the Government, in terms of trying to provide more certainty for subcontractors in the building and construction sector, especially at the moment when we’re seeing such a strong reliance on this industry to be a key part of our economic recovery. When we are seeing a strong economic opportunity in the building and construction sector, those adjustments might have helped to improve confidence even more and allow for some additional investment decisions by some of those businesses.

So those aspects were a little disappointing to see that they had been missed out. But, overall, what has been proposed here makes sense and we do support it, and I look forward to following a process through select committee. I’m sure we will hear more about those particular concerns that I’d raised through the select committee process as well. It’ll be interesting just to hear, actually, what the instruction is that the Minister is looking to move in terms of report-back time.

But on that basis, we do support the bill and look forward to following it through the course of its journey. Thank you.

Thank you, Mr Speaker. It’s interesting, after the furore at the start there, to find that those members opposite are actually supporting the bill, as they should: the Construction Contracts (Retention Money) Amendment Bill.

I will relate the experience of two very good colleagues of mine, one of whom was a rather large contractor who was in recent years caught out by the collapse of one of the businesses mentioned by the Minister for Building and Construction in her introduction. Essentially, his retention money was going to be the final payment that would actually allow him to get out of the contract with the business intact, and, of course, when the company went broke, he was, essentially, looking down the barrel of going broke himself because the chain of payments was going to be somewhat interrupted. He had thought he had the protection of the Construction Contracts Act, which had been brought in in—sorry, the bill that had been brought in in 2017. However, it turned out that he was just another unsecured creditor in getting his retention money. Another contractor whom I’m aware of avoided ever going into business or taking a contract which required him to leave retention money in for fear of the same thing.

So, essentially, both those businesses at either end were affected by the current situation. This bill does remedy both their situations, and for both of them now, it could actually almost be renamed the “Sleeping More Comfortably at Night for Contractors Bill”, because that was what it will actually give the owners of these companies the ability to do.

One should always look at what a bill is attempting to fix. As a result of the Bennett & Ors v Ebert Construction, many of the contractors who thought they did have the protection found that the wording of the Act did not deem retentions to be held on trust. Instead, it required the parties to hold retentions on trust, which meant that where there was a belief that they were secure in a trust, they actually weren’t, and if a payer did not comply with the requirements to hold retentions on trust, the retention money would be co-mingled with payer money or, in fact—worse—had been used as capital. Of course, using retention money as capital or as cash flow—even worse—meant that, once again, as soon as these companies do go into liquidation or collapse in any other way, then it means that those companies, like the ones I aforementioned, are going to be the ones who are going to miss out, and often that chain effect will be that they will go into liquidation and the subcontractors to them will also be left in the same place. So, essentially, what this bill seeks to remedy is having the money all being swept into a pool with all other cash and all other obligations, leaving those who were unsecured at the bottom to, essentially, go the same way.

Also, what was quite clear was that where this was done, there were insufficient penalties and offences to deter payers from not complying with the trust requirement, and I’ll speak shortly about those new offences, which do provide something of a disincentive. So what the bill does is clarify the retentions as trust money, whether or not the payer complies with the retention regime in the Act. If the payer holds retentions for more than one payee, the retention money held for each of them is subject to a separate trust. So what this also means is that where you get, obviously, several contractors—which is common—all those contractors’ money also must be separately identified for each of the payees, as the Act talks about. So a payer must hold retentions in a separate bank account used solely to hold retention money, and this could be retention money for more than one payee. However, the bank accounts cannot be used for any other purpose. Again, I go back to the real problem that this bill seeks to fix, which is to ensure that that money doesn’t become working capital or cash flow.

The payee must, in the bank account name—actually, it comes down to specifics, and I guess we are digging quite deep into the way these things must be operated, but, again, like with so many things we have learnt from bitter experience. For a payer, the bank account must include the words “retention money trust account”, and if the account is set up to hold retentions for one payee or more construction contracts, the account name must include the payee’s name.

So, once again, I’ll refer to the fact that this the “Sleeping Well at Night Bill for Contractors”. Knowing that that money is there, under their name, does give them far more security then they ever had.

With two or more payees, the account must identify the construction contracts or indicate that it is for all contracts under which the payee holds retention money. Also, the bank must know that this is retention money. That’s, again, an important part, because there may come a time when this company or the payer does go broke or comes into financial difficulties, and the first thing the bank is going to do, obviously, is protect its asset. This way, the bank will know what is retention money and, therefore, that will not be part of the security because, essentially, it is not theirs to take in the event of the company going broke. As far as practicable in the accounts, the bank is required to actually ensure that that’s identified—as they are. So, in the end, it does dig down quite deep into the detail, but, obviously, it needs to do so.

In respect of retentions in the bank account, the payer must keep separate ledger accounts for each payee and for each construction contract, identifying the payee and construction contract to which the ledger relates and must show each payment into and out of the account and which payees and contract repayment it relates to. So then, that’s obviously digging down deeply. I think we need to step back a little and look at why all this is necessary.

We are now entering into a stage where there is considerable construction activity taking place. In March 2021 alone, 4,128 new homes were consented, and 41,028 new homes have been consented for the year ending March 2021—an all-time high—so it’s not as though this is an issue that’s seeking to keep up. Now, we’ve got to ensure it gets ahead of this vast amount of construction activity that’s actually taking place.

Also, as far as individuals go, ultimately, we are talking about people here. Of course, there’s just the number of people entering into the market: 18,000 more people are now in training or have been trained in the construction industry. So this is a machine that is very much building up, and it’s very, very timely that we ensure that those who are likely to be affected do have that protection.

I did mention before the offences in here to ensure that there is not the temptation to say, “Wow! We’ll wear this anyway. What the heck—it’s a fine.” The offence now is if the payee fails to hold retention on trust in a separate bank account or a complying financial instrument, this offence has a maximum fine of $200,000. If the payee is a body corporate, each of its directors also commits an offence and will be liable to a maximum fine of $50,000. So, again, as you will see cases that are wending their way through the courts as we speak, there are those where directors themselves have been able to say, “Well, not us—we didn’t know.” I’m sure that now at the beginning of every meeting, everyone who has ever sat on a board and has become aware of their liabilities will be asking the question, “What are our current liabilities? Where is our retention money? Are we OK if this thing does go sour?”

So, once again, as the chair of the Transport and Infrastructure Committee, which is considering this bill, I am very much looking forward to having this bill and bringing it back here before the House and to fix things that do need fixing. I commend this to the House. Thank you, Mr Speaker.

Well, thank you, Mr Speaker. This is a relatively small, but quite important piece of legislation. It seeks to clarify some inadequacies in the existing principal legislation, particularly that were highlighted in the High Court decision of Bennett v Ebert Construction Ltd (In rec & liq). In that case, the High Court noted that the Construction Contracts Act had some policy gaps and that the trust requirements and the wording of the trust requirements were imprecise.

