Construction Contracts (Retention Money) Amendment Bill

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

ASSISTANT SPEAKER (Hon Jenny Salesa): That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Construction Contracts (Retention Money) Amendment Bill be now read a second time.

Firstly, I thank everybody that submitted on this bill at the select committee stage. The submissions that were received through the select committee have resulted in a number of changes that will further improve the workability of this piece of legislation. I’d like to thank the Transport and Infrastructure Committee for their careful deliberation of this bill while it was at their committee. The recommendations have improved the security of retention money and have made the outcomes better for both subcontractors and head contractors.

I would like to take the opportunity to thank my predecessor, the previous Minister for Building and Construction the Hon Poto Williams, for her work in bringing this bill to the House. The purpose of this bill is to strengthen and clarify the existing retention money regime in the Construction Contracts Act of 2002. Retention money is the money that is held back from a payment under a construction contract security to ensure a subcontractor’s performance. While choosing to hold retention money is voluntary, it is often used by head contractors to make sure that subcontractors do a good job. But I have heard about the fall of big construction companies like Arrow International (NZ), Ebert Construction, Stanley Group, and Tallwood Holdings. These head contractors mixed retention money with their other funds, and some of it was used as working capital. As a result, some subcontractors did not get paid what they were owed when these companies collapsed. By strengthening the trust requirement, the bill intends to mitigate the risks associated with the use of retention money as working capital.

I’m aware that the committee received 42 written submissions on the bill and heard seven oral submissions. I’m pleased that a wide variety of submitters engaged in the select committee process, from subcontractors through to head contractors and local government, as well as the professionals that helped to administer varying parts of the retention money regime. The majority of submitters supported the overall intention of the bill. Some submitters made suggestions to improve the bill, and I want to briefly discuss those points now.

There was a theme around improving the workability of the new requirements. Submitters wanted changes to improve the workability of the strengthened retention money requirements. This included clarifying the requirements for holding retention money to clarifying accounting and reporting requirements, and this is a critical aspect of the bill. Also, one of the things that came through in the committee really strongly is clarifying what happens when something goes wrong, and this is a piece of legislation that is put there to capture those moments when things do go wrong, and to offer the right protections. Submitters wanted to have a better idea, and more clarity, about what would happen when those scenarios did occur—for example, how insolvency provisions would operate, as well as making it clear how offences and penalties will apply to each breach under the legislation.

So the Transport and Infrastructure Committee heard these concerns and made some changes to the legislation. In response to these points, the committee recommended that the recommendations clarify when a retention money trust is created and ceases, as well as when retention money needs to be deposited into a retention money bank account.

There were also submissions from local government that were heard from the committee. Local government wanted an exemption for Government entities to the trust requirements. This was on the basis that they did not present an insolvency risk. The committee did not recommend any changes here, because the trust requirement is key to ensuring the retention money regime can achieve the purposes of the Act no matter how small the risk was, and I support the committee’s conclusion on this matter. The retention money system should apply equally to all who choose to use it.

Then there was the issue of applying offences and penalties to each breach. Many submitters wanted higher penalties for breaches under the Act. The committee clarified that the offences and penalties would apply to each breach, and that these penalties would be cumulative, and I think that was a really important clarification from the committee. That means that fines could be significant if a head contractor does not look after retention money properly.

Then there was the issue around clarifying how insolvency provisions will operate in relation to this Act. The committee recommended some changes to clarify what happens if party A goes into receivership or liquidation. This includes clarifying that the High Court can review the fees and costs charged by a new trustee if subcontractors request it, and I think this is an important point for the committee to look at.

There were also some technical improvements that were made to the bill. The committee also recommended ensuring that the language used in the bill is better aligned with other legislation and systems used by construction companies, and they recommended changes that the committee has made to the bill will make things more workable for the users of this regime. Submitters and members of the committee also wanted the bill to address who will enforce the offences and penalties in the retention money regime, and this is something I intend to address at the committee of the whole House stage.

So I would like to, once again, thank the committee members for their hard work on this bill. I think the bill will improve the outcomes for subcontractors in the construction industries. Subcontractors will have better oversight of their retention money and should feel more protected that their retention money will be paid out if the head contractor becomes insolvent, and these increased protections for the retention money regime support hard-working subcontractors, who are the cornerstone of the building and construction sector and deserve to be paid for the work that they have already done. On that basis, I commend the bill to the House.

The question is that the motion be agreed to.

Thank you, Madam Speaker, and it is a pleasure to be talking on the Construction Contracts (Retention Money) Amendment Bill. I suppose the first thing I should say is that it has been too long waiting for this bill to come back into the House. This has been a very important issue and, for some reason, I do not understand why the Government has taken so long to introduce this bill back into the House.

It is absolutely crucial. We’ve got an industry that is in a very difficult situation. We’ve seen over a hundred receiverships of building construction companies since the start of this year, we’ve seen 200 last year, and I think we need to be very careful to make sure that we—and when I say “we”, I think the Government has a role to play in this in terms of supporting this incredibly important industry. It employs 295,000 people—295,000 hard-working men and women in New Zealand. It is a kahuna of a sector in New Zealand and it is one that, if we are to go into recession, potentially might take us there, and let’s hope we do not go there, because it will have such ramifications.

