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The construction industry must design its own guidelines governing how payments to builders and subcontractors will be made, says the NZ Institute of Quantity Surveyors (NZIQS).


A new retention regime comes into force on 31 March under the Construction Contracts Amendment Act 2002. The regime requires the retention money withheld from builders and subcontractors on all new commercial contracts to be held on trust.


However, NZIQS spokesperson, Peter Degerholm, says the Government hasn’t yet designed the appropriate regulations covering this retention scheme and there are only six weeks until the law takes effect.


Mr Degerholm is urging the industry to develop a set of guidelines to assist the industry.


“We have less than six weeks left, and the industry is yet to work out what the trust obligation really means in practice,” he says.


“Some aspects of the regime are also dependent on yet to be issued regulations – the minimum amount to which the trust obligation applies, and the acceptable methods of accounting – but most importantly companies need to know how to comply so that they can make the necessary adjustments in their businesses.


“It’s particularly important for quantity surveyors – who process payments for all parties – to properly manage retentions and advise their clients.”


Under the regime, new commercial contracts from 31 March require retention money withheld from builders and subcontractors as security for their performance to be held on trust.


The retention money doesn’t need to be held in separate trust accounts, and it may be mixed with other money, so the accounting requirements are unclear.


In addition, the regime introduces penalties where retention money is not properly managed or paid out.


Payers must also comply with their duty as trustee, including having auditable accounts, and making information readily available to their payees.


The retention money is also protected from a receiver or other creditors, should the payee become bankrupt.


Mr Degerholm acknowledges that it will take time to demonstrate whether the retention regime has been successful, but hopes the industry will collectively improve the management of retentions.


“Without an agreed understanding of the regime it will not achieve its potential – I believe the industry, working together, can provide the answers.


“The New Zealand Institute of Quantity Surveyors can take the lead in developing practical guidelines. We will continue working closely with other organisations such as the Registered Master Builders Association, and with the Ministry of Business, Innovation and Employment.”


For more information, contact Peter Degerholm on 021 307 232

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