I’ll come back to that in just a minute, but I cannot let escape the woeful, hopeless incompetence and inadequacy of the Minister who introduced this bill at first reading. Here is a Minister, the Hon Poto Williams, who came to the House ill-prepared and ready to move a first reading, and what she did was miss out a very fundamental part of the introduction speech. It’s a formal part of the process, but it’s an important part none the less. It’s the part that gives instruction to the select committee about report-back times and dates and the time of submissions. It’s important because members of the public who will be listening to this debate, who have an interest in it—subcontractors and larger construction firms around the country who are interested in this legislation—they want to know how long they have to submit at select committee and whether it’s going to be a truncated or a full select committee process. The Minister, Poto Williams, actually forgot to mention that.

💬 DEPUTY SPEAKER: It’s the Hon Poto Williams.

Oh, the Hon Poto Williams—she forgot to mention that. And what happened was that Speaker Mallard was in the chair and he gave an opportunity for the Minister—in fact, asked her twice whether she wanted to include it, and twice came back the answer, “No, I don’t want to make a comment on that.” Then, further into her speech, at about eight minutes or so, she received some instruction and some advice from an official or an officer of Parliament, and late in the speech—somewhere close to about 8½ minutes into the speech, when most people listening would have well gone to sleep—a date was mentioned, and I think it was the date of 11 November. So thank goodness for that. But there we have an indication of the woeful inadequate hopeless incompetence of a Minister who comes to the House ill prepared and not ready to actually do the business on an important and significant piece of legislation.

So, we on this side of the House think that that is just an indication of a far greater malaise that enraptures this socialist Labour Government. It’s typical of their lack of direction, their lack of focus, and no attention to detail. It’s this lack of attention to detail that is deeply problematic—deeply problematic. It’s not just the lack of ability to deliver on their promises, but a lack of attention to detail, and ultimately, that is the problem for this Government. The Hon Poto Williams will need to reflect on that and probably get better advice before she introduces legislation into the House again.

So what does this bill do? Well, what it does is actually tightens up the definition around retentions. People listening to this debate may wonder what retentions are. It’s all to do with the money that is paid by subcontractors as part of the process of entering into a big construction job, for instance. Some of that money has, in the past, been mixed wrongly and poorly, in commercial terms, with the larger principal contractor in a way that has meant that if that larger main contractor falls over—goes into receivership or liquidation—then that money that is due to the subcontractors is not payable and not available to them. That’s a huge problem for small businesses who are the subcontractors.

In a previous life I’ve worked in businesses that have supplied many contractors and subcontractors, and I know firsthand how problematic it is for a small-business person who’s subcontracting to a much larger firm, and the big firm falls over and goes into receivership or liquidation, and then not only is the money tied up in loss because that larger company—as Greg O’Connor correctly made the case in the previous speech—perhaps poorly used that funding for cash flow or indeed capital but then that creates enormous effects further down the supply chain. What it means is that that subcontractor isn’t able to pay their suppliers or their employees. It’s pretty obvious about the inadequacy of that kind of situation.

So the principal legislation seeks to solve that problem by creating a retentions regime, and that’s all fine and dandy, but the court case of Bennett v Ebert Construction Ltd (In rec & liq) highlighted that there were some definitional issues and this piece of legislation seeks to remedy that. So on this side of the House we support that. But in terms of this legislation, it goes a little further than just being related to mere dollars and cents. What typically happens when a company goes into receivership—particularly a large construction company—is that the site is immediately locked down by the receivers who are acting on behalf of the creditors. What has happened in the past, and probably still happens today, given the issues that we’re talking about, is that it’s not only the money but it’s the equipment, the gear, the tools of trade—the stock in trade of the subcontractor gets locked up and is physically unavailable to that contractor. So that means that not only do they not get paid but they lose their ability to actually continue on in business. If their tools of trade are all locked up on a site that they can no longer have access to, and if their equipment and gear, and sometimes, in some cases, the actual products that they might be installing—think of an air conditioning subcontractor or an electrical or plumbing contractor—the bits and pieces, the bits and bobs that go with the job and the work that they do, if they’re not physically able to access that, then they’re not able to go on to their next job. Of course, that then has a fateful and sometimes potentially devastating impact on those smaller subcontractors.

So, look, at select committee, we on this side of the House will be looking carefully to see that the definitions have, in fact, been correctly applied. We’ll be looking to see that the sloppiness of the Minister introducing the bill has not been replicated in the drafting of the bill, and we’ll be looking to see that that sloppiness is not manifested in a way that makes the situation worse, which quite often happens with this Government’s legislation.

So we’ll be alert to that at select committee. We’ll be looking forward to hearing submissions from a range of both large and small firms, and I’ve got no doubt that there will be many who will come to the select committee during the submission process and will tell quite horrific stories about what the impacts have been on their business, on their employees, and on their ability to continue in business and in trade. So on that note, we support this bill to first reading. We’re looking forward to giving it a thorough look at select committee and we’ll watch this process very carefully. Thank you.

This bill is for small businesses. It’s to support the 97 percent of businesses in New Zealand who are hiring less than 20 employees. This bill is for our builders in our country. This bill is for the plumbers in our country. This bill is for the electricians in our country and all the other tradies in this country because not only are they businesses, when we talk about their finances falling over and when they’re not paid properly we’re talking about families here. We’re talking about people whose livelihoods depend on them being paid by a contractor. So this bill is to ensure the safety and the security of small businesses here in New Zealand but also to make sure that our country keeps building houses.

I’m proud to be part of a Government and a party that has supported record numbers of consents being issued in this country. I’m proud to work alongside Ministers like the Hon Poto Williams who have actually reached consensus on this bill to make sure that industry supports this bill and we’ve actually listened to the real voices of industry when we were drafting this bill. That’s why we can just slightly shorten the select committee process, because we know that this industry, the construction industry, has already supported the bill.

We’ve had people in the legal profession commending this bill, saying that this is the right thing to do, to close the loophole, to clarify the legislation so that we can actually protect the most vulnerable and the most hard-working part of our construction sector—the small businesses, our tradies, and all of our sub-contractors—so that they can get the work done, so that we can get on with actually solving this housing crisis.

We need to build more houses and we are building more houses. Right now, Statistics New Zealand is showing that there’s a record of 41,000 new homes—41,000 new homes that have been consented to. That’s a huge amount of houses. So we need to make sure that all of our contractors in New Zealand feel confident in the system so that they can work together with us, with Government, with all of the contractors together. We need to build more houses.

So this bill actually helps to boost that level of confidence to attract more people into the trades. We’ve already attracted a record number of people into the fees-free training. We have now more carpenters, we have now more plumbers in our workforce here in New Zealand, to make sure that we work together to solve this housing crisis. This bill also gives them the confidence that they will be paid on time, they will be paid for their work done in the housing construction sector, and if they are a young person they will know that they will find security in their finances should they decide—and I hope that they will—to come and join the construction sector. We really, really need them right now.

We know that right now the construction workforce needs more people and we’ve seen a further 4,000 people join it. And so today, on this bill, as we commend it into first reading, we know that the young people out there, the people who are looking at a career change, will know that this construction sector is a well-regulated sector, that they will find security in their finances and they will have a rewarding career getting the houses built, getting the infrastructure that this country needs to keep moving on.