So why the delay in introducing this piece of legislation? Of course, we all understand the background of this piece of legislation, and the Hon Nick Smith was concerned about retentions and the way that they’re used. It’s a longstanding practice. Between 2 percent and 10 percent of money that’s a retainer on a contract—so, if it’s a large contract, that can be a significant amount of money that is set aside by the head contractor, against subcontractors, and can be held for up to a period of 12 months or a year to remedy any potential faults that can arise. Of course, what that means for the subcontractor is that that is money they do not get until that condition has been satisfied, so that burns into their cash flow, particularly at a time when there’s a downturn in the industry. Cash is king, of course, but for the head contractor, it has often been a way for them to fund projects if they’re going wrong.

There have been many examples, and I note the Minister talked about the Arrow and the Stanley construction companies—both companies I knew well—but, more recently, the Ebert case in Wellington. The court case determined more recently that there were issues with the design and the rules around retentions, so that was a timely reminder that Parliament needed to do more, and this was the result of the work of the transport committee. Again, I just note my amazement at the length of time that this bill has taken to come back into this House, so let’s hope it doesn’t get delayed further and that we don’t have more delay going through the committee of the whole House and through into the third reading.

The bill that was introduced back in 2015 and 2017 made it a requirement on contractors to set aside the money that they hold in retention, to be held in trust, and, of course, some people did it well. In many cases, it wasn’t done well, and when we’ve seen these events of receivership, it’s become evident that the money hasn’t been put aside. The money hasn’t been kept separate. Secondly, it hasn’t been put into a type of asset class that’s not easily convertible into cash, so that’s what’s given rise to a number of these issues. The third major issue with the retentions, of course, is the issue around who has jurisdiction over the money—the retentions held by the head contractor—in the event of failure.

I know the honourable speaker knows this area very, very well with her previous involvement, and I just will acknowledge her involvement while she’s in the House. But the big issue is how do you make sure that that money is available and kept separate when a default situation takes place. Of course, part of this arrangement now is that there is a trustee, the trustee has control of it. The trustee of the head contractor, if they go into default, becomes the trustee of the retention money. Their fee can be deducted from that retention money for administering that fund. But that is an important thing, first of all, that that is separately held and separately administered, because that money is, basically, held on behalf of the subcontractors who’ve done some work in the project.

The big question then becomes how that’s distributed, and that’s a question for the liquidator or the receiver, depending on the case, of how that gets paid out, ultimately, over time. But I think the work of the committee around defining what is the retention—and I note there’s four parts to that retention definition that’s covered in the bill that we’re going to be discussing at the committee of the whole House. Then, of course, I think the other thing is how that money is used by the head contractor, and the bill now makes a requirement that if a subcontractor proposes to use the retention money, that person or that entity must give at least 14 days’ notice under section 18D of the Act to say that they are going to use it so that there’s time to make sure that subcontractors can assess whether it’s been used for the right purposes, which, again, is a good thing, because we want to make sure that that money is supported and secure on the behalf of the subcontractors.

I would note that there are other ways of dealing with the asset class. Of course, everyone assumes it’s cash set aside. A contractor can also elect to take on a bill or a bond, which means that they will have to put up security against a bank, and a bank will issue them a bond. Particularly where we’ve got large building contractors who are doing multiple large jobs and they have to hold substantial sums of money, one way of doing that is to actually go and get a bond from the bank, but it does come at a cost. It’s quite a substantial interest rate. It’s like taking a loan out from the bank. So it does come at a cost, but it is another way of funding entities through these construction projects.

But I think these are good improvements. National will be supporting these amendments, but why so long? That’s just the question I keep asking: why so long when we’ve got a construction industry where the outlook is less than secure, partly because of some of the other changes that have been brought in by the Government?

The Credit Contracts and Consumer Finance Act (CCCFA) has probably had the most crippling effect on first-time buyers in New Zealand. I was with a group of banking people yesterday in Auckland who are involved in the construction sector and the impact of the CCCFA, which means that many people who are building—building companies, doing spec homes—now have little or less guarantee they’re going to be able to sell those projects. I went to a function the night before, and a large home-builder was telling me that they’ve had 50 contracts fall over because of the CCCFA.

I’m just worried that we’re going to see more building construction companies fall over partly because of the Government’s making but also partly because of what’s happening in the market with supply lines. It’s a good thing that there’s been some amendments made to the Gib arrangements, but we have got an industry that needs careful management, careful support by the Government, and this needs to go through the House as a matter of urgency. I hope the Government picks it up and runs with it, because it should have been doing it ages ago.

Thank you, Mr Speaker. It’s my privilege, this morning, to speak on the Construction Contracts (Retention Money) Amendment Bill. The purpose of this bill is to strengthen and clarify the existing retention money regime in the Construction Contracts Act 2002. I acknowledge the work of both Minister Woods, more recently, but also the Hon Poto Williams and the preparatory work that she did in her capacity as the Minister for Building and Construction.

