Construction Contracts Amendment Bill — Second ReadingText is incorporated into the Bound VolumeConstruction Contracts Amendment Bill — Second Reading[Sitting date: 20 March 2014. Volume:697;Page:16946. Text is incorporated into the Bound Volume.]Construction Contracts Amendment BillSecond ReadingDebate resumed.Hon SHANE JONES (Labour):I want to direct our attention to the Construction Contracts Amendment Bill with some encouragement and direction from the shadow Leader of the House who has informed me that indeed this bill has already been to the Commerce Committee—Grant Robertson: It’s on its way back—second reading.Hon SHANE JONES: —and is on its way back. I want to direct our attention to a provision in the bill that has been referred to by the Associate Minister for Local Government who I must say I am waiting hear from as indeed everyone in Northland and Whangarei is as to whether he has initiated an investigation into why the civil infrastructure around Marsden Point Ruakākā is collapsing and has put potentially another $20 million liability on the Whangarei District Council books. I invited him to have a look at it last night. I do not want to embarrass him because he and I are proud members of the golden oldie rugby team. We are not quite as esteemed as you Mr Deputy Speaker in former years in that role.Anyway let us come to “Retentions” in the commentary on the bill. We will support this bill. We look forward to the Minister of Building and Construction bringing a Supplementary Order Paper into the House to improve an area that has caused concerns for the shadow Minister of Commerce Clayton Cosgrove—I dare not say “conniptions” because that could mean “tantrums”. The concerns relate to the fact that the Minister has left it to the bureaucracy in the Ministry of Business Innovation and Employment or what used to be known when it had a far more focused Minister as the Department of Building and Housing. The problem that the bureaucracy seems to have got itself lost in with legions of lawyers no doubt is that retentions—and this bill unfortunately does not deal with it yet it is called the Construction Contracts Amendment Bill—are potentially being abused or misused by the head contractor or the developer and it is something akin we fear to a pyramid scheme.That is a reasonable concern. It is something that blew up when Mainzeal Property and Construction turned to custard. I realise that litigation surrounds that receivership now so I will not intrude into that area as I am sure there are two sides to the story in relation to the litigation. But it is a very good point that if a firm has delivered on the contract then the retention portion of its contract price ought to be made available without any delay because often these firms that are delivering services to the head contractor or the developer are like a lot of small to medium sized businesses in New Zealand starved of cash flow. The current regime has basically looked after the big end of town unless you are a dairy farmer but they are becoming bigger and bigger. I fear that the sort of archetypal dairy farmer like my dad will soon be a thing of the past and you will have these large syndicated agribusinesses paying no capital gains tax and getting free water but I will come back to that later. If only such levels of commercial virtue were visited upon the forestry the fisheries the wool and the meat industries then I would feel less sort of antagonistic towards the agribusiness barons.Louise Upston: Which bill are we on again?Hon SHANE JONES: But anyway let me come back to the bill. I was just giving an indication of some of my thinking to the fellow members of the Primary Production Committee whom I hold in high esteem. I hold them in high esteem and I am sure that they look lasciviously sometimes at the cash flows of the dairy farming fraternity. But returning to “Retentions” we are well not imploring the Minister but we want the Minister to bring forward a solution so that this bill can be plugged where our members on the select committee felt that it was adrift and the area really is around the security of payment and retentions. We have a solution. We should not allow this particular part of the pricing and the payments of large-scale construction to turn into a pyramid scheme. It is not for me to identify firms that are engaging in this egregious practice because that might lead to an accusation that I am abusing the sovereignty of the doctrine of parliamentary privilege but unless they do pick their ideas up I fear that the man who compared the current Minister of Justice with an acid-spitting cane toad could sort of leap forward again. He could leap forward again.Grant Robertson: Dangerous.Hon SHANE JONES: Yes. So I quite enjoy florid expressions but I would say that that one tops it. That has gone right up to where you might sort of regard a high-ranking soul.Providing that a Supplementary Order Paper comes forward I think that the majority of us on this side of the House will have very few concerns. Indeed there was a press statement put out recently by an organisation representing registered tradesmen and tradeswomen in the building sector complaining that this omission is actually crippling their businesses. I may be labouring the point but the Minister has got an opportunity in the spirit of bipartisanship to bring forward a Supplementary Order Paper and solve it. There is no obstacle to his putting forward such a Supplementary Order Paper.Of course arbitration is absolutely necessary in this particular