It’s not every day that I read something from Buddle Findlay to see that are absolutely 100 percent without reservation in support of a bill to the House. Usually we see them give different opinions. But today we see here, on 1 June 2021, the Construction Contracts (Retention Money) Amendment Bill was introduced into Parliament for consideration, and they’ve said that this is very, very good in terms of actually supporting the construction sector, especially in terms of the case we’ve mentioned on both sides of the House, in terms of Bennett v Ebert Construction. We know that at that current moment, when that case was brought to the courts, the actual 2002 legislation didn’t cover and was actually murky on—well, the courts ended up ruling that it actually did not cover the fact and did not give instructions to construction industries to actually hold retentions on trust. So right now we need to legislate for that now to actually right that wrong.

It’s really interesting to see also how there are lots and lots of instances where we know that in the construction sector there will be companies that fall over that end up not paying for the smaller jobs that they have subcontracted to. So we need to make sure that we give them the legislative authority to set retention aside, but at the same time we need to remind them what the best practice is. So once again we’re holding up strong the bottom line of the industry to make sure that they actually do what’s right. One of those things is to set the retention aside from other money as security and that can be held on a trust account. That needs separate legislation as well so that we can make sure that that money’s kept aside so, if in the very unfortunate event that the contracting company does fall over, that these subcontractors are still being kept safe.

Also, this separate bank account, right now we need to tell all of the board members, as my colleague Greg O’Connor has mentioned as well, that this is one of their duties, as well as directors. We know that when we take on directorships of companies, especially large construction companies, we have to make sure we set the rules very, very clearly. We need to set the standard high, the bar high enough, so that the whole entire ecology of our construction sector is maintained to a healthy standard. So to them, their responsibility is to make sure that this separate bank account gets set up and the money gets retained as well.

Also, the payer’s record-keeping obligations is a really important part as well, where the payer must keep a proper accounting record of all the retentions held, and that is to make sure that the money doesn’t get mixed. It’s to make sure that the money is there with clear accounting practices, which should be a given in any well-governed and well-managed company anyway. But once again, this bill makes sure that the bottom line is strengthened as well.

Also, where we know that in the unfortunate event of a receivership or a liquidation as well, this bill, with the retention held out separately, actually makes life a lot easier. We know that often going into liquidation, many lawyers, many advisers, and also accountants and liquidators all come into this, but to make sure that there is a separate account for that retention makes the money going to the smaller businesses a lot faster, because we know that cash flow is really important for small businesses. They don’t have a lot of liquidity to wait for years and years and years until the lawyer’s gone to court, until there’s a proper ruling by a judge. We know that these small businesses need the money here and now. They need to make sure they pay their employees. They need to make sure they put food on the table for their children.

So it’s very, very important that this is also a logistically easier task as well for all of the larger companies, so that in the unfortunate and, hopefully, unlikely event that they do fall over, there is a liquidation or receivership process happening, that this separate retention is in a separate account and can be paid out to the smaller businesses as soon as they can.

I also note that there are other questions that we were asked in terms of a lack of enforcement mechanism or sanctions. We note, and this once again goes back for company directors, that they will be liable for a fine, up to $50,000, should they not follow this proposed bill.

So could I use this platform just to remind all of the company directors wanting to make a submission on the bill, but, too, to remember that should this bill pass, hopefully in the next couple of months, they are reminded that they have this extra responsibility—and also for firms, it’s another $200,000 fine as well. This places a very, very strong enforcement mechanism to make sure that these small businesses—our contractors, our plumbers, our builders—are being looked after. On that note, I commend this bill to the House.

Tēnā koe, Mr Speaker. Tēnā koutou e te Whare. The Green Party rises in support of this bill, and it’s of particular interest to me because, in fact, on 7 May 2014, I tabled a Supplementary Order Paper on a previous construction contracts amendment bill that did exactly this. It required that retentions be held in deemed trust. What happened at the time—and I know there’s some history here—in early 2013 we had the liquidation of Mainzeal and a huge number of subcontractors were negatively affected by the collapse of Mainzeal. They were locked out building sites, they couldn’t access their tools, and their money that was rightfully theirs was not able to be recovered.

At that time in 2013, in the 50th Parliament, the then National Party Government had a construction contracts amendment bill going through the House and I sat on the Commerce Committee and we heard through the submissions from at least a dozen subcontractors associations who were laying out this problem with retention money being used as working capital by main contractors and that it was a huge problem. So I went and I talked to them. I wrote a Supplementary Order Paper. I tabled it. I tried to get the Government of the day to support it. So it’s very interesting to see National Party members like the Hon Scott Simpson who was, of course, in the Parliament at that time and would have voted against my Supplementary Order Paper but now is enthusiastically supporting this bill that does exactly the same thing seven years later. So I’m pleased that they’ve come around and they’ve realised.

So of course, what happened at the time is the Minister responsible for the bill, Maurice Williamson, had to step down for various reasons. The Hon Nick Smith took his place, and right before the 2014 election, when he was at like a subcontractors’ conference where he was probably quite horrified to hear that they were all in support of this Green Party member’s Supplementary Order Paper on the bill, Nick Smith did promise that there would be action on this issue. And so it took a full three years from that point till the original legislation came in. That was 31 March 2017. So four years after the Mainzeal collapse, we finally had an initial regime.

Of course, what we’ve seen—and all the documents we have here today show us—is that, unfortunately, in the process of drafting that legislation, it was quite watered down and it wasn’t airtight enough. So there was not, in fact, sufficiently strong indication that the retention money should be held in deemed trust, that it should be held in a separate bank account. The whole point of this regime was to ensure that the money that rightfully belongs to subcontractors for work that they have completed would not be taken by the main contractor and used in other projects, which would then mean that it was not recoverable by the subcontractors should the main contractor go into liquidation or collapse. Of course, that’s continued to happen.

So I don’t have much more to add on this other than—you know, seven years is a long time and we’ll be going through the select committee process again with this one. But I am really, really pleased to see some meaningful progress on this issue and to see that there is agreement across the House. I am particularly pleased that something I worked on quite a long time ago in my first term of Parliament, in the 50th Parliament, is finally going to be brought into law.

Thank you, Mr Speaker. The ACT Party is pleased to be discussing this bill, although we do have a retention about how successful the intention of the bill might be, because it doesn’t actually go and deal with some of the issues that submitters have raised. While it’s important to recognise the bill goes some way to solve a problem to protect contractors’ and subcontractors’ retentions, there are other problems that this Government is ignoring when it has an opportunity, through reform of the Construction Contracts Act, to address these matters. We know that time for payment is a cash-flow issue for many contractors and subcontractors, and that the biggest client in New Zealand is the Government and it is their delays in paying contractors and therefore subcontractors which are leading to a lot of unnecessary pain and suffering in the supply chain that Government, and local government as well, have a role in.

Submitters have noted that although amendments were made in 2017 which brought the trust requirement into play, it appears that very little effort was made by the previous Government, which is still mostly the current Government, to actually make sure that the provisions of that 2017 amendment which created the requirement for retentions to be held in trust were actually delivered on. It’s no surprise, because while I’ve just done a quick search of the organisations that do training on the Construction Contracts Act—there’s the New Zealand institute of highways, there’s Engineering New Zealand, and a number of other private training providers, which deliver courses between an hour or a day, or multi-day courses for practitioners, and yet there is nowhere I can find on any New Zealand Government website that talks about education or training or improvements in how to get the industry to understand their obligations. So it’s absolutely no surprise that now they have to come back and make a whole lot more laws that are even harsher and tougher to solve a problem that any reasonable person would’ve imagined was already solved.

