Cunliffe David: Construction Contracts Amendment Bill — In CommitteeText is incorporated into the Bound VolumeCunliffe David: Construction Contracts Amendment Bill — In Committee[Sitting date: 22 September 2015. Volume:709;Page:6839. Text is incorporated into the Bound Volume.]Hon DAVID CUNLIFFE (Labour—New Lynn): It is a pleasure to take a call in this Committee stage of the Construction Contracts Amendment Bill to note that Labour supports the bill. I note also the presence of the Minister in the chair the Hon Nick Smith. We were not at all sure that he was going to be able to join us for this debate so we welcome him back to the Chamber.Let us begin with a definition of the problem in respect of why this legislation is being passed today the options that were explored the amendments that the Commerce Committee made and the reasons that Labour is supporting it although with one or two minor reservations. Can I note before I get into it that this is the fourth bill in a row that we have had in a Committee stage where the Labour Opposition has been supporting the bill. So to members of the public today is perhaps one of those days when we see the other side of Parliament in action. We see quiet cooperation behind the scenes in select committees and we see work across all sides of the House to try to tease through complicated problems and come up with workable solutions.The problem that we are seeking to resolve with this Construction Contracts Act amendment is the fact that the original 2002 Act—we will call it the Act—essentially provides for a different regime for adjudicating or arbitrating commercial construction contracts from that of residential construction contracts. It has a two-stage process of adjudication or arbitration and if that fails for low-value claims the claimants in the commercial claim can go to the court and receive a judgment. Unfortunately in the case of residential contracts that two-stage process has not been available and therefore the regulatory impact statement notes that people have gone to the court as a first resort not as a last resort thus imposing undue cost and delay on the system.The second part of the problem has been where risk is borne in the construction industry. Essentially the construction industry is like a pyramid. The client contracts with a lead contractor who contracts with specialist subcontractors—an architect quantity surveyor master builder etc.—and underneath each of those particularly in the case of the building contractor there is a large number. There are often several layersof subcontractors—many layers in some cases. Risk tends to be passed down the system and over time professionals in the industry work their way up the layers of the system so that their position is more secure. That does not work when things go wrong because the subcontractors or the sub-subcontractors keep getting it in the neck. That is not fair; they are the most vulnerable. So a second objective of reform here as well as making the system more efficient and robust and bringing more of the same opportunities to bear in the case of residential contracts as well as commercial contracts is to ensure that risk is more fairly and evenly shared throughout the industry so that we have a process that is robust efficient and fair.The Labour Party supports the measures in this bill that are designed to resolve and speed up the resolution of disputes in construction contract cases. We want to see more done to ensure that when things go wrong subcontractors do not miss out on the money that they are owed—the so-called progress payments. If we need any further evidence of the importance of this issue the Mainzeal Property and Construction case shows that subcontractors are hit the hardest when a construction company fails. Subcontractors are almost always last in the creditor queue and they miss out when money is held up. That is not fair and we wanted to take action to ensure that this did not happen again.We have developed two options—contractor’s liens and statutory construction trusts—as a way of addressing the issue of subcontractor risk. In the first option—contractor liens—contractors would be required to retain a portion of the money that they owe. The second option is the statutory construction trust where money would flow through a trust to ensure that subcontractors get paid first should a construction company collapse. Our solution would apply to significant commercial construction projects and would not interfere with contractors’ arrangements. We would also clarify and tighten the law to ensure that in the event of a construction company failure subcontractors could get access to their tools as fast as possible. [Bell rung]The CHAIRPERSON (Lindsay Tisch): I call the Hon David Cunliffe.Hon DAVID CUNLIFFE: Thank you. I appreciate the opportunity to continue the exposition of this debate.Following consultation with the industry on these options Labour put forward as Supplementary Order Paper 439 in the name of the Hon Clayton Cosgrove the requirement that retention money for commercial and industrial developments be held in trust for the benefit of the subcontractor entitled to the money. The Minister for Building and Housing has in effect piggybacked on Labour’s proposal adding provisions via a Supplementary Order Paper that he has put forward for retentions now to be held in trust. The Supplementary Order Papers that are before us include Supplementary Order Paper 439 from the Hon Clayton Cosgrove released on 17 April; Supplementary Order Paper 446 from Julie Anne Genter; and Supplementary Order Paper 52 from the Hon Nick Smith. Mr Cosgrove’s Supplementary Order Paper inserts new clause 9B which would create new section 24AA requiring “retention money for commercial and industrial developments to be held in trust”. The Minister’s Supplementary Order Paper provides provision for “retentions being money withheld by one party to a construction contract from money payable to another …”—so that is in effect the other option.Can I turn now briefly to the Commerce Committee’s report. The committee considered this bill at some length and it has done I think it is fair to say a pretty comprehensive report given the size of the bill. It has turned its mind firstly to the purposes of the bill: to remove the distinctions between residential and commercial contracts as I said; to extend the scope of the Act to apply to contracts for design engineering and quantity surveying work; to remove the distinction between enforcement of payment determinations and of those relating to rights and obligations that are not payment related; and to speed up and make more efficient the enforcement process particularly for residential contracts as we described earlier.The committee first turned its mind to a range of provisions relating to adjudication. It was worried about so-called ambush claims in the tight time frames that the Act set out so it therefore proposed to insert by amendment new clause 13A changing the time frame from 2 to 5 working days—The CHAIRPERSON (Lindsay Tisch): That is in Part 2.Hon DAVID CUNLIFFE: In Part 2?The CHAIRPERSON (Lindsay Tisch): Well we are not on Part 2. We are on Part 1.Hon DAVID CUNLIFFE: We are on Part 1; you are quite right Mr Chair. I will restrict myself to Part 1. So we will leave it to a further call to trace through some of the select committee’s amendments and I will return then to the final purpose of the bill which is to ensure that the process is smooth that the risk is fair and to be shared and that the time frames achieve the right balance between avoiding ambush and providing for a speedy resolution of complaints which are common in the industry.How common? Well our regulatory impact statement indicated that the authorised nominating authorities under the current Act have heard nearly 700 claims under the Act since it was set up—nearly 700 claims which are by definition commercial and do not extend to residential claims. They will be significant in quantum. They are important and the Committee’s time is well used in trying to improve this area of law. I thank you for the opportunity to comment on this stage of the bill and I look forward to further comment as we get into subsequent parts. Thank you.