Huo Raymond: Construction Contracts Amendment Bill — First ReadingText is incorporated into the Bound VolumeHuo Raymond: Construction Contracts Amendment Bill — First Reading[Sitting date: 11 June 2013. Volume:691;Page:11004. Text is incorporated into the Bound Volume.]RAYMOND HUO (Labour):I rise to take a call to support the Construction Contracts Amendment Bill which is to be referred to the Commerce Committee. According to Statistics New Zealand from 2000 to 2008 the building and construction industry contributed around 5 percent to New Zealand’s GDP comprised over 50000 businesses and employed around 7 percent of New Zealand workers. All these indicators will trend upwards with the Christchurch rebuild. Labour supports the referral of this bill to the select committee because it is important to listen to any concerns that submitters may have about the bill at the select committee.This bill provides an opportunity for Labour to highlight that it is already taking steps to ensure that in the event of a construction company collapse subcontractors are protected and paid for the work they have done. From the departmental report on the Building Amendment Bill (No 4) we have learnt that the building sector’s failure rate is higher than the rate for all businesses before 2003 and after 2008. As we have seen with Mainzeal Property and Construction it is the subcontractors who are hit the hardest when a construction company fails. Subcontractors are nearly always last in the creditor queue and often miss out on money they are owed. That is not fair. We need to take action so that it does not happen again.Labour leader David Shearer and commerce spokesperson for Labour Clayton Cosgrove have been looking at sensible cost-effective options that offer a fair deal without loading costs on to the sector. Clayton Cosgrove has been undertaking a series of visits throughout the regions to discuss these proposals with those at the coalface and with industry associations. We have developed two options contractors’ liens and statutory construction trusts and are taking these options to the industry for assessment and comment. The first option contractors’ liens means that contractors would be required to retain a portion of money they owe. The second option is statutory construction trusts where money would flow through a trust to ensure that subcontractors get paid first should a construction company collapse.Our solutions will apply to significant commercial construction projects and will not interfere with contractors’ arrangements. We will also clarify and tighten the law to ensure that in the event of a construction company failure subcontractors can get access to their tools as fast as possible so that they can get back to work and earn a living. Labour MPs have written to trade industry workers to seek their feedback on the options and have asked them for ideas on any other options that could benefit and protect the industry.Back to this bill the Construction Contracts Act 2002 the primary Act creates default progress payment provisions for construction contracts provides an adjudication framework for disputes involving construction contracts and provides remedies for recovering payments under construction contracts. In 2009 the Government undertook a review of the Building Act 2004. The building review was initiated by the Labour Government and won cross-party support. Submissions on the review indicated broad support for the adjudication process under the Construction Contracts Act 2002 for resolving a range of building disputes. However submitters identified areas in which the Act could be improved to help parties to resolve disputes particularly in relation to residential construction contracts and disputes over the quality of work or rights and obligations under contracts.The building and construction sector is vital for New Zealand’s economic performance and prosperity. The Government is making changes to legislation across the sector to provide incentives for building professionals and tradespeople to take responsibility for the quality of their work—changes that are expected to deliver a productive efficient and accountable building sector. Improving the adjudication process under the Act is important in the context of these changes. The amendments in this bill aim to make the existing adjudication process a faster more cost-effective and efficient option for people with disputes under construction contracts.The amendment bill as outlined by the Minister will remove most of the distinctions between how the Act applies to residential and commercial construction contracts except in relation to the use of charging orders as a remedy for non-payment. The Government has also widened the definition of “construction work” to include design engineering and quantity surveying work and has removed the distinction between enforcement of payment determinations and rights and obligations determinations. Also the amendment bill will speed up enforcement processes by reducing the amount of time a defendant has to oppose an application to have a determination entered as a judgment.As I said we are talking to the industry about options and we are keen to hear its ideas as to how we can ensure that contractors’ incomes are protected without adding to Government red tape or an additional administrative burden to hard-working businesses. Under a trust fund model the process is relatively simple. Instead of payments going to the head contractor they go to the trust which then makes payments. No other contractual terms are affected. Head contractors should be passing through progress payments to fund subcontractors. Any profit over and above what is owed to subcontractors is paid out to the head contractor. The construction trust or a liens model will ensure that any risky behaviour does not occur. Under a trust fund model the flow of the payments being passed through occurs at the same speed as it currently does it just goes through different players to ensure that a portion of the funding owed to the subcontractors is protected.As to who would run the trust who would be the trustees and what it would cost to set up and run a trust there are a range of options that could be investigated. For example the Public Trust is a well-respected and safe institution. The trustees could be independently selected from a range of professional trustees. The trust would be self-funding from the interest received. For example if the trust invests its funds into safe bonds a percentage of the interest earned would be used for the day-to-day running of the trust. We will also investigate options to ensure that if the head contractor goes into receivership subcontractors are able to go on-site to retrieve from the site any tools and materials they own. If the law is ambiguous we will clarify the process through legislative change.The construction industry has a high level of vulnerable subcontractors compared with other industries and the problem of a payment to subcontractors in the case of a head contractor going into receivership has been most apparent in the construction industry. I commend the bill to the House. Thank you.