I think, particularly as one of the Transport and Infrastructure Committee members, when we heard oral submissions and read the written submissions, and I go back to one particular organisation based in Wairau Valley, one of the largest subcontractors in New Zealand’s commercial construction sector—and both payees and payers of significant retentions—a local business on my side of the bridge in Wairau Valley, Thermosash, has shone some light on what this bill would mean in their business. I remember quite vividly a quote from their submission, that Thermosash has, over the years, lost large amounts of money due to main contractor failures, including the Ebert receivership, which had a significant impact on them. So there are some challenges there.

When I look over to Mr Bayly’s question that he asked the House—of why it has taken so long for this Government—he also acknowledges that the Hon Nick Smith had concerns back when they were the Government, nine years in waiting. But, you know, typical of National—no action National—particularly when it comes to infrastructure and building. So thank you, Mr Speaker, this is a great bill and I commend this bill to the House.

Thank you, Mr Speaker. That was a remarkable comment at the end there from Shanan Halbert, the previous speaker. He was trying to suggest that the previous Government took no action. It’s understandable that he wouldn’t have listened, but we’ve had five years of failure. We’ve seen absolutely nothing infrastructure-wise delivered under this Government. It is absolutely outrageous for that member to stand up and try and suggest that this Government is doing better, when clearly they are not and they are failing across the board, time after time, on key infrastructure that really matters for New Zealanders.

It is a relief to see this bill, the Construction Contracts (Retention Money) Amendment Bill, now at its third reading. It is disappointing that it has taken so long; it needn’t have. I think it’s quite interesting, actually, when you consider the time it takes for the Government to put through a piece of legislation like this. It has some meaningful benefits for those that are impacted, yet, on the other hand, they’re prepared to rush through with urgency, without proper consultation or any meaningful consultation, other pieces of legislation that have less beneficial outcomes for Kiwis. It’s a bit of, I guess, an indictment on this Government because we’ve seen this a number of times, sadly.

But this particular piece of legislation is something that we’ve supported. We’ve been trying to make some improvements to it throughout the select committee process, initially, and coming right through now to its final reading here in the House. Unfortunately, we do see too many instances of builders or tradies being caught out when a lead contractor or some other entity that they are working as a subcontractor who ends up defaulting or going into liquidation or insolvency, or whatever it may be, and the issue is, of course, that those at the bottom of the chain often end up missing out.

Sadly, I’ve seen that in my own electorate of the Waikato, a strong, thriving, growing electorate. It could be doing better if it had a National Government, but, nevertheless, it’s doing OK. With a number of builders there, we’ve had some challenges. You always see these sorts of things, but no one goes into business expecting to fail or to have their business not work out, but, unfortunately, these things can happen. So it is critical that we have a clearer process around the retention money aspect and the flow-through of that money for contracts or services delivered, projects delivered, by those subcontractors across what can often be quite complex and multifaceted contracts or construction projects over a long period of time, and so it is important to ring-fence some of that from the perspective of helping to give some certainty to those further down the chain.

So requiring the retention money to be held in trust is not necessarily a new aspect. What this bill is really achieving is tightening up the understanding of how that process works, ensuring better accountability and monitoring of those funds so that they can’t simply be held in the general bank accounts of party A—or the lead contractor—for example, but must instead be held on trust in a separate account, noted as such, specifically for the purpose of retention money, making it quite clear that that is the requirement, because what we had seen previously, although there a requirement to keep the money on trust for the subcontractor, was that it could be and was in some instances part of general cash flow or, indeed, in some cases, part of work in progress or assets, or whatever it may have been. It didn’t create the distinction, and when the lead contractor, or party A in that party A - party B arrangement, then went insolvent, we saw the cash not being available for party B, the subcontractor. So, obviously, they get caught out and that can impact their businesses. In many cases, we saw the subcontracting businesses failing as a result of being unable to obtain the funds they were entitled to, having completed the work on behalf of party A but simply not receiving the proceeds for that.

So those sorts of things needed to be ironed out. The intent of the previous legislation was good but, unfortunately, it just wasn’t quite tight enough to ensure that money was being followed through and properly accounted for. So this gives a little bit more confidence, I would suggest, to the subcontractors, or party B, doing the work for the lead contractor, or party A. It gives them a bit more confidence that they can see the flow of funds. It has to be regularly reported to them, so that they can have confidence, because these contracts can be quite long. They can extend over significant periods of time, and so being able to see on a regular basis, a quarterly basis, at least that those funds are still held on trust, still set aside, and retained for the purpose of paying once their contract or their work is complete, will help to give a little bit more confidence.

We still have some issues, though, around examples where, aside from the retention aspect, a lead contractor has perhaps gone insolvent and the tools or assets of the subcontractor are still on site, on that location. So there are still some challenges to be ironed out, in my view, around giving greater confidence to those subcontractors that they can access their tools and any assets they may have bought for that project if the lead contractor is failing or there’s an insolvency issue or whatever it is with whomever they’re contracted to directly, and they should then be able to, of course, carry on their own business.