Submitters have raised particular concerns with us. There is a risk that strengthening the retention money regime might actually impact on overall cash-flow for construction companies. While there is some concern that payment of retentions money can be an issue for businesses when they have a cash-flow crunch, in most cases retention money is actually a part of normal operating cash-flow for businesses. If you have a number of small subcontracts, for example, those contractors can often be paid out very, very quickly because the risk of a defect arising later in the works period is quite low. So there is a risk that actually having to put this money aside into a trust rather than being able to use it in the day-to-day running of the business but in a protected way can cause some problems.

Other submitters have been concerned that in fact there was only a limited amount of consultation, with 22 invited submitters, and that that did not actually invite consultation from that wider group of organisations. It was telling that the previous speaker from the Government side made the point that a law firm had been very, very supportive of the concept of a very large number of trusts being set up. I would be surprised, if I was offered this opportunity as an interested party, that law firms wouldn’t be interested in setting up trusts at a cost of tens of thousands of dollars for each business. So, yeah, I would assume that that particular submission was made at least with a half-smirk behind the hand, but good on that member on the Government side for standing up for all of the lawyers who stand to gain from this particular requirement.

But, again, there is a key risk here that simply passing another law and introducing penalties and fines and criminal sanctions won’t actually change behaviours for the very large number of smaller contractors and subcontractors who don’t actually know what their obligations are. A Government that thinks that it can change things and fix things and solve problems simply by passing laws—well, that’s the Government that sits opposite us now, and we’ve seen on every single measure, whether it’s delivering infrastructure, whether it’s solving the housing crisis, whether it’s coming up with the money to fix the infrastructure deficit that left-leaning councils over many decades have been responsible for creating, we know that they have failed on every single measure. Simply passing laws and announcing things from the podium is not the way you solve New Zealand’s worst problems.

However, the ACT Party does intend to support this bill at first reading because despite our many reservations about whether this Government and the ministries that it controls are actually able to succeed in any of its policy measures that it puts forward, we believe it’s important that the wider industry has an opportunity to submit on this bill at select committee.

So, look, for the purposes of just illustrating why we think it’s important, there are a number of different options that Government has for increasing the protection of retentions held by contractors and subcontractors, protecting them from their client—the largest client in New Zealand right now being the New Zealand Government and local councils. They are most likely to be responsible for making it more difficult for contractors and subcontractors to recover retentions, any minor defect that has to be disputed with a trustee, who may themselves feel some significant responsibility not to release retentions from a trust until all of the client’s obligations are met. Often, clients and main contractors can be far more lenient and relaxed about releasing retentions at the end of a contract period or a defects period if they can be sure that the issue is no more than minor or that it has no impact on the design intent and the performance of the new asset.

And yet what this bill proposes to introduce is a very tough regulatory and compliance enforcement and criminal regime which, I propose, would actually introduce a much more significant handbrake on the release of retentions by a trustee to the contractors and subcontractors than the more typical flexible approach taken by most main contractors in the delivery of their work and in the management of their contract and subcontract relationships. That’s because most contractors rely on trusted subcontractors and trusted suppliers. Most contractors are not going out there to seek the cheapest price and then down the track avoid paying their subcontractors retentions money, because they know that it’s so hard to get good-quality contractors to deliver on time and to the quality standard. The last thing they want to be doing is holding up that payment of retentions. In fact, if anything, they want to get that liability off the books, they want to close their project out, and the best way to do that as a contract manager or a project manager is actually to close out your retentions, to close out your defects, to get it signed off.

I would propose that actually adding in an extra requirement to have a trustee responsible for reviewing and signing those matters off introduces a layer of complexity which is more likely to hold up the release of retentions rather than make the release of retentions easier and more accessible for contractors and subcontractors.

So, on that note, the ACT Party supports this bill to the first reading but we’re retaining at least 10 percent of our support as a retention until it can be proved that the Government and its law writers can meet the quality standard, ensure there are no defects, and actually deliver a piece of legislation that works. Mr Speaker, thank you.

💬 Terisa Ngobi: Mr Speaker.

You have to say, “Mr Speaker.”

💬 Terisa Ngobi: I did, Mr Speaker—I am saying it.

I call Terisa Ngobi, and I did not hear her, OK?

Tēnā koe, Mr Speaker. It’s because I was probably really quiet for once. Can I say it’s always a privilege and an honour to be able to take a call in the House, especially as a newbie—so good practice, and I’ll try and be louder; my apologies. It’s also really good to be able to take a call on this bill given that, for the Labour Government, I sit on the infrastructure, environment, and transportation caucus, and of that, the Transport and Infrastructure Committee, that the Hon Poto Williams has recommended this Construction Contracts (Retention Money) Amendment Bill goes to.

Can I also just say, listening to my colleague Naisi Chen stating that this bill really is about our small businesses, it really is about our subbies and it really is about our plumbers, our electricians, but also their whānau, eh. It’s about making sure that, you know, no matter what happens, they’re secure. They’re able to pay for the resources that they’ve put into the mahi. They’re able to pay for their time and they’re also able to put food on their table when they go home. So, yeah, absolutely agree with our colleague.

We also know that our subbies are reliant on good relationships with those big guys, eh—the big contractors. But they’re also reliant on a good relationship and the promise that, regardless, they will be paid the retention money they’re owed through their mahi. That’s where this sits at the moment, given that we know this current regime is voluntary. So this amendment to make sure that that happens is a really good one.

I also want to just give a shout-out to some of the subbies that I know from the Ōtaki electorate, especially—yes, the mighty and beautiful Ōtaki electorate have fantastic construction tradies and subbies in our area. I want to shout out to Jade Strawbridge, who does plumbing. He’s a subcontractor, so is owning his own business—so a small business owner—along with his wife, and they have a whānau as well. And also Tony Su, who is a big contractor, but I know is one of the good guys and treats his staff really well, takes on a lot of our young rangatahi, especially our young Māori, into the industry and puts them through things like Building and Construction Industry Training Organisation (BCITO) to make sure that we start to train and retain our own. I also want to say to Tony Su, thank you for that, because he was doing this far before the free-trade training and apprenticeship scheme, that this Government has put in place. So I’m quite sure Mr Tony Su will be really happy to be able to further support our new young rangatahi coming into the trade.

I also just want to say that my grandfather was also a small business owner. He was also a contractor. He was a plasterer for many, many years, from Scotland through to coming to New Zealand, and I know—having six children, and my grandmother who worked from home as well and helped him with those books—how hard that was and how reliant you are on making sure that those bigger guys, those big subcontractors, pay on time and that they also pay what we know is the retention money, and what that means to families like my grandfather’s. There was, obviously, my dad and, obviously, too, people like Jade Strawbridge, Levin Plumbing and Gas, and also Tony Su. That is why this bill making sure that we clarify and strengthen the retention money regime is so critical.

