Genter Julie Anne: Construction Contracts Amendment Bill — In CommitteeText is incorporated into the Bound VolumeGenter Julie Anne: Construction Contracts Amendment Bill — In Committee[Sitting date: 22 September 2015. Volume:709;Page:6839. Text is incorporated into the Bound Volume.]JULIE ANNE GENTER (Green): It is with great pleasure that I rise to speak on Part 2 in the Committee stage of the Construction Contracts Amendment Bill. It has been quite a long time since we considered this in the Commerce Committee. In fact it has been about 2 years and it has been even longer since some of the changes in this bill were first considered.The Government initially asked for a Building Act review in 2009. Subsequent to that in 2010 there was a review of the Construction Contracts Act itself and in that review two of the recommendations that originally were not put forward were specifically around the use of retentions and security of payment for subcontractors. Unfortunately when the National Government initially introduced the bill it did not deal with the issue of retentions and so 2 years ago in the select committee deliberation—which was of course in 2013 and not long after the issue with Mainzeal Property and Construction which collapsed in February 2013—the issue of retentions became one of the biggest issues for submitters that we heard about during the select committee process.Just for those who might be watching at home tonight I will get to the issue of retentions or an explanation of them. Retentions are a portion of the contract price that are withheld by the principal or head contractor and not paid until after the construction work is checked and found to be free of defects. What was happening was that we had principal contractors who were receiving payment from the client and they were withholding a portion of the payment that technically would belong to subcontractors who were meant to undertake the work until they were certain that that work was completed and free from defect except instead of holding on to that money the principal contractors—many of them some of them—were using it as cash flow on some of their other projects. Even though the money technically should have belonged to the subcontractors who had been engaged to do the work who oftentimes had done the work already they were not being paid.We heard that there were significant problems with the late payment of retentions and the money being held back and in cases where the principal contractor became insolvent—which happened of course to Mainzeal Property and Construction in February 2013—then the subcontractors missed out on payment for work that they had already undertaken. Although we were not meant to consider the issue of retentions because the Government had deemed that it was not going to deal with it in the Construction Contracts Amendment Bill as it came to the select committee in 2013 we heard from 14 submitters and almost half of the submitters talked about how important it was to deal with this issue of retentions as soon as possible. It was unjust for the subcontractors that money that technically belonged to them was being used by principal contractors for cash flow and for other purposes and then it was not always there as it should be or at times it was being paid late.Although we heard about this during the whole select committee process and the officials told us that they were considering options initially when the bill came to the second reading there were no changes introduced and there was no intention from the National Government to introduce the changes to deal with retentions. So obviously the Labour Party came up with a solution and put forward Supplementary Order Paper 439. I put forward Supplementary Order Paper 446 myself. Mine was a little bit simpler than the one that the Labour Party proposed. I have it here. We will still be voting on it tonight. My Supplementary Order Paper 446 was designed in conjunction with people in the industry who were extremely concerned about this issue and the lack of action on the part of the National Government Minister at the time Maurice Williamson.The way that Supplementary Order Paper 446 works is quite simple. It simply deems that retentions must be held in trust. So the principal contractor has to be holding the money in an account somewhere. They do not have to set up a new or separate account for this; it just needs to be an account and deemed to be held in trust until such time that it is paid to the subcontractor. It is an elegant solution and I am very very pleased to see that the Government has in fact picked up something very similar to this Supplementary Order Paper 446 on its own Supplementary Order Paper 106 which is obviously somewhat more complex. It has worked through it with officials. I assume that it is for that reason that it has taken so long for this bill to come back to the House for its Committee stage—because the Government actually has listened to the industry and has succumbed to pressure and is going to do right by the subcontractors and ensure that their property their earnings are protected from this sort of abuse that was quite rampant in the building sector.I congratulate the Minister in the chair tonight Nick Smith because I do think that he must have played a critical role in actually including the retentions issue in this legislation because it did not seem that former Minister Maurice Williamson was intending to do so and it was only after the change in portfolios that this change came forward. So we are very very pleased tonight to be supporting the bill and supporting the Government’s proposed amendment although we have not had the time to scrutinise it in the select committee. Looking at the Government’s amendment on Supplementary Order Paper 106 it outlines all the different changes and new Subpart 2A is about retention money.The one question that I would ask the Minister to address is that although we have got the use of retention money in new section 18E in proposed clause 8BC which says “Party A must not appropriate any retention money to a use other than to remedy defects in the performance of party B’s obligations under the contract.” and that sounds very good I am slightly concerned about new section 18F which says that “Retention money may be invested by party A”—the head contractor—“in accordance with the Trustee Act 1956 …”. So it looks like the Government has accepted that the principal contractor does need to legally be held to account and hold the money aside in trust so that it is safe but it looks like the main contractor is still free to invest the retention money in accordance with the Trustee Act 1956 and if they make a profit on that money they get to keep the profit. They do have to pay interest on a late payment. I think that sounds good.So all in all I would say that this has been a win for democracy because the bill that came before the select committee was not addressing significant issues that had been identified in the review. Because of the circumstances of the Mainzeal meltdown and the reverberations that it sent throughout the building sector we did hear from a number of submitters in the select committee process about the retentions issue. I believe that Opposition parties like Labour and the Greens were instrumental in putting pressure on the National Government to actually take action when it was failing to do so by putting forward our own options by asking questions of the Minister in the House and by demonstrating to the construction sector that we took its concerns very seriously and we were willing to stand up for its rights.We are very very pleased to see from the changes tonight that actually our democratic process can work. This bill can be improved even if it takes 2 years to deal with a substantial issue that is affecting people’s lives and that is affecting the subcontractors who are out there doing the dirty work out on a building site by ensuring that they are not going to lose their money because the principal contractors have been misusing it. I invite the Minister to address my questions about section 18F—whether that is standard and whether there are any concerns about what might happen if retention money is invested and in fact lost and it turns out that the principal contractor no longer has the money to pay back the subcontractor. Because that is really the issue here right? It is that when the principal contractors lose money and go into receivership or insolvency then the subbies who are out there doing the real hard work—not getting paid an enormous amount for it and taking a huge amount of risk for themselves—miss out. Thank you.