We’ve seen examples in the media, and members may be aware of that, where there have been situations where that hasn’t been able to happen and so the subcontractor has been unable to access the products they might have bought for that job, and, obviously, with that project not continuing, they want to limit their exposure as much as possible and get those assets back and they haven’t been able to, but also, in some extreme instances, they haven’t even been able to access the tools they had on the job, which then means they can’t take those tools to do work elsewhere whilst that unfortunate situation is being worked through. So that is an area that I’d like to see a stronger focus on in order to give a bit more confidence.

Of course, you can look at going down routes with the Personal Property Securities Register (PPSR) but that’s not what most tradies get into business for. They get into business because they’re competent in carrying out the function, delivering the practical work, of their trade rather than looking at the banking or security arrangements that they might consider in terms of providing themselves adequate protection. It gets a little complex if you start going there, the PMSI route—purchase money security interest—or the PPSR. It’s all a little beyond what most tradies would be wanting to put their business through in terms of a productive consideration.

But I think what we’ve achieved here under the Construction Contracts (Retention Money) Amendment Bill is a reasonable step. We had a good range of submissions. There were some concerns around exactly how that would flow, for example, with the third parties maybe being able to be involved in that, acting on behalf of party A, holding that retention of funds and managing that process, providing adequate reporting through party B, and then, of course, an independent third party potentially giving more confidence to party B as well. Ultimately, we have seen an increasing level of professionalisation, I would suggest in the industry around requiring this sort of reporting. To an extent that’s good, but there’s also a risk, as we have seen in a lot of areas, that we end up with more and more compliance and more and more red tape that makes it harder for people to get on and do business. So we have to minimise that wherever possible whilst, at the same time, getting the balance around giving some of those subcontractors a bit more confidence that they will indeed see that retention money flowing through at the completion of the contract, assuming, of course, that the standard of work they have delivered is as agreed and that there are no quality issues discovered or, I guess, objected to by party A, or the lead contractor in the contract, as it may be from case to case.

So the quality aspect aside, this is really focusing on ensuring that those people out there doing the hard work, at a time in the New Zealand economy when we desperately need more and more workers, can have a bit more confidence to get on and do the hard yards.

So, on that basis, we’re happy to support this bill. As I say, there are still a few extra steps that need to be taken to give a little bit more confidence around those assets held by party B, or subcontractor, on a particular construction site. But, aside from that, it’s a reasonable step. We were delighted to be able to participate in that, and I look forward to, hopefully, seeing some more work from the new Minister to try and tidy that up a bit more in what is an important part of our economy. Thank you, Mr Speaker.

Talofa lava, Mr Speaker. And, as always, it’s an honour and a privilege to speak on this, the Construction Contracts (Retention Money) Amendment Bill, certainly as a member of the hard-working Transport and Infrastructure Committee.

I know it’s already been said that the purpose of this bill is to strengthen and clarify the existing retention money regime in the Construction Contracts Act 2002, and that the retention money is money that is held back from payment under a construction contract as security to ensure a solo contractor’s performance. We know that at the moment it is voluntary—well, that’s the current status. It is voluntary to retain the retention money and it is often used, we know, by some of our head contractors to make sure that subbies do a good job, and that’s not the purpose. We know that we’ve seen things like the fall of the construction company Stanley Group and what that looked like for our subbies not getting paid. So this is a good bill to make sure that we look after our subbies and, for that, I commend the bill to the House.

E te Māngai, tēnā koe; tēnā koutou e te Whare. This is a straight-up common-sense and well-scrutinised bill, so it may come as a shock to members of the Opposition but I will not be gunning to fill my 10 minutes of time in the Green contribution today.

I do, however, need to acknowledge the Minister and former Ministers who have contributed to this mahi to get this bill in front of us, as others have contributed in their statements this morning. I also want to acknowledge the Hon Julie Anne Genter, who actually originally had a member’s bill to address this issue.

And this issue, as others have gone to the core of—some in greater complexity and detail—is around retention money. Retention money is a security for performance of party B’s obligations under a contract held by party A. As others have well canvassed, there has historically been a number of issues where, for example, that retention money has been mixed into other money from that contractor, or those assets, and then unintentionally—or intentionally—spent, particularly in instances where party A has ended up becoming insolvent.

As, actually, members of the Opposition have put forward in their contributions this morning talking about some of the complexities around potentially contracts or litigation or otherwise, that those who may be involved in the trades or the construction sector might not necessarily want to get involved or busy themselves with just wanting to get on with that construction. That is the point of this legislation; it is to simplify the regime that applies to retention money.

So, to that effect, this bill strengthens and clarifies the regime for retention money to ensure that subcontractors get paid—that’s a good thing; it sounds as though every party in this House is in favour of it. I must say that, despite it being really simple at that high level, it is by no means necessarily simple in practice. So I want to applaud, as others have, the Transport and Infrastructure Committee for their thorough scrutiny of those criteria and some of the recommendations and changes that have been applied throughout that process.

So it sounds like everyone is in support of this legislation. It sounds like we don’t need to waste any more time in getting on with it, so the Greens are proud to support this legislation today.

Thank you, Mr Speaker. It is a pleasure to rise this morning on behalf of the ACT Party in support of the second reading of the Construction Contracts (Retention Money) Amendment Bill. Through the course of my speech, I’m hoping to go into a little detail about why we’ve ended up with this bill, the history behind why it’s important, and what’s come out of the submission process, a little bit about the costs and benefits and balancing those, and what ACT’s hope is to go forward.