We know, at the moment, as other people have said, that the retention money is a voluntary regime, at the moment, by our main contractors, and so, unfortunately, I think we all know of stories where some of those big main contractors, and I know the Hon Poto Williams mentioned earlier, Stanley Group and a few others—what happens when, unfortunately, due to unfortunate events, they go insolvent or they collapse. So, you know, if you’re a subcontractor to that, you’re way down the pecking order of making sure that you get your payment or money for your mahi. So this ensures that it’s not just a gentlewoman’s or gentleman’s handshake; it’s a definite. It has to be put away in that separate bank account—that it’s not mixed into what can be used as working capital by our main contractors, and that it is separate, and this bill ensures that those subbies will make sure they get paid for the mahi that they did.

When I was talking about Tony Su and the like, I do also want to say we were lucky enough, me and my husband, a few years ago, to be able to do a few alterations on our house. So I’ve seen the work that he did, but also, like I mentioned before, seen him supporting many of our rangatahi into training and paying for their BCITO. But aside from that, I’ve also seen some of the subcontractors come in. You know, those are long hours. They were out, unfortunately, in the rain. They were working morning to night. You get to know them as you take out—I made sure I made soup for them and a bit of chop suey, a bit of an island feed. [Interruption] Yep, make sure that we feed them up so they can continue to do the work that they needed to do on our house. But, you know, you get to know them as you’re talking, around how they got into the industry but also their families. And they talk about making sure that—you know, they are having to hustle for work at that time, against so many competing other small businesses and contractors. Well, now we know there’s a massive boom thanks to the effort this Government is putting into building houses. But, at that time, they were having to really hustle. So we also know that when they do get those jobs and they spend all those days and hours making sure that they’ve got something to take home to their whānau, that’s how important that retention money is. It might be a drop in the bucket for some of our really big guys, but for our small businesses, this is really important.

That’s why I’m, kind of, a little bit confused at the view, I guess, on this, of the last member across the House, given that I thought that was something that was so important to you—being able to support our small businesses. That’s, essentially, what this bill does. Like the Hon Poto Williams and also our member Naisi Chen and others have mentioned, including Greg O’Connor, this bill had consultation with those stakeholders. This bill listened to those small business owners. This bill listened to our subcontractors and the wider New Zealand and our industry and said, “Yep. We hear that. We hear what happens. We hear that this is a voluntary regime. We hear that you need to make sure that there is money left in the kitty for you at the end of the day, and that’s why we’re doing this.” So we really do support small businesses. So, yeah, I’m quite confused by the last member’s speech.

However, we’re doing that, what we need to do, and, like I said, we’re really lucky at the moment that this side of the House sees the real need to make sure we invest in building more whare, more houses, making sure that we are making it easier for our contractors—they’ve got lots and lots of work. Now it’s not competing for work; now it’s trying to find a builder. So we have a couple of little things left to do on our house, and we’ve been waiting a fair few months, and we’re happy to wait. Don’t get me wrong; it’s just a few doors, where some people actually need houses. That’s what our focus is on, and that’s why we’re happy to wait down the pecking order.

But, like I said, amazing boom at the moment. This side of the House, this Labour Government, is putting so many initiatives into making sure that it’s easier to be able to build rather than just patch up and move houses around. We’re also making sure they’re fit for purpose, and we’re also making sure that they’re safe, warm, and dry. That’s why these subbies—as well as our big guys, but especially these subbies—who come in and make sure that those, not the big construction—they’re looking at making sure it’s warm and dry and making sure they’re stopping the house and sealing it up and doing all that kind of work—are safe, and are going to get paid at the end of the day.

That’s what this Government does. It makes sure that it looks after all New Zealanders, eh, not just ourselves. So it is looking after the subbies as well as the big guys, and that is through, again, another initiative, like I’ve mentioned before—the free-trade training and apprenticeships. That’s huge for a small business owner or a subbie—that you’re on your own and you might need that extra person, especially at the moment with this massive boom and this Government, making sure we make it so much more accessible for our subbies and our contractors to build. So you might need that extra one or two people. We’ve got things like that, like the free-trade training apprenticeships.

Like earlier, the Hon Carmel Sepuloni mentioned the flexi-wages as well, to be able to encourage more people into that industry and for our small businesses to be able to undertake that. So, proud of this Government to support small businesses and I commend this bill to the House.

The next call is a split call.

Madam Speaker, thank you very much. The National Party will be supporting this legislation at first reading, and it is important to give certainty to small businesses up and down the country, particularly in the construction sector. But I need to pick up on a point the last speaker finished with: the support that the Government has for small businesses. Setting this one piece of legislation aside, that was not evident in the Budget. It’s such a claim in a first reading when we have a piece of legislation that’s so very, very important that the Labour Government is supporting small businesses when, actually, the small businesses that are being supported through this legislation have had so much cost imposed upon them that, actually, I think that they will be struggling. So anybody listening shouldn’t believe, just because they’ve heard it in this House, that there is a significant amount of support for small businesses. Small businesses in New Zealand are struggling. They’re doing it hard, and this is a Government that remains out of touch with them.

However, for this piece of legislation, it is a good thing. The reason for that is we have hard-working construction companies, small businesses, builders, electricians, plumbers, up and down the country who are out there helping to rebuild parts of the country for us. And, of course, when they are subcontracting, they don’t hold the entire contract themselves. Where the larger company that holds the contract fails, they often are left out of pocket, and that can create a lot of additional stress upon their businesses. Of course, there is always money left over. The liquidators come in or the receiver, they look at what the assets are, the liabilities, they free them up. But inevitably, the subcontractors, individuals or companies, are not preferential debtors, and, therefore, they miss out. And it’s not right that they do because inevitably, also, money has been paid for the construction work. There was an example of the hospital in Rotorua that was completed. It was finished. There was additional work that the DHB wanted done to make sure it was up to the standard. The subcontractors and others had met their obligation or responsibility. Money was held back as part of the contract with the overall contract holder so that the DHB could make sure the work that they had contracted for was done, and inevitably that company ran into trouble and the subcontractors themselves were likely to miss out. I do understand the DHB came to an arrangement so that they wouldn’t miss out, because many of them were good, hard-working local people of Rotorua. So this legislation will help with that.

We do think there are some areas we need to look a lot more closely and in greater detail. I don’t think the Government has entirely got it right. Actually, there is probably a bit more protection that’s needed or other ways to make sure that what we’re trying to achieve with this legislation is actually achieved. But I would say to the subcontractors, we need them out there working very, very hard. We need them to grow their businesses. We want them to have less uncertainty. We want them to get paid. We want a very light touch in that; we only want the Government involved with their businesses where they really need to be. That’s not what we’ve seen from the Government so far, but in this respect, for this legislation, if that’s the case of how it works, it would be very, very good for them.

The final thing I think I want to say here is that, when it comes to construction in New Zealand, be it large or small, we need to do so very much more. So we need these guys out there growing their companies and looking for ways to take on contracts themselves. We don’t have enough houses in New Zealand. It’s not what the Government has said about the demand side. Everything they’ve done pushes up the price of houses, pushes up the price of rentals. It is around the supply side. There are still not enough houses being built in New Zealand. There are a multitude of reasons for that, but none of them are good reasons because the Government has the ability to do something about it. This, in essence, won’t mean more houses are built. This won’t mean more houses are built. It means we’re still going to have the same backlogs and the same challenges, the same problems that are pushing up rents and are pushing up the cost of houses in New Zealand. But what it will do is mean that there are small businesses, builders and others out there, who remain, and their builders and businesses are not put under pressure. They don’t fold. They themselves don’t go into liquidation, have to close down because they’re owing money by a larger contractor who has gone into liquidation and these poor, hard-working Kiwis miss out.

We will be supporting this at first reading. We want to see some changes to make it better than it is. The Government hasn’t done all of the work that they tell us they have done. And I want to finish where I started: when members of Government stand up and say they’re helping small business, they should get out of Wellington a bit, talk to small businesses, because they’re not. They continue to struggle. This will help a few, but not in the way that they need to be helped. Thank you.

I am very proud stand in support of this bill, the Construction Contracts (Retention Money) Amendment Bill. I just wanted to talk about what this bill is about and the kind of depth of the mischief that has been around for quite some time. This bill is about making sure that, when a builder—or somebody in construction—makes a deal, they will hold aside some of the money that they’re rightly owed because of their work; until the main contractor is confident that they have done a good job and there aren’t issues which need remedying, that money is safe and secure. In 2013, as Julie Anne Genter pointed out, we had the collapse of Mainzeal. Mainzeal was a very, very big company, and it had many irons in many fires, and people didn’t see that coming. They were utterly dependent on the integrity of the directors and the managers of that company and they got let down because they lost a lot of money. A whole lot of people who were tradies got lost in the system. They got cut out of money that was owed to them and a lot of people got hurt. And we knew that back then.

Since that time, we have had the collapse of quite a few organisations of significant size—and one of them was Ebert Construction. I was just looking at the kind of fallout from something like that, and the fallout as described by one person, Julian Oxborough, meant that his crane was frozen on the building site and that was costing him $70k a month, and he was owed $300,000. He had 135 staff. And it wasn’t just him who was going to suffer in that circumstance: it was his entire business and his entire workplace. His workforce were the ones that were going to pay the price.

So it’s very, very important that this piece of the puzzle is actually put in place where we will secure that money that is hard-earned and it will be safe. So what’s been done to create that kind of safety is that there is an insistence that such money is held in a separate account and it isn’t co-mingled. I was alarmed to hear that there were reports of those businesses, those head contractors, actually—basically, gambling with those funds, so they would use the money for their other investments. That’s a very dangerous thing to do because it wasn’t really their money, was it? It was money that someone else had earned. And what it does is it also means that if the business collapses, it’s very clear who that money belongs to. It doesn’t just go to the loudest mouths or the ones with the biggest lawyers, it actually goes to the people who earned it.

So it is a real safety net, and it’s an important one, and it does show the connection between this Government, and these people that are representing the Labour Party here in Parliament, and actually the working class, because this is the working class. This is how you get ahead in this country, and we’ve got 18,000 young apprentices at the moment doing this work and they’re coming into an industry. And we are going to get a lot more houses built if we actually make it an industry where they can actually thrive, where they can go in knowing that things like this won’t happen to them and devastate their families, that this will be a safe place to operate, and we’ll all be better off for that. It will structure the way that people do business.

So this bill will have something that’s really strong in its penalties. It will make it a strict liability offence when the head contractor fails to hold the retention money separately. And it will also make the directors personally liable when the head contractor breaches that requirement of holding the money on trust, because one piece of the puzzle that we did learn from Mainzeal is it’s extremely important that directors think about the consequences of their actions, and that they take care, and that they make sure that they are looking after the people who work hard for them. We didn’t see the collapse of some of these companies. These were strong companies. These were companies where the risk was not anticipated by the little fish that were in the swim and it’s important as a Government we protect them. So while there is a lot of complaint about red tape that goes on, look at how this particular piece of legislation works. This is Government doing its job. And, actually, there is good red tape. This is good red tape. Thank you, Madam. I commend this bill to the House.

Kia ora, Madam Speaker, and thank you for the opportunity to speak on this bill. It’s interesting, because earlier today I was with our local iwi post-settlement entity, Taranaki Whānui, a developer from the Wellington Company, and subcontractors, I guess you would call them. We had Aoraki, the main contractor, but there, for the sod turning of just under 100 new homes here in Wellington City was, I guess, the whānau of builders who were going to make this thing happen. I knew I was speaking on this this afternoon and thought, “Here goes a collaboration of the building community who have obviously made things work, and this is what ‘good’ looks like.” I know, representing my patch of Wellington now for many years, I’ve seen this alliance of people—these contractors and entities—come together and they’re in the midst of building several successful projects.

So part of me thought that wouldn’t it be great if we didn’t need something like this? Because you saw a trusted relationship across multiple entities who could build homes and housing of all sorts. So I thought earlier today that this is obviously what success looks like, and long may it be. From the conversation that I had with the main contractor there—I said, “Look, this is what’s happening in Parliament.” People are always eager to know—believe it or not—what we’re doing. I said that this piece of work is coming through. I thought, how relevant could it be considering the work that they are doing and the work we are doing? So one of them sent me an article about retentions and the insights from the Ebert Construction insolvency case and some practical advice for subcontractors. It actually came from Lane Neave, a national legal company. But in here, it gave some really good definitions about the very issues that that are covered by this bill. Even when I looked at the situation with Ebert here, it actually says that for the most part Ebert had complied with all of its statutory obligations, however, just during those final months, accounting systems etc. began to break down, other administrative errors crept in, and then it fell short of the total retentions owed to subcontractors.

But it does give a really easy to read background. It covers Mainzeal as well—the other biggie—but makes some notes when it references to them, and it mentions this in the bill that the money was often used as interest-free working capital by the main contractor. “The subcontractors’ interests in the retentions were unsecured.”, and then, “In the event of the main contractor’s insolvency, the prospects of recovery were grim.” We’ve heard those stories here this afternoon. Interestingly, the “subcontractors’ options for confronting such issues during pre-contractual negotiations were (and are) limited due to their relatively weak bargaining position. The system was always perceived as deeply unsatisfactory”. We’ve heard stories today—my colleagues from Auckland Central and Ōtaki talk about the exposure to subcontractors to an unacceptably high level, and then it talks about Mainzeal. So I think that provides a good basis to do something, and that was looked at five, six, seven years ago. So it’s been a long time coming.

Can I acknowledge the Minister for Building and Construction, the Hon Poto Williams. This is the second bill in front of the House that I’ve spoken on in two weeks. Last week, it was around the modular components compliance and other bits and pieces; this week it’s the construction contracts. I think this demonstrates her commitment to get some action on things that have been lying around—dare I use that term—and sorting them out, and that’s the sign of a good Minister, who puts in the mahi, who brings together the odd bits and pieces, and then gets on with it. So I thought that was a great piece of work and there’s some similarities here, and it goes back to a piece of work that you, Madam Assistant Speaker Salesa, did when you were in this role, and I mentioned it last week: the Construction Sector Accord. Who would have thought that bringing together a disparate group of people, but all with the same kaupapa of delivering good, better construction and infrastructure in Aotearoa New Zealand—this is the sort of stuff that comes out of it. They want action—probably wanted it a whole lot more quickly—but that accord has meant that at least there’s some sector agreement on what matters most to them. They then come together and go, “Right. These are the things that we’d like to see passed. This is urgent.” They are already working with the trust and confidence of the Minister. What I said last week was the word “reassurance”. This gives some reassurance that they play their part, we play our part.

I know that those are the words of the contractor today. They are willing and ready to go. These are things that actually hold them up. They just want to get on with it. The great thing about talking to people who build homes and developers is the scent of innovation, creativity, but most of all, urgency. They just want to get on with it. They know what’s deemed to be red tape. They don’t dwell on things. They just get on with it. And that’s the great thing: maybe we could learn a lesson or two from them. But this fits very much in with that plan.

So moving to the bill, I am very confident this will go some way to ensuring—and I am always impressed when colleagues across the floor can bring their stories to this House and demonstrate the need for why things should happen. You know, we can pull bits out to say this isn’t perfect, but I think the essence of this, in terms of making sure that the retention money is held back in a way where it doesn’t get—I think the term is—commingled or tangled up or somehow intertwined with other accounts and funds, and used for other reasons. We’re saying no, no, and no to that.

So I’m confident that when this goes through, we’ll have the sector support. Interestingly enough, the sector tells me that it’s already trying to demonstrate this already. So, you know, they don’t want this to be an issue, they don’t want—in the climate we’ve got now, the importance of building an alliance of contractors, subcontractors, whatever we call them, there’s a sense of “we need to keep everyone happy, everyone gets a bite of the pie”. Why? Because there’s more work to do. There’s a whole lot more building infrastructure to do, and one of the things that you’ll often see at sites is the same developer, the same main contractor, and the same subcontractors. Their logos are on those fences right across the city. I know in Wellington that’s very much the case. I can almost guess who’s working with who, be it Willis Bond and LT McGuinness or the Wellington Co. and Aoraki—there are many other examples.

So what this demonstrates is that this is now addressing a very important aspect of the construction sector. The sector embraces that. It’s already been demonstrated, and I think we can, with confidence, ensure that some of those issues raised, as I said, by this piece of work about retentions that came through to me and the, did I see the word lessons learnt—there we are—from the Ebert issue. Once and for all, these will be resolved. I commend this bill to the House.

I rise in support of the Construction Contracts (Retention Money) Amendment Bill. In doing so, I can’t help but wonder to myself about the member who just spoke, Paul Eagle, and commend him on his magnanimous attitude towards his colleagues across the House and conjure potentially what other roles he may play in Wellington in the future, given his fondness for discussing it in his contributions in the House.

Now, National supports this bill. However, I do want to start this contribution by noting some poor process. The first piece of poor process is that we do have here on this bill a shortened report back. What that means, and the reason it matters, is that there will be less time than usual for submitters from the public to give their views on this bill and how it would operate in practice. Now, the usual process when someone is seeking a shorter report-back time is that the Minister outlines that at the beginning of her speech, at the beginning of the introduction of the bill. The Minister didn’t do that and we’re yet to hear from members opposite why that was.

But the second thing I do want to highlight is how slow this has been, because Madam Speaker Jenny Salesa will recall that these proposals were first proposed in May last year by the then Minister, the Hon Jenny Salesa. Those proposals were made. They were welcomed, as I recall, by the construction sector at the time, a number of stakeholders were on board, and one can only wonder what has gone on in the next more than a year that has held this up in a delay that to me seems unnecessary and untimely, particularly given how broadly supported these changes are. It’s my view that where law reform is necessary to ensure that law is operating well, we should do that as quickly as possible, and in this case that does not appear to have occurred.

I do just want to trace back the background to this retentions regime because, of course, legislation to protect the rights of subcontractors in relation to retention money was first passed in 2015, and it was at that point led by the Minister for Building and Housing, the Hon Dr Nick Smith. So if you’ll forgive me, the metaphor, if the Hon Poto Williams is the renovator of this regime, it is the Hon Dr Nick Smith who is its original architect, who saw the need to make these protections for subcontractors. That occurred after the collapse of Mainzeal, and what we saw at that time was subcontractors not being able to access the money that was retained for their later payment. So the Minister at that time saw the need to introduce a layer of protection to ensure that if companies became insolvent or went into liquidation, then their subcontractors were able to be paid.

Now, this, of course, relates to a common practice in the construction industry whereby a portion of payment is withheld so that if there are problems that need to be remediated, then contractors are able to use those funds. So the intention of that legislation was good. I am sure that it has offered more protection to many subcontractors and has certainly firmed up the need for contractors not to use that money wrongly. However, the Ebert Construction case showed that there were some loopholes potentially in the way that was operating, because some people were able to withhold retention moneys from subcontractors on the basis that they hadn’t been directly deemed in trust. That has been problematic. I support changes to make sure that the law applies as it was intended.

I also support moves to increase the penalties for non-compliance. And I’d like to highlight this part of the regime, because the principle that is being followed here by the Minister is a simple one. It is that if we believe that compliance with the law is important in order to protect from potential victimisation, to prevent people from failing to adhere to it, then one way of encouraging their adherence to the law is to increase penalties. I would just invite members opposite in particular to consider why it is in this case that the Government views that an increased penalty regime may increase compliance but that that is not the approach that is applied in other areas of the law, particularly when it comes to the criminal law, where victimisation is more than just money; it can be lives and livelihoods. There is an interesting practice at play there. The example I would offer is with the health and safety regime where I think we have seen quite a direct correlation where increased penalties have increased directors’ adherence to, and the management knowledge of, the law in the area and the need to apply it carefully.

I do want to, before I turn to a couple of the specifics of the Act, just talk briefly about the context for the New Zealand construction sector, because what this bill is doing is responding to one problem, which is what contractors do with retentions. But actually it also, in doing so, highlights a larger problem, which is that we continue to find that, in that construction chain, we are having too many construction entities fall over, leading to the need for these kinds of regimes around how moneys are used, and I would put to you that that challenge with subcontractors not getting paid, with contractors not being able to follow through on contracts, has really eroded trust in our construction sector. It’s really important, because a lot of what we see in the construction sector is people taking a bit of a risk, choosing to put their capital, their expertise, their time into a project. And wherever people are taking a risk, it is important that the law and policy actually supports them taking risks that we want to see taken.

I would say that in New Zealand right now, a risk we want to see people taking is taking the risk to go and commit to large-scale construction contracts, particularly where they relate to housing. I would put to you that many of these projects have been held back by the corrosive impact that collapsing construction projects have had on people’s confidence in our construction pipeline. That has eroded the desire of many to get into the construction industry, to be their own subcontracting business, to commit to large-scale projects. So wherever possible, we need to address those issues.

I do also happen to think that one of the major ways we can create more confidence and trust in the system is to give people long-term pipelines of work, and the Government should not renege on its own responsibility there where, as the major contractor of construction and particularly as it relates to large-scale infrastructure investment, the practice of chopping and changing what is or isn’t in the National Infrastructure Plan is corrosive to trust and confidence. I do want to put that on the record here, because actually we all win when subcontractors have the confidence in the future pipeline. That means they invest in apprentices, they invest in trainees, and they feel able to commit to these projects.

So, just briefly, before I finish this contribution on the specific provisions, I do want to say that strengthening how the retention money is held to prevent it being used as working capital is sensible. It really just addresses the inevitable weaknesses of human nature, which is that if this cash is able to be accessed when a firm finds itself in dire straits, it may indeed access it as working capital. It makes sense to have this in separate bank accounts and not to allow it to be accessed.

The bill also proposes that subcontractors not only have the right to see proof that their funds are being held properly, but that actually reverses that obligation so that it is contractors themselves who are obliged to demonstrate that. I think that is realistic in that these relationships are not even relationships. The contractor is definitely the one wearing the bigger shoes and the subcontractor may be reluctant to harm that relationship by demanding more information, and this gets the balance in a better place.

So, overall, this is a good bill. I commend the Minister, the Hon Jenny Salesa, who seemed to do the lion’s share of the work on it. I question why it’s taken so long to get to this House, and I commend the select committee for their work in analysing it and ensuring that submitters are heard and that the detail of it is worked through so as not to add unnecessarily to compliance costs but to achieve the good ends as discussed. Thank you.

Tēnā koe, Madam Speaker. It’s my honour this afternoon to rise and speak in support of the Construction Contracts (Retention Money) Amendment Bill. Can I open this afternoon by acknowledging Minister Poto Williams, and the work that she’s been doing, and also acknowledge the importance of pronunciation when we acknowledge any names within this House. So, Minister Williams, I think you’ve done an incredible amount of work gearing up in construction, and—when I listened to your presentation to our Transport and Infrastructure Committee last week—just the incredible amount of planning that this Government has done in order to gear up to where we need to be. I think, particularly, about the future of our construction sector and how critical it is to the success of Aotearoa New Zealand moving forward. I think of how this sector is organised, how it’s supported and led, because our reality is that 275,000 New Zealanders work in this space currently, and that continues to grow with the amount of work that we’re doing here.

But also there are the 4.5 million of us who rely on it for warm, dry, and efficient homes; our local schools that are being built; the hospitals that the Government is delivering; safe worksites; high quality roads and rails. There’s a lot of infrastructure being built into this country. And I guess, as New Zealand gears up for all of this activity, to grow and to reach $43 billion in the 2021 Budget, it’s crucial that the Government and industry work alongside each other as well as our councils and iwi. We want to see value for the $10 billion that Government spends annually on construction and infrastructure, and the sector and workforce need to know that this future is bright from the leadership under this Labour Government and that we have a strong pipeline of work under way.

When I’ve thought about this bill, and researched and done the work behind it, I’ve learnt so much in my short time as a member of Parliament and this House on a subject matter area that is somewhat new to me. Two weeks ago, I went across to Devonport to meet with a small business on the Shore who are building houses—a Māori-owned business, who have a number of developments across Auckland’s North Shore, out west, and out in Papakura. They invited me to see this piece of work because of the apprenticeship scheme that they are running, and not one, not two, but eight apprentices presented themselves on that day across a number of disciplines, all of Māori descent and all from Northcote in the North Shore. So it was a wonderful surprise and something that I was very proud of.

What this bill does for me is that when I think back to these particular people that are contributing to our construction in this country—they are going over and beyond in order to train apprentices and do right by New Zealand and people and what this Government is attempting to do, which is to build houses and hospitals and schools—why should they have uncertainty? Why should they have uncertainty about a proportion of their payment, 10 percent, in fact? Therein lies the challenge for me—that we want these people with our infrastructure spend to gear up our workforce, to gear up their business, to help us build houses because it’s in dire need in this country, yet they have all the uncertainty. That’s the question that sits with me.

So the Construction Contracts (Retention Money) Amendment Bill amends the Construction Contracts Act 2002 to particularly strengthen and clarify the retention money regime. The retention money is an amount held back by one party to another. It’s commonly between 2 and 10 percent of the contract, and it’s often paid after 12 months following the expiry of the defects liability period if—and if—they are satisfied with the job that’s done. That is on a gentleman’s handshake. It’s on a high-trust model and leaves some of our most important small businesses with the level of uncertainty and question that we actually don’t want them to have.

Sadly, in the past, there has been a number of cases where contractors have used retention money as working capital. If the contractor goes bankrupt, the subcontractor loses out on getting refunded their retention. And again, close to home there’s an example of Stanley Group, an organisation that was based on Auckland’s North Shore. In that particular example, Stanley Group had been liquidated—an Auckland and Waikato building company. The companies were placed into liquidation on the Thursday after a vote by shareholders—as quick as that, which I found out at the Companies Office. The business at that time had about 100 staff, had three projects under way, Housing New Zealand, in Māngere, Hamilton, and Whakatāne. And what we found in that was the creditor’s business would likely be owed; about $150,000 is what they found themselves short. Another director and creditor found himself short, being owed about $250,000. So that’s the liability that sits on our subbies—our subcontractors—that we’re asking them to carry on a gentleman’s handshake when we need them to have confidence to gear up, build, build, build in this particular industry. So that’s a hard ask.

When I look at the timeline of how this has come about—and, you know, I’m not totally sure how to do this, but can I acknowledge the previous Minister for Construction and Building for the work that she did in the lead up to this. There was hard yakka there, but, yes, it does go back to 2014 with the Hon Nick Smith, and through to the last Government under the Hon Jenny Salesa, and then geared up as a part of this. I acknowledge the points that were raised by the previous member, Nicola Willis, where she asked why this had taken so long. I think she said that it was lodged in May last year. Since then, we’ve had a COVID pandemic across this country. This House didn’t quite sit as normally as it did so one would expect—it’s not only that but the inclusion of an election in 2020. And when the House sat this is now in front of us under the leadership of the Hon Poto Williams.

So we’ve certainly got work to do, to continue to push these types of bills forward. They support those that we need to be supported in this particular time when we build back better. I always say we build back better together. And again, I say that this Government does and has to work alongside industry, alongside our councils, and alongside our iwi, and that in the current circumstances, where we don’t have enough houses for the people that we need across Aotearoa New Zealand, then politics can’t play ball in the work that we need to do. We need to get up and do that.

But it’s also part of a larger programme of work that we’re doing in this space. I’m so proud that under this Government we’ve issued more consents than we’ve ever issued. In Auckland alone, in March alone, 4,128 new homes were consented—the highest number since the 1940s—

💬 Marja Lubeck: Many in your area?

—many, many in Northcote, as we build those houses, mixed dwellings, and we increase the growing pains of intensification. But we’ll get through it together. I also, as I talked about the apprenticeship scheme before, am just so proud of the work and the number of apprentices: Māori, Pacific rangatahi—young people across this country that we’re building this workforce for. Again, I finish on this point, that when we’re building houses, we’re building hospitals, and we’re building cycleways and walkways across our Waitematā, there’s a lot of opportunities—a lot of opportunities for work, economic opportunities—but we still need to stand there hand in hand across Government, industry, iwi, and council, and let’s do it together. I commend this bill to the House.

Motion agreed to.

Bill read a first time.

The question is, That the Construction Contracts (Retention Money) Amendment Bill be considered by the Transport and Infrastructure Committee.

Motion agreed to.

Bill referred to the Transport and Infrastructure Committee.

Instruction to Transport and Infrastructure Committee