sector. I was not on the Commerce Committee which was probably not to the benefit of the members opposite on that particular select committee. We have had lots of submissions from people concerned that they are not being paid enough for the work that is being done. The members on the other side of the House know that that is by and large accurate. Occasionally you do get some miscreants or cowboys in the industry—yes you do. Far be it from me on this side of the House to call them cowgirls. We do want to support the notion that where there is an intransigent set of disputes it can go to an arbitrator—not disappear into the High Court not disappear into extraordinarily expensive litigation but arrive at a situation where a very prompt decision is delivered. That is what both parties deserve. That is a contribution to our concerns in respect of productivity. These small steps may seem insignificant in isolation but when you add them up there is a great deal of positive impact as to where these improvements can actually lead to the sector.The sector has got a host of other problems. Today I had representatives from the Certified Builders Association of New Zealand come in and see me. They made some reference to this particular piece of legislation. They also referred to the need to develop and train the next generation. Indeed we have a host of policies and I actually hope that the other side of the House shows the same level of zest that we do to bring forward the new generation of tradesmen and tradeswomen. Indeed if we ever need an example of where it has not worked out to our satisfaction it is Christchurch. Legions of our distant relatives from the Emerald Isle arrived after a number of them had been through the health system for conditions that I will not talk about in Parliament. A number of them have been found to have the wrong set of skills and are inappropriately matched. Let us invest in our own young people. Let us invest in the school-leavers. Let us continue to invest in the tradition and the esteem that in my time plumbers carpenters drainlayers and a host of other vocational trade - qualified people held—not just in the universities.I have been told not to talk about universities for fear of straying into ethnic politics. I promise. The man to my right Grant Robertson I will tell you is our designated spokesman etc. I may have some things to say about training—Grant Robertson: Private training.Hon SHANE JONES: —private training establishments and how they are actually distorting immigration policy. I have more to say about that but that could lead to a complaint to the Deputy Speaker that I am stealing someone else’s lines—someone who sits to the left of me from time to time. But that is another matter. We support this bill and look forward to the Supplementary Order Paper that plugs up what is an omission and I am sure that both sides of the House want to see the Supplementary Order Paper as soon as possible. Kia oratātou.JONATHAN YOUNG (National—New Plymouth):Thanks to the previous speaker Shane Jones. You were stealing my light thank you. Thank you for the opportunity to stand and speak on this Construction Contracts Amendment Bill. The last speaker did speak about an issue that we canvassed very strongly in the Commerce Committee and that was around the area of retentions and security of payment and yes we were assured that the Minister for Building and Construction and his officials are working on this.There is a longstanding issue regarding retentions in the building sector. Please enter here that the member Shane Jones says he has got a solution because he obviously did not have one when he was the Minister 5 or so years ago. This problem has been around for a long time. We were concerned to hear during submissions that contractors were using retentions as working capital. They were having payments delayed or holding retention amounts disproportionate to the contract prices. And all the time this was undermining the sector’s growth and development in terms of its own productivity.It is important to understand that the building and construction sector is vital to our economy. It employs around 8 percent of our workforce and contributes around 4 percent of our gross domestic product. We know of course how important this sector is down in Christchurch. It is important that what this bill is achieving is recognised because at the very heart of this bill there is reform of and improvement in the disputes resolution processes in the construction sector. One of the areas that creates a lot of frustration of course is when there is disagreement and when perhaps a construction company has funds tied up when an owner of a property is unhappy and there is this logjam really of progress that takes place. That does not benefit anybody. So this bill is designed to create some streamlining and improvements in this disputes resolution process and also to support the Building Act reform programme by making improvements to accountability in the construction sector and maintaining efficient functioning of the private disputes resolution market as well.The principal amendments proposed in the bill would remove most of the distinctions between the treatment of residential and commercial contracts under the Act so that they would be seen as similar. It would extend the scope of the Act to apply to contracts for design engineering and quantity surveying work as well because all three are very much part of the construction process. So it brings these areas within the scope of the Act. It removes the distinction between the enforcement of payment determinations and those relating to rights and obligations and of course it makes the enforcement process more efficient. All of this will certainly serve to make progress in the processes of working through a contract if there is a dispute.There are many different areas of work that we did. I will not touch on all of them but I just want to touch on progress payments. It is very important for the industry that payments are received in due time. We recommended inserting new clause 8B “to delete the term ‘progress’ from the payment provisions. This amendment would allow parties to agree to a single payment on completion of work. This is particularly relevant to small construction works that are completed within a few weeks. We believe this amendment is desirable to make it clear that contracting parties are free to agree their own payment terms.” So it also brings some flexibility in that.I commend this bill to the House in my closing comments here knowing that it is going to bring considerable improvements. We also understand that the Minister and his officials are doing some work around retentions and security of payment.RAYMOND HUO (Labour):I have slightly different statistics from Mr Young’s. The building and construction sector contributed around 5 percent of New Zealand’s GDP and employed about 7 to 8 percent of our workers. But that is covering the period between 2000 and 2008. I believe that this sector will certainly have contributed much more and employed many more now with the Christchurch rebuild and high demand arising from the housing shortage in Auckland and other areas. As I have said the building and construction sector is vital for New Zealand’s economic performance and our prosperity.The proposed amendments in the Construction Contracts Amendment Bill are very important. They are seeking to protect not only the head contractors but also subcontractors. The Commerce Committee asked for statistics on construction cases in the District Court and High Court. I understand that the Ministry of Justice does not collect such data nor does Statistics New Zealand. Like the situation concerning residential properties purchased by non - New Zealanders where no one is collecting such data this is another example where in New Zealand no Government organisations are collecting statistics in those areas. We are virtually flying blind and are in the dark.I am glad to learn that under the proposals in this bill specifically in clause 31 the new information-gathering powers will enable the Ministry of Business Innovation and Employment to gather data about construction cases in the courts. I thank the officials who made reference to a paper written by Tómas Kennedy-Grant QC. The paper reviewed cases on the primary legislation and summarised 177 court decisions. Of the summaries that referred to adjudication determinations it was found that in one case the court made a different decision to the adjudicator. In one case a determination was held to be invalid due to procedural problems and in four cases the adjudicator was found to have breached the rule of natural justice. The references and analyses are very important and valuable to ensure that we introduce meaningful changes that are working in the industry.The adjudication process is important. The construction sector places significant reliance on the adjudication process. Other dispute resolution mechanisms systems or measures available to the industry are either unsuitable or untenable due largely to the costs and time frames associated with the process. We have learnt from the submitters such as the Registered Master Builders Federation the Certified Builders Association and the Master Plumbers Gasfitters and Drainlayers (NZ) Inc. etc. that their members all place significant reliance on the adjudication process and for some professional organisations the adjudication process is commonly the sole way of resolving disputes in construction contracts.There are three further issues concerning the disputes resolution regime. The first two are in respect of the adjudication process. Firstly if the parties choose to use the adjudication process under the Act the adjudicator’s determination is binding on the parties but not directly enforceable. The Act requires the successful party to apply to the District Court if they wish to enforce the determination and the District Court decision on enforcements of a determination can be appealed to the High Court by either party. Basically the problems are that the decisions are binding but not directly enforceable. The avenues available to the parties are through appeals to the District Court or the High Court where appropriate.Secondly new regulations have been made prescribing qualifications for adjudicators. The common practice for parties is to request one of the authorised nominating authorities to select an adjudicator to determine their dispute. In order to provide clarity regulations are needed and I am glad to learn that other officials will work on the regulations after the passage of this bill.Thirdly the Act presently distinguishes between disputes about payment and disputes about contractual rights and remedies. That distinction can be helpful. The construction industry due to the nature of the profession needs a disputes resolution system that is speedy reasonable simple to use and cost-effective. I look forward to further debate on this bill. I commend this bill to the House.Bill read a second time.