But firstly, though, I just want to start by saying thank you to all the committee staff, all of the submitters, and my colleague Dr James McDowall, who sits on the committee that oversaw this piece of legislation. There’s been an awful lot of work, and it doesn’t really happen without all of those people behind the scenes, putting in all of that effort and, importantly, having submitters from the public with their industry knowledge giving us their submissions. So thank you very much for submitting on this bill.

Every day, up and down New Zealand, people get up and they go to work on construction, and ACT wants to do a bit of a shout-out to all of our subbies, everybody who does work really hard to make sure that new buildings do get built in New Zealand. It’s great to see hard-working Kiwis wanting to put up their tools and help create positive construction in New Zealand. We really appreciate people who want to work hard, get up in the morning, get their tools out, and create new houses and new facilities in our communities.

But construction is not easy, and it’s not simple, and there’s a lot of factors that go into it. You know, you’ve got an awful lot of people who are involved in the construction of a new building or a new facility, and that’s anything from the roofers and the tilers through to plumbers, electricians, plasterers, concrete pourers, painters, and bricklayers. The list is very extensive, but it’s very specialised.

When a person or an entity or a company decides that they want a new building to be built, they employ a builder or a building company, and there are an awful lot of skills that are needed, as I’ve suggested, in the building of a new facility. If you go into the detail of all of those types of skills, you end up needing an awful lot of training if one person needed to do all of that work themselves. So what ends up happening is people who have that contract use subcontractors—people who have specialised skills—because if you could imagine one company needing to have a person who is able to safely lay all of the cables and all the electrical work, and they can earth objects or ground them and make sure that they are transferring short-circuit electricity through a grounded wire to the earth, that’s a very specialised skill. I know, from my experience of working on a factory floor, as someone who made light-fitting extrusions and did the wiring behind those, you don’t want to get that wrong. So there’s a lot of training that’s involved in electrical work. But, of course, if you have that skill, then you compare that to making sure that you’re not getting any leakage in your roof work, that’s another specialised skill on top of that.

Building construction companies quite often subcontract to people who have worked their whole lives, who have built up a wealth of knowledge, and who are really awesome Kiwis getting up and donning their tools and making sure that this work is done in a good way. But the issue here, of course, is that what ends up happening is you have these contracts and you have people who have been brought about who might be a painter, for example, and they get told, “Yep, you’ll be a subcontractor for this large development. We want X number of things to happen, and we’ll pay you some money now, but we’re also going to keep a little bit of money back, just to make sure that we’re happy with the work that you do.”—and that’s quite right. That’s called “retention money”, which is why we’re having this debate. Now, that retention money sometimes is held back just to make sure that those faults are fixed before there’s a final payout, to make sure that the actual contract is really done and dusted.

But what ends up happening in reality, in some cases, is that retention money isn’t just kept aside; it’s actually used for capital and it’s used to help pay for something else that’s happening in the building and construction. Usually, retention money might be about 2 to 10 percent of any contract, but sometimes that money is not really found when a company does go insolvent, or it’s being used somewhere else. So what ended up happening was that in 2014, Dr Nick Smith from the National Party tried to make it clearer what happens with retention money through a law in Parliament. There are still faults with this law, and some companies have said that it’s not as clear as it should be. Some of that money has been used as working capital, rather than retention money, and it hasn’t been kept on trust. So we’re now back in the House of Parliament, trying to clarify this law again.

One thing that this bill aims to do is to clarify that retention money is held on trust by party A—that’s usually the big contractor—for the benefit of party B, the subcontractor, and it requires that this money is kept separate from other money or assets. That’s really important because if there’s a company taking on far more risk and they end up getting insolvent, what ends up happening is that a smaller subcontractor quite often has no claim to any of that money. It’s nowhere to be found. It also requires that party A is to give information about the retention money to party B when the money is first retained and then at least every three months. So the whole change to this trust requirement is to clarify how retention money is being held under the Act and how it can be used. There have been instances where head contractors have used retention money as working capital. The use of retention money as working capital can add additional financial risks for business, for example, if a head contractor becomes insolvent before paying out the retention money, and it can be substantive financial loss for a subcontractor. What they’re aiming to do is strengthen the trust requirements to mitigate the risks associated with the use of retention money as working capital.

Throughout the submission process, Parliament heard from a range of people involved in the building and construction industry who welcomed this change and clarification under the law. I point to a few entities like Concrete NZ, which represents a membership of more than 700 corporates and individuals in the building and construction sector; Steel Construction New Zealand; Master Builders Association; and the New Zealand Institute of Building. There were Master Electricians, who employ around 7,000 electrical workers across New Zealand; the Master Plumbers, Gasfitters and Drainlayers; Civil Contractors New Zealand. There are a whole range of people who made these submissions.

What ACT really hopes is—sure, there might be that balance between the extra cost that the business might need to take on by not having that money being available for capital funds, but our hope is, really, that that is balanced out by the certainty that this provides to subcontractors, that that money is actually held for them to be paid out right at the end when they know that all defect work has been completed to an acceptable standard.

We also retain some concern just based on the fact that we have already tried to address this retention issue in previous Parliaments, and yet we’ve come back to try and clarify the law. So the ACT Party does support this change, but we also keep in the back of our minds a form of hesitancy that this will not actually be a fix all, because we know that we’ve been in this position before, and it’s quite possible that we end up, in a few years’ time, recognising that there were more changes that did need to be made to clarify this change for party A and party B.

So, in conclusion, this law would allow subcontractors a little bit more confidence that they will have money to help them in their own cash flow when they do get paid out for the building work that they do, and I hope that this law will actually provide that confidence to people up and down New Zealand who are working in our construction sector. So, just on my final note, we love our subbies, and we hope that they do find this a good change.

I’m pleased to rise in support of this bill. We love our subbies too and it’s good to hear the recognition of the position that those subbies are put in, because they’re often small players working with big players and they’re vulnerable in that situation. That’s led to a pretty shameful situation where the money that has been set aside—and, in fact, I was interested to see in the briefing a discussion about how this is a voluntary payment. It might be voluntary but it’s voluntary where you’ve got a big player and an actual practice of retaining this money, and those subbies have been put in a position where that money has been there and it’s been a bit tempting, and people have intermingled it and they’ve used it for other purposes.

So now that won’t happen any more, and, if it does, it’s not just the companies that are going to be liable; it’s the directors. I’m very pleased to see that, because I think it’s what a good director should never be afraid of. That’s their job, to make sure that things stay straight, and if they don’t, they can be fined $50,000 a pop. That’s an important change that we’ve got here. So I’m extremely pleased to see a piece of legislation responding to reality, not ideology—reality. We are protecting our subbies and I think we’re doing a good job here. I commend the bill to the House.

Oh, thank you very much, Mr Speaker. I rise to speak on behalf of the National Party, and as the member of Parliament for Southland, on the Construction Contracts (Retention Money) Amendment Bill at its third reading. The National Party supports this bill. The purpose of this bill is to amend the retention money regime in the Construction Contracts Act 2002 to further strengthen and clarify that regime. The bill doesn’t make any significant changes overall, but it does amend the retention money regime, and adds further protection to subcontractors from the 2015 amendments that the then National Government made.

It is a challenging time for construction companies around New Zealand, there’s no two ways about it. Over 100 firms, unfortunately, have gone bust since the beginning of this year alone. It is a tough time in the construction time. It is a great industry. It’s one that I worked in myself, in my younger years on the tools—I worked in roofing companies, I’ve painted for a painting contractor, I’ve worked for builders on various sites in my younger years. And I know it can be tough work, but it’s great work. It’s building houses for Kiwi families, and that’s a really great thing that they do. But there have been real challenges and they’re developing at pace. With the supply chain challenges around the world, there’s a real problem getting building products and getting them on time for building sites. There’s a huge workforce shortage in the building industry, which is having a really significant impact on the ability for companies to complete the contracts that they have agreed to do—to build the houses that they need to do. And there’s a real shortage of availability in terms of experienced trade staff.

This is having an impact on the ability for many companies to deliver projects on time and to get what are called progress payments. These are partial payments made to a business or contractor after completion of a prescribed stage of work—for example, the addition of a roof, etc.—but that needs to be completed in order for the progress payment to be made. I certainly heard from companies in my region who haven’t been able to get what would normally have been some fairly simple things, like maybe a particular doorknob or a showerhead, for example, that’s needed to complete a particular bit of work. They can’t complete a house. In fact, I’ve talked to companies who can’t complete multiple houses because they just can’t get these little pieces that they need, and that’s having a flow-on effect in terms of staffing as well. By that, I mean staff being able to actually do the jobs—they’re having to redistribute the workers they do and try and find work for them elsewhere.

On top of that, there’s a massive workforce shortage which is, in fact, affecting every industry that I talk to, but certainly affecting these companies. So there’s a huge amount of pressure on building and construction companies at the moment in this country. Unfortunately, a few of them have gone to the wall—in fact, over a hundred this year. We want to acknowledge that challenge that they’re facing.

This bill here is an amendment for those companies that do go into liquidation, to ensure that the subcontractors don’t lose out on contracted payments of the retention payment scheme. This is a problem because the subcontractors lose out on that income. That can have a big flow-on impact in terms of their ability to service their debt, pay for their bills, and keep food on the table, fundamentally.

So the amendments to this Construction Contracts Act intended to address this risk by better protecting retention money automatically by providing that it’s held on trust from the earliest practical point in time. A key concern about personal property of the subcontractors and accessibility of that property when companies become insolvent is that there are stories such as subcontractors leaving their tools and equipment on construction sites and being locked out, being unable to access their tools when the company goes into liquidation. This has also halted other work the subcontractors carry on to do, because they can’t access their tools. The High Court decision in Bennett and others v Ebert Construction Ltd noted that the Construction Contracts Act had policy gaps and the trust requirements were imprecise.

So this bill will strengthen the laws around this, and will require retention money to be held in trust by a separate accountant, in a registered bank in New Zealand, or in the form of complying instruments, such as insurance policy or guarantee. It also clarifies that retention money held in trust must be kept separate from other money or assets, and cannot be used for any other purpose. If party A, for example, becomes insolvent, the receiver or liquidator becomes trustee of the transfer money for the purpose of collecting and distributing it. So I recommend this bill to the House.

Thank you, Mr Speaker. This is a great piece of legislation which recalibrates the balance of power between David and Goliath, if you like; some of the large contract holders with the small subcontractees.

I don’t have too much to say about it, just to point out that the select committee process was, obviously, robust. There are 22 changes that have been accepted at select committee. To talk about one of them: there were submissions made that weren’t brought into effect, and that was submissions from local government wanting an exemption for government around the trust requirement. I think it’s great to see that this was not accepted, because it came down to a matter of principle: that the risks that small businesses and subcontractors face are the same regardless of who is the head contractor, whether it is private enterprise or whether it is the public sector. So this is really a principle-based piece of legislation, and the Transport and Infrastructure Committee quite rightly, in my opinion, said that no matter how small the risk—and it will tend to be smaller with public entities—the principle still applies and, therefore, that change should not be made.

So I thank the select committee for what was obviously a thoughtful process, and I commend this bill to the House.

Kia ora, Mr Speaker. It is my pleasure to take this short call on the second reading of the Construction Contracts (Retention Money) Amendment Bill. I just want to acknowledge the previous Minister for Building and Construction, the Hon Poto Williams, for her mahi in bringing this bill to the House, as well as the Transport and Infrastructure Committee for getting the bill to this point.

I just want to echo my colleague Helen White’s messages there around Labour supporting our subbies. This bill will improve outcomes for all parties, particularly our subcontractors, who make a significant contribution to our construction industry. As small businesses, they have a lot of skin in the game. With that, comes a huge amount of anxiety and uncertainty, and we need to ease that as much as we can. So amongst the technical aspects of this bill, there is a human component that needs to be recognised, and it is for that reason that I commend this bill to the House. Thank you, Mr Speaker.

Thank you, Mr Speaker. Thank you for the opportunity to speak on the Construction Contracts (Retention Money) Amendment Bill second reading. We all know that this is an area that does come to the fore in a time of economic decline, and when companies that have invested heavily or have been led by certain market conditions to continue to progress their businesses very strongly—and no problem in them doing that; that’s meeting market conditions and such like—there often comes a day of reckoning, and the construction industry, the history has shown that that does happen like in many other businesses.

This bill is an attempt to deliver some certainty around that stage should a business, unfortunately, ever get in that position, and so we are supporting the bill because we do need to see an increase in how we can help out any of the organisations that may be caught up in such an event, and everybody involved, whether the building company or the subcontractors, all want to get a satisfactory resolution of the issue.

I just think that in general terms we also need to look at this bill in the context of what’s going on here in New Zealand at the moment. Traditionally, when there is an inflationary spike, reserve banks take the approach of increasing interest rates to curb that inflation. That’s the normal process. The New Zealand reserve bank, when they came to our caucus a few months ago, declined to take that approach. They said that this was a different form of inflation and that they didn’t need to do that. Those were their basic exact words, and then, months later, we see them hiking inflation constantly. So we have gone back to the traditional form of dealing with the situation of inflation, and that’s to put interest rates up. And the whole reason you put interest rates up—not you, Mr Speaker, but the whole reason that interest rates are put up is to reduce the demand in the economy. That’s the whole point of it. And that then means that we have a surplus of supply.

Construction is often an industry that gets caught up in that point in time, and we go to the opposite. We actually go to a position where people aren’t engaging construction companies to do work. They’re actually saying, “No, we don’t need you to do that thing that we could have done in the next six to 12 months. Hey, we might put off building that new building.” That’s, effectively, what’s going to happen in New Zealand. It’s going to be a hard landing, because, the thing is, we haven’t gone up in little incremental interest rate rises over the last few months; it’s been a huge increase. The quantum of that increase has never been seen before in the generation of many people in this House. The impact of that will be a hard landing. There’s no other way you can look at it.

To have the Government say that it’s going to be all fine and next year interest rates will level out, we’ll still have low unemployment and things will be fine—it’s a dream. It’s an absolute dream. The reality is that when you put interest rates up that hard, somebody is going to have to say no to a proposition. That’s the effect of putting interest rates up, and who’s going to be the one caught out? It’s going to be the building and construction industry. They’re the ones that are going to get caught. They’re the ones that will be out there working this out now. They’re not silly; they’ve seen it before. They’re not listening to the Government rhetoric. They know that they are at most risk.

What does that mean for New Zealanders? It means we lose that capability to actually build things when we need to review—when we come out of that point of time, when we need construction to be a growth angle for the New Zealand economy, the people aren’t there. They’ve gone to Australia. The capital is not there. Nobody’s willing to risk it. And the business owners go, “Well, hey, I’ve been burned. I’m only going to do a certain amount of growth in the next time when that growth cycle comes along.” And we’re slower. That means that New Zealand always takes longer to come out of a recession. That is the cycle that we are going to see.

This bill actually will be very important. Unfortunately, we don’t want it to ever be used. The reality is that some of these things will become more important. But the real thing this Government should be doing today, instead of doing bills like this, which are just ambulances at bottom of the cliff, is actually looking at its spending and saying, “We’re spending too much. We are creating more inflation than we need to.” They should actually be genuine about trying to save businesses from going into the situation where they need this bill. They should actually be prudent in their economic management so that we don’t have to have the excessive hike in interest rates; we don’t have to have the excessive demand that has now built up, that stops; and that we don’t have to have that unemployment, where we don’t have to have those businesses saying no, and we don’t have to have that construction industry staying down longer than it needs to, and New Zealand takes a harder, longer recovery. That is the history of economics. The Government will not accept that for one moment and they’ll be telling their members, “Don’t worry about this. Don’t worry about that speech. We’ll be fine. You’ll be at election time and unemployment will still be low. Interest rates will be coming off their edge.” They’re dreaming.

I’ll tell you what’s going to happen in a year’s time. Interest rates might come off the edge, inflation might, but unemployment’s going to go up. There’s going to be people losing jobs and it’s going to be the very young people that have been told to get a trade, to go into this career, to get in there. They’re the ones that are going to lose their job. It’s not going to be these guys in Wellington sitting in their offices. They’re still going to get paid by the Government. It’s the hard-working young men and women that have gone into the industries that actually build a country, like the construction industry. They’re the ones who are going to get hurt and they’re ones who are going to bugger off because they’ll say, “We’ve had enough of this. We don’t want a country that can’t manage itself.”, that can’t manage the conditions so that they can actually get ahead. That’s what will happen. And Labour members will lose the election on the basis of that, because the people see that, the building companies see that. They’ve been through it; they know that’s what’s going to happen.

So if Labour seriously wants to do something about this area, get rid of that Budget, take a couple of billion dollars of crap spending out of it, and actually do something to stop the inflationary aspect, stop giving money away for nothing, just to create inflation, and look at some fundamental things out there. How do you actually make it so that the construction industry doesn’t have to go through these troughs and peaks? How do we actually give them some long-term construction contracts in the next couple of years, like building some roads, that actually means that there’s actually some work for people out there in the recession that’s coming up? There is a recession coming. There is no way of avoiding it when you put interest rates up that high that quickly. It is the reason you have a recession, because you’ve done that for that reason, to cool the market.

This is an opportunity for New Zealand in the next year to actually look at how we deal with that situation that’s coming. We can be blind, hide from it, and expect an election just to cover it like the Labour Party is. Well, you can actually go out there and look at some fundamental things that actually grow business—providing infrastructure, providing that tax incentive for people to get ahead—and let people employ people. Don’t be afraid of having the private sector do well, and actually make sure that we have a robust economy going for the dark days that have not been created from overseas but we have created ourselves. This is created from our own spending.

OK, it’s the environment we all live in. But it’s the choice you have of how we react to that environment. Do you spend more, put fire on the flames, build it up, and then have to deal with it; or do you actually go, “Well, hey, this is coming in a year’s time. Let’s make sure those kids that have made an investment in our construction industry aren’t the ones on the pile and aren’t the ones that have to leave.”? So let’s get a Labour Government that actually looks for the real issue and looks for solutions in that, and not one that’s feathering its own nest, trying to just ease through to an election year, and hope it’ll get through an election and do a deal with the Greens. That’s exactly what’s happening in New Zealand at the moment.

This bill—we’ll support it. We don’t want to have it happen to any business, but there’s a better way out there and that’s prudent economic management that should be done now and not in two years’ time.

There was a chap out the front of Parliament yesterday looking for new recruits for his party, and I think with that previous speech, he may be tapping on his door—Mr David Bennett’s—as a potential recruit.

I think I’m the only speaker today who was actually a member of the select committee who dealt with this bill. As you will see, there have been considerable changes made to it because it was very much a collaborative effort. It was a group of people that got together and who wanted to make this as good as they could.

I think it’s important to actually remember there are two sides to everything, and getting a balance is right. I know, as a young man working on building sites, about correcting the work that had been done by some pretty dodgy subcontractors, and so I had some sympathy for the main contractor in that case. On the other hand, I remember sitting and having breakfast with a person who had just put air conditioning into a major hotel project in Wellington, and when that contractor went broke, he was contemplating a loss of $250,000 because his retentions had gone. At that stage, I had spent considerable time with the previous construction Minister, ensuring that we were doing something about this to ensure that, actually, people did get the protection that they required.

So this is about getting the balance right. I think we have achieved that, and I’ll give credit to those—I’m just trying to think now; it was a wee while ago—whom I remember were on the select committee with me. It was probably as collaborative an effort on a select committee as I have been on, and I think we have pretty much got this right. The assurance now is that when a contractor does know that his money has been retained, he or she will have that money sitting there and—most importantly—it doesn’t become working capital, because that is generally what has happened in the past, and that’s where the problems have arisen.

So it’s a good piece of legislation on its way to, I think—as the previous speaker did mention—a time when there is going to be considerable pressure on the construction industry. I think that it is very timely that this bill will be giving that necessary protection. I commend this bill to the House.

Motion agreed to.

Bill read a second time.