Woods MeganCONSTRUCTION CONTRACTS (RETENTION MONEY) AMENDMENT BILLSecond ReadingHon Dr MEGAN WOODS (Minister for Building and Construction): 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.Hon Dr MEGAN WOODS: 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.ASSISTANT SPEAKER (Hon Jenny Salesa): The question is that the motion